# Liang "Benny" Zhao v. XO Energy LLC and XO Energy Worldwide, LLP > Texas Court of Appeals, 1st District (Houston) · December 2, 2015 URL: https://www.frixlaw.com/law-library/cases/4074049 ## Case - **Court:** Texas Court of Appeals, 1st District (Houston) - **Decided:** December 2, 2015 - **Precedential status:** Published - **Opinion:** Opinion - **Cited by:** 0 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/4074049 ## Opinion text ACCEPTED 01-15-00937-CV FIRST COURT OF APPEALS HOUSTON, TEXAS 12/2/2015 6:38:02 PM CHRISTOPHER PRINE CLERK CASE NO. 01-15-00937-CV IN THE FIRST COURT OF APPEALS HOUSTON, TEXAS FILED IN 1st COURT OF APPEALS HOUSTON, TEXAS 12/2/2015 6:38:02 PM LIANG “BENNY” ZHAO, CHRISTOPHER A. PRINE Defendant-Appellant, Clerk v. XO ENERGY, LLC, and XO ENERGY WORLDWIDE, LLLP, Plaintiffs-Appellees. ON ACCELERATED INTERLOCUTORY APPEAL FROM THE OCTOBER 29, 2015, PRELIMINARY INJUNCTION ISSUED BY THE 240th JUDICIAL DISTRICT COURT OF FORT BEND COUNTY, TEXAS CAUSE NO. 15-DCV-226436 THE HONORABLE CHAD BRIDGES, PRESIDING OPENING BRIEF OF DEFENDANT-APPELLANT LIANG “BENNY” ZHAO STURM LAW, PLLC Charles A. Sturm Texas Bar # 24003020 csturm@sturmlegal.com Shannon A. Lang Texas Bar # 24070103 slang@sturmlegal.com 723 Main Street, Suite 330 Houston, Texas 77002 (713) 955-1800 tel. (713) 955-1078 fax Attorneys for Defendant-Appellant Liang “Benny” Zhao ORAL ARGUMENT REQUESTED 1 IDENTITY OF PARTIES AND COUNSEL Pursuant to Texas Rule of Appellate Procedure 38.1(a), Defendant- Appellant identifies the following parties to the trial court order from which this appeal is taken and each party’s trial and appellate counsel: Liang “Benny” Zhao Defendant-Appellant Charles A. Sturm Shannon A. Lang STURM LAW, PLLC 723 Main Street, Suite 330 Houston, Texas 77002 Trial and Appellate Counsel for Defendant-Appellant Liang “Benny” Zhao XO Energy LLC XO Energy Worldwide, LLLP Plaintiffs-Appellees Tom Van Arsdel* Zachary B. Allie** James Bernhardt*** WINSTEAD PC 1100 JPMorgan Chase Tower 600 Travis Street Houston, Texas 77002 Counsel for Plaintiffs-Appellees XO Energy LLC and XO Energy Worldwide, LLLP * Trial and appellate counsel ** Trial counsel only through November 18, 2015 *** Trial counsel as of November 18, 2015 i TABLE OF CONTENTS IDENTITY OF PARTIES AND COUNSEL ......................................................... i TABLE OF CONTENTS ....................................................................................... ii INDEX OF AUTHORITIES ................................................................................. iv I. STATEMENT OF THE CASE .....................................................................1 II. STATEMENT REGARDING ORAL ARGUMENT .................................2 III. ISSUE PRESENTED .....................................................................................3 IV. STATEMENT OF FACTS ............................................................................4 A. The Wholesale Electricity Markets and the XO Entities. ........................4 B. Dr. Zhao’s Employment Agreement with Worldwide. ...........................5 C. Dr. Zhao’s Employment with Worldwide. ..............................................8 D. FERC Commences an Investigation into XO’s Trading Practices. .........9 E. Dr. Zhao’s Resignation from Worldwide. .............................................10 F. The Federal Lawsuit. .............................................................................14 G. The State Court Lawsuit. .......................................................................16 H. The Temporary Injunction Hearing. ......................................................16 I. The de novo Temporary Injunction Hearing. ........................................20 V. SUMMARY OF THE ARGUMENT ..........................................................22 VI. ARGUMENT................................................................................................24 A. Standard of Law .....................................................................................24 1. Temporary Injunction.....................................................................26 2. Writ of Attachment. ........................................................................30 3. The Court’s “Inherent Authority” to Attach Assets.......................33 B. Analysis..................................................................................................35 1. The Trial Court Abused its Discretion in Issuing a Temporary Injunction over Dr. Zhao’s Income. ...........................37 a. XO did not establish a probable right to recovery. ................37 b. XO did not establish a “probable, imminent, and irreparable” injury. .................................................................41 2. XO is Not Entitled to a Writ of Attachment....................................46 ii 3. The Trial Court Abused its Discretion in Exercising “Inherent Discretion” to Order Dr. Zhao to Deposit his 2014 Bonus with the Registry of the Court. ..................................48 VII. PRAYER ...................................................................................................49 CERTIFICATE OF SERVICE ............................................................................51 CERTIFICATE OF COMPLIANCE ..................................................................52 iii INDEX OF AUTHORITIES CASES Alliance Royalties, LLC v. Booth, 313 S.W.3d 493 (Tex. App.—Dallas 2010, no pet.) ............................... 33, 34, 48 Baca v. Hoover, Bax & Shearer, No. A14-88-00418-CV, 1989 Tex. App. LEXIS 456 (Tex. App.—Houston [14th Dist.] March 9, 1989, no writ.) ........................ 25, 27 Baker v. Int’l Record Syndicate, Inc., 812 S.W.2d 53 (Tex. App.—Dallas 1991, no writ) .............................................31 Ballenger v. Ballenger, 694 S.W.2d 72 (Tex. App.—Corpus Christi 1985, no writ) ......................... 28, 29 Behringer Harvard Royal Island, LLC v. Skokos, No. 05-09-00332-CV, 2009 Tex. App. LEXIS 9456 (Tex. App.—Dallas Dec. 14, 2009, no pet. ............................................. 33, 34, 49 Berry v. Chase Home Fin. LLC, No. C-09-116, 2010 U.S. Dist. LEXIS 12531 (S.D. Tex. Feb. 12, 2010) ...........34 BMG Direct Mktg. v. Peake, 178 S.W.3d 763 (Tex. 2005) .............................. 31, 46 Butnaru v. Ford Motor Co., 84 S.W.3d 198 (Tex. 2002) ........................................26 Camp Mystic, Inc. v. Eastland, 399 S.W.3d 266 (Tex. App.—San Antonio 2012, no pet.) ........................... 28, 29 Castilleja v. Camero, 414 S.W.2d 424 (Tex. 1967) ................................................34 Castilleja v. Camero, 414 S.W.2d 431 (Tex. 1967) ......................................... 25, 34 Chin Tuo Chen v. Braxton, No. 06-09-00088-CV, 2010 Tex. App. LEXIS 171 (Tex. App.—Texarkana Jan. 13, 2010, pet. denied) ...........................................29 De Beers Consol. Mines v. United States, 325 U.S. 212 (1945) .............................29 iv E.E. Maxwell Co. v. Arti Décor, Ltd., 638 F. Supp. 749 (N.D. Tex. 1986) ......................................................... 30, 31, 46 El Paso Nat’l Bank v. Fuchs, 34 S.W. 206 (1896) ..................................................31 Ex parte Preston, 347 S.W.2d 938 (Tex. 1961) ......................................................33 Forrest Prop. Mgmt. v. Forrest, No. 10-09-00338-CV, 2010 Tex. App. LEXIS 5863 (Tex. App.—Waco July 21, 2010, no pet.) ..........................................................24 Fox v. Tropical Warehouses, Inc., 121 S.W.3d 853 (Tex. App.—Ft. Worth 2003, no pet.)................................ 25, 29 Harmon v. Daggett, No. B14-88-00103-CV, 1988 Tex. App. LEXIS 2006 (Tex. App.—Houston [14th Dist.] Aug. 11, 1988, no pet.) .................................34 Harper v. Powell, 821 S.W.2d 456 (Tex. App.—Corpus Christi 1992, no pet.) ...............................27 In re Argyll Equities, LLC, 227 S.W.3d 268 (Tex. App.—San Antonio 2007, no pet.) ............... 24, 30, 32, 46 In re Bays, 355 S.W.3d 715 (Tex. App.—Ft. Worth 2011, no pet.)........................33 In re Deponte Invs., Inc., No. 05-04-01781-CV, 2005 Tex. App. LEXIS 898 (Tex. App.—Dallas, Feb. 3, 2005, no pet.) ............................................. 25, 28, 29 In re Reveille Res. (Texas), Inc., 347 S.W.3d 301 (Tex. App.—San Antonio 2011, no pet.) ........................... 25, 32 In re Tex. Natural Res. Conservation Comm’n, 85 S.W.3d 201 (Tex. 2002) .........24 In re Wakefield, No. 14-10-01160-CV, 2010 Tex. App. LEXIS 9922 (Tex. App.—Houston [14th Dist.] Dec. 15, 2010, no pet.) ..................................34 Law v. William Marsh Rice Univ., 123 S.W.3d 786 (Tex. App.—Houston [14th Dist.] 2003, pet. denied) ..............30 v Manheim v. Adam Dev. Props., L.P., No. 10-09-00259-CV, 2009 Tex. App. LEXIS 9824 (Tex. App.—Waco Dec. 30, 2009, no pet.)............................................. 27, 43, 44 N. Cypress Med. Ctr. Operating Co. v. St. Laurent, 296 S.W.3d 171 (Tex. App.—Houston [14th Dist.] 2009, no pet.) .....................24 Nowak v. Los Patios Investors, 898 S.W.2d 9 (Tex. App.—San Antonio 1995, no pet.) ............................... 28, 29 Nueva Generacion Music Group, Inc. v. Espinoza, __ S.W.3d __, 2015 Tex. App. LEXIS 7958 (Tex. App.—Houston [1st Dist.], July 30, 2015, pet. filed).............. 26, 41, 42, 43 Reyes v. Burrus, 411 S.W.3d 921 (Tex. App.—El Paso 2013, pet. denied) ...........29 Rogers v. Daniel Oil & Royalty Co., 130 Tex. 386 (1937) .....................................26 Rushlake Hotels (USA) v. Hyatt Corp., No. 01-94-00827-CV, 1994 Tex. App. LEXIS 3140 (Tex. App.—Houston [1st Dist.] Dec. 22, 1994, no pet.) ....................................30 S.R.S. World Wheels v. Wnlow, 946 S.W.2d 574 (Tex. App.—Ft. Worth 1997, no pet.)................................ 30, 32 Shor v. Pelican Oil & Gas Mgmt., LLC, 405 S.W.3d 737 (Tex. App.—Houston [1st Dist.] 2013, pet. denied) .................27 State v. Sw. Bell. Tel. Co., 526 S.W.2d 526 (Tex. 1975) .........................................28 Tel. Equip. Network v. Ta/Westchase Place, 80 S.W.3d 601 (Tex. App.—Houston [1st Dist.] 2002, no pet.)..........................25 Victory Drilling, LLC v. Kaler Energy Corp., No. 04-07-000094-CV, 2007 Tex. App. LEXIS 4966 (Tex. App.—San Antonio June 27, 2007, no pet.) .................................. 26, 28, 29 Walling v. Metcalfe, 863 S.W.2d 56 (Tex. 1993) ............................................. 26, 27 Wash. DC Party Shuttle, LLC v. iGuide Tours, LLC, 406 S.W.3d 723 (Tex. App.—Houston [14th Dist.] 2013, pet. denied) ....... 25, 29 vi World Football League v. Dallas Cowboys Football Club, Inc., 513 S.W.2d 102 (Tex. App.—Dallas 1974, writ ref’d n.r.e.)...............................25 STATUTES TEX. BUS. & COM. CODE § 2.718(a) .........................................................................31 TEX. CIV. PRAC. & REM. CODE § 61.001..................................................................30 TEX. CIV. PRAC. & REM. CODE § 61.002 ..................................................................32 TEX. CIV. PRAC. & REM. CODE § 61.005 ..................................................................31 vii I. STATEMENT OF THE CASE This case is, in relevant part, a suit for damages and injunctive relief concerning the alleged breach of confidentiality and non-compete provisions of an employment agreement. 1.CR.5–20. This accelerated interlocutory appeal is from the issuance of a Temporary Injunction by the Honorable Chad Bridges of the 240th Judicial District Court of Fort Bend County, Texas, requiring that Defendant-Appellant deposit into the Registry of the Court, where it is to stay during the pendency of the case, the total sum of money damages sought by Plaintiffs-Appellees. 3.CR.620–23. 1 II. STATEMENT REGARDING ORAL ARGUMENT Despite the weight of settled case law disallowing the issuance of prejudgment relief attaching Defendant-Appellant’s income in advance of final judgment, the Trial Court issued a temporary injunction requiring that Defendant- Appellant deposit with the Registry of the Court, during the pendency of litigation, the sum of money damages sought by Plaintiffs-Appellees in their breach of contract and breach of fiduciary duty case. The Trial Court’s Order effects an unwarranted extension of long-standing Texas law. Defendant-Appellant believes oral argument would be beneficial to enable the Court to fully explore the novel ruling of the Trial Court and its implications on Texas residents. 2 III. ISSUE PRESENTED Whether the Trial Court erred in issuing a prejudgment, temporary injunction requiring that Defendant-Appellant deposit into the Registry of the Court, during the pendency of the lawsuit, the total sum of money sought by Plaintiffs-Appellees as money damages for their breach of contract and breach of fiduciary duty claims. 3 IV. STATEMENT OF FACTS A. The Wholesale Electricity Markets and the XO Entities. Electricity is a commodity traded on a variety of wholesale electricity markets that exist in the United States and elsewhere. 1.CR.216–217. Various trading strategies and methodologies are employed by traders who buy and resell electricity among power generators, retailers, and financial intermediaries. 1.CR.217–218. These markets are governed by federal regulations enacted by the Federal Energy Regulatory Commission (“FERC”), various state agencies, and market operators. 1.CR.218–219. Because of the ways in which trades are effectuated, opportunities exist for an unscrupulous trader to manipulate the markets for her personal gain. 1.CR.218. Thus, several markets utilize rules, such as the so-called “Settlement Rule,” that require that traders disgorge profits under certain circumstances to discourage and penalize improper trading activities. 1.CR.218. Beginning in or around 2011, Shawn Sheehan began establishing a series of entities to trade on wholesale electricity markets in the Unites States and/or to provide services to trading entities. 1.CR.219. Among these are Plaintiffs- Appellees XO Energy LLC (“XOE”) and XO Energy Worldwide, LLLP (“Worldwide”) (collectively, “XO”), which provide various administrative and technical services to entities and individuals engaged in wholesale electricity 4 trading market. 1.CR.219. XOE, for a monthly fee, provides “technology and professional” services to Worldwide, including “executive management and administration, product marketing and sales, information support and technology services, centralized purchasing, engineering, procurement and logistics, cost financing, customer support, test engineering, and/or quality control and product warranty.” 1.CR.219–220. Worldwide is a technology company “in the business of providing software services and support,” to other Sheehan-related trading entities. 1.CR.219–220; 2.CR.299 & 301; 2.RR.26 & 60. B. Dr. Zhao’s Employment Agreement with Worldwide. In December 2012, Defendant-Appellant Dr. Liang “Benny” Zhao commenced employment as a Transmission/Congestion Analyst with Worldwide. 1.CR.7 & 220. Dr. Zhao was to be paid a “Base Salary” of $125,000 per year and participate in the company’s “discretionary employee incentive program.” 1.CR.7 & 23 & 220. As a condition of his employment, Dr. Zhao was required to spend half his working time in St. Thomas, U.S. Virgin Islands. 1.CR.11 & 23 & 220. He was otherwise permitted to work remotely from his home in Katy, Texas, and was provided hardware, software, and supplies from Worldwide to facilitate his work. 1.CR.220. Dr. Zhao’s employment with Worldwide was also contingent upon his execution of an “Employment Agreement” drafted by the company, the “main 5 intent” of which was to “protect the intellectual property” of the technology company. 1.CR.7 & 220. However, in addition to provisions directed to protection of Worldwide’s software and other technology, the Agreement contained a variety of provisions setting forth the terms of Dr. Zhao’s employment with the company. 1.CR.25–32; 2.CR.272–279. For example, the Employment Agreement provides that Dr. Zhao would be employed by Worldwide and expected to “perform such duties as may be assigned from time to time” by Worldwide’s managers. 1.CR.25; 2.CR.272. In addition to his Base Salary, the Agreement provides that Dr. Zhao “may be awarded certain incentive compensation (Profits Share)” at Worldwide’s discretion and that Worldwide “shall evaluate” whether Dr. Zhao would be awarded such “share of profits” “[a]t the end of each calendar year.” 1.CR.25; 2.CR.272. The Employment Agreement includes a “Non-Competition” provision which, in relevant part, purports to prohibit Dr. Zhao, for two years following his separation from Worldwide, from “[being] engaged, directly or indirectly, . . . or attempting to become engaged in a business that competes with the business of [Worldwide] or any of its subsidiaries or affiliates as it relates to [Worldwide’s] business . . . .” 1.CR.26; 2.CR.273. The Employment Agreement includes a “Confidentiality” provision that 6 provides that Dr. Zhao “shall not, directly or indirectly, disclose to anyone, or use in competition with [Worldwide] or any of its subsidiaries or affiliates, any Confidential Information of or pertaining to [Worldwide],” with “Confidential Information” defined as “confidential or other proprietary information that is owned by [Worldwide] or any of its subsidiaries or affiliates . . . .” 1.CR.28; 2.CR.275. In the event of a breach of the intellectual property or Non-Competition provisions of the Employment Agreement, Dr. Zhao’s termination for “Cause,” or his resignation without “Good Reason,” the Employment Agreement provides that Dr. Zhao “shall automatically forfeit any and all rights to any deferred Bonuses or other deferred incentive compensation (including without limitation any options relating to equity in [Worldwide] or its affiliates), and any grant by [Worldwide] of such remuneration shall be automatically void.” 1.CR.27; 2.CR.274. “Cause” for termination under the Employment Agreement is strictly defined as “(i) [Dr. Zhao’s] willful and continued failure to perform and to discharge his . . . duties and responsibilities under [the Employment] Agreement for any reason (other than [Dr. Zhao’s] disability) after (x) [Worldwide] has provided [Dr. Zhao] with written notice of its intent to terminate his employment under this clause, and (y) [Dr. Zhao] has failed to resume the performance of such duties within fifteen (15) days following receipt of such notice; (ii) any other 7 willful misconduct by [Dr. Zhao] that is materially and demonstrably injurious economically to [Worldwide]; (iii) [Dr. Zhao’s] final conviction of any felony or any misdemeanor involving moral turpitude; or (iv) [Dr. Zhao’s] violation of any of the provisions of Section 5 of this Agreement [which includes the intellectual property and Non-Competition provisions, but not the Confidentiality provisions, of the Employment Agreement].” 1.CR.28; 2.CR.275. C. Dr. Zhao’s Employment with Worldwide. Upon commencement of employment with Worldwide, Dr. Zhao was tasked with trading electricity on the “CAISO” market, which covers California and parts of Nevada. 1.CR.223. Dr. Zhao had never before worked in energy trading. 1.CR.223. Accordingly, his trading activities were closely directed and supervised by Worldwide’s other employee trading in the CAISO market, Neil Huber. 1.CR.223. Throughout his employment, Dr. Zhao traveled regularly to St. Thomas, where Worldwide is located, and Landenberg, Pennsylvania, where XOE operates, and was in constant contact with his co-workers, and in particular, Mr. Huber, when he was working from Texas. 1.CR.224. Dr. Zhao was a valuable, productive, and very profitable employee. He earned a bonus in excess of $260,000 in his first year with Worldwide and in excess of $800,000 his second year with Worldwide. 1.CR.224. 8 D. FERC Commences an Investigation into XO’s Trading Practices. In late 2014, FERC and/or CAISO commenced an investigation into trading practices by Mr. Sheehan’s companies. 1.CR.224. At issue was whether XO’s corporate structure was designed to deliberately evade the Settlement Rule and whether XO was engaging in improper trading activities on the CAISO market. 1.CR.224. Despite that he was a witness and potential target of the investigation by virtue of his activities on the CAISO market, XO did not immediately inform Dr. Zhao of the investigation and, as Dr. Zhao later learned, submitted statements to FERC and/or CAISO purportedly concerning and/or on behalf of Dr. Zhao without Dr. Zhao’s input or consent. 1.CR.224. FERC subsequently requested an investigative interview with Dr. Zhao. 1.CR.224. Despite obvious conflicts of interest, Mr. Sheehan offered to provide Dr. Zhao with legal representation, on the condition that Dr. Zhao accept Mr. Sheehan’s chosen attorneys from the law firm Norton Rose Fulbright (“Fulbright”), which would simultaneously represent XO, Dr. Zhao, and Mr. Huber. 1.CR.224. Dr. Zhao, not understanding the serious implications of the legal conflict, certain of his lack of involvement in any wrongdoing, and unable to spend tens of thousands of dollars on attorneys’ fees for his employer’s alleged wrongdoing, accepted Mr. Sheehan’s offer. 1.CR.224. In preparation for his FERC investigative interview, Dr. Zhao learned for the 9 first time that his trading activities were not being conducted on behalf of his employer, Worldwide, but in fact for other Sheehan entities with whom he had no employment relationship, XO Energy CAL, Inc., XO Energy CAL, LLC, XO Energy CAL2, Inc., and XO Energy CAL2, LLC. 1.CR.225; 2.RR.60. In connection with the FERC investigation, Dr. Zhao was directed to retain, and not to destroy, any data or materials potentially relevant to the investigation. 1.CR.225. Dr. Zhao took this mandate seriously. 1.CR.225. He consulted with his employer’s IT staff to ensure that his computer and data were secure. 1.CR.225. Though he was informed that Worldwide remotely backed-up its employees’ computers, Dr. Zhao was concerned about potential errors or backup failures (especially given that he was working thousands of miles away from Worldwide’s St. Thomas office), and took special care to protect his work materials. 1.CR.225. E. Dr. Zhao’s Resignation from Worldwide. In February 2015, during a trip to St. Thomas, Dr. Zhao was informed by Mr. Sheehan and Worldwide manager, Joel Bearden, that in order to continue working for Worldwide, Dr. Zhao would have to relocate permanently to St. Thomas or Landenberg. 1.CR.225. During that meeting, Mr. Sheehan and Mr. Bearden also discussed the terms of Dr. Zhao’s 2014 incentive compensation. 1.CR.9 & 225. Based on his 10 performance for the company, Dr. Zhao was to be awarded $834,131.00, of which $50,000 constituted a “DB Plan Contribution,” $17,000 constituted “2014 Profit Share,” and $18,000 constituted his 401(k) employer match. 1.CR.225. However, Dr. Zhao was informed that the company was holding back approximately 10% of his bonus, which would only be paid if Dr. Zhao cooperated with the company in the FERC investigation such that the company was ultimately required to pay less than some internally-targeted amount in regulatory fines. 1.CR.225–226. Mr. Sheehan and Mr. Bearden advised Dr. Zhao to take time to consider his options and asked Dr. Zhao to inform them of his decision to relocate after he received his bonus at end of the month. 1.CR.226. During that same trip to St. Thomas, Dr. Zhao attended a company meeting during which Mr. Sheehan advised Dr. Zhao and his co-workers that Worldwide intended to revise the Non-Competition provision of Worldwide’s employment agreements for any employee who chose to resign following distribution of 2014 bonuses. 1.CR.226. Under the new Non-Competition agreement, the non-compete period would extend only one year following an employee’s separation from the company and the company would pay the employee his base salary for four months of that period. 1.CR.226. Despite that his Employment Agreement is with Worldwide, a technology company that provides “software services and support” to companies engaged in electricity trading, Mr. Sheehan indicated his belief that 11 the Non-Competition provisions of Dr. Zhao’s Employment Agreement prevent Dr. Zhao from engaging in electricity trading in any capacity anywhere in the United States. 1.CR.226. During the next couple weeks, Dr. Zhao asked the company follow-up questions about the ultimatum, discussed his options with his family, and began exploring other employment options. 1.CR.226; 2.RR.61. Concerned about the ongoing FERC investigation, and facing a shortage of space on his work computer hard drive, Dr. Zhao also took steps to ensure protection of company data and backed up work materials to external hard drives he purchased and intended to secure and provide to the company upon his resignation. 1.CR.9–10 & 226–227. Unbeknownst to Dr. Zhao, in the days following delivery of the ultimatum, Mr. Sheehan directed members of his staff to remotely monitor Dr. Zhao’s computer activities. 1.CR.9–10 & 227. Supposedly, Mr. Sheehan concluded from this monitoring that Dr. Zhao was planning to resign, despite Mr. Sheehan’s attempts to entice him—with the promise of more than $84,000—to stay and assist with the FERC investigation. 1.CR.10 & 227. According to XO, it had evidence—an untranslated “to-do” list written in Chinese by Dr. Zhao—that Dr. Zhao was researching the process for becoming a CAISO trader, which XO determined was a violation of Dr. Zhao’s non-compete obligations. 1.CR.10. At some point, XO decided that since one such step was to provide a $500,000 12 security deposit to CAISO, Dr. Zhao intended to fund his allegedly unlawful plan to compete with his 2014 bonus, thereby “removing” the funds from Texas and XO’s reach. 1.CR.15; 2.RR.21. Nevertheless, despite claiming to have learned this damning information on Wednesday, February 25, 2015, 2.RR.44–45, on Friday, February 27, 2015, Dr. Zhao received his 2014 bonus, totaling $532,547.59, via direct deposit to his bank (in California) and 401(k) account (also outside of Texas). 1.CR.10–12 & 68 & 227; 2.RR.17–18. On Saturday, February 28, 2015, Dr. Zhao contacted Mr. Bearden by phone, informed Mr. Bearden that he could not relocate his family, and resigned his position with Worldwide. 1.CR.227; 2.RR.63–64. Mr. Bearden did not state, or even suggest, that Dr. Zhao was suspected of misconduct or that Dr. Zhao may not be entitled to his 2014 bonus. 1.CR.227. Dr. Zhao was not asked to return his 2014 bonus. 1.CR.227. Shortly thereafter, a purported private investigator arrived at Dr. Zhao’s home unannounced. 1.CR.227–228. The investigator claimed he had been sent by XO to collect Worldwide’s computer, peripheral devices, and other company- related material. 1.CR.227–228. Dr. Zhao readily assisted the investigator in collecting all of Worldwide’s property, including the hard drives containing backups of Dr. Zhao’s work materials. 1.CR.227–228; 2.RR.63–64. Dr. Zhao later learned that the investigator was not sent by the company merely to collect 13 company property. 1.CR.228. Instead, Dr. Zhao’s own attorneys at Fulbright, while still representing Dr. Zhao, hired the investigator in order to assist XO in developing claims against Dr. Zhao that the company intended to use to persuade FERC that any wrongdoing by the company was the fault of Dr. Zhao. 1.CR.228. The following Monday, March 2, 2015, Dr. Zhao sent Mr. Sheehan and Mr. Bearden an email expressing his gratitude for the opportunity to work for Worldwide, confirming that the private investigator had retrieved Worldwide’s property, inquiring about the cessation of health benefits, payment of his accrued vacation time, and the status of the $84,000 held back from his bonus; and asking about the revisions to the Non-Competition provision promised during the February company meeting. 1.CR.228–229; 2.CR.281–282. Neither Mr. Sheehan nor Mr. Bearden responded. 1.CR.229. F. The Federal Lawsuit. To effectuate its plan to scapegoat Dr. Zhao, XO concocted bogus legal claims against him. 1.CR.229. Despite Dr. Zhao having resigned his position with Worldwide on February 28, 2015, on which date Worldwide collected all of its property from Dr. Zhao’s home, on March 6, 2015, “XO Energy” proclaimed it was terminating him for “cause.” 1.CR.11–12 & 70 & 229. “XO Energy” did not explain what the “cause” was for this supposed termination. 1.CR.70 & 229. That same day, XOE and Worldwide filed a lawsuit against Dr. Zhao in the 14 United States District Court for the Southern District of Texas. See XO Energy LLC v. Zhao, No. 4:15-CV-00599 (S.D. Tex.). Broadly, XO alleged that in backing up company data to external hard drives, Dr. Zhao had impermissibly “copied” confidential company data in violation of his Employment Agreement. 1.CR.229. XO further alleged that Dr. Zhao intended to misappropriate this data in order to compete with XO in violation of the Non-Competition provision of his Employment Agreement. 1.CR.229. XO alleged that immediately upon learning of this alleged wrongdoing, it terminated Dr. Zhao for “Cause” and, as a result, was somehow entitled to recoup Dr. Zhao’s 2014 bonus. 1.CR.229. XO brought claims for breach of contract, “misappropriation of confidential information,” and “breach of the common law duties of loyalty and confidentiality.” 1.CR.229. Dr. Zhao moved for dismissal on the ground that the federal court lacked jurisdiction over XO’s claims. 1.CR.230. While Dr. Zhao’s motion was pending, the parties engaged in extensive discovery, including forensic analyses of Dr. Zhao’s work computer, the external hard drives, other flash drives, his work phone, personal computer, and e-mail. 1.CR.230. As confirmed via the sworn testimony of XOE’s Chief Financial Officer, John Charette, these analyses and other discovery exchanged during the federal case uncovered no evidence that Dr. Zhao had misappropriated, transferred to any third party, or retained any of XO’s confidential company information. 15 2.RR.65–66. G. The State Court Lawsuit. In September 2015, the federal court held that it lacked jurisdiction over XO’s case and dismissed XO’s suit. 1.CR.230. Despite having found no evidence that Dr. Zhao engaged in wrongdoing, and unable to explain how it could terminate an employee who no longer worked for it, XO refiled its case in this Court (asserting identical allegations as in the federal case, but dropping its disproven misappropriation claim) and sought an injunction, in relevant part, attaching Dr. Zhao’s income and requiring him to deposit his 2014 bonus and 401(k) employer match with the Registry of the Court pending resolution of the case. 1.CR.5–20 & 230. H. The Temporary Injunction Hearing. The underlying lawsuit was initially assigned to Fort Bend County Associate Judge Stuti Patel. On September 30, 2015, Judge Patel held a hearing on XO’s application for a Temporary Injunction. 2.RR.1. The sole issue in dispute involved XO’s request that Dr. Zhao deposit with the Court the money damages sought by XO. 2.RR.4–6. In a departure from its pleadings, XO abandoned its request for a statutory writ of attachment over Dr. Zhao’s money, 1.CR.14–16, instead relying on the Court’s “inherent authority” to issue an injunction requiring the deposit of “disputed funds” with the Court. 1.CR.74–91; 2.RR.13–15 & 16–17 16 & 19–21 & 73. In support of its request that the Court exercise this alleged authority, XO offered only the sworn testimony of XOE’s CFO, John Charette. 2.RR.23. In an effort to prove a likelihood of success on XO’s breach of contract and breach of fiduciary duty claims, Mr. Charette testified that Worldwide’s employees, such as Dr. Zhao, have access to the company’s “confidential” information, which he described broadly as “proprietary software, all of our trading strategies, the . . . information that we as a company have provided to verify strategies[, and] confidential maps of the electricity grid.” 2.RR.33. However, he admitted that the software over which XO was claiming a proprietary interest, and the bulk of the data it claims as its “confidential” information, is publicly available. 2.RR.68–69. Mr. Charette offered no further information about the nature of the so-called “confidential” information giving rise to XO’s claims against Dr. Zhao. Mr. Charette testified that after Dr. Zhao was presented with the ultimatum concerning his future with Worldwide, company management began monitoring Dr. Zhao’s computer activities and witnessed him coping “an exorbitant amount of information” to external hard drives, including “maps” and unspecified “proprietary software information.” 2.RR.46–47. Despite claiming on direct examination that Dr. Zhao was terminated as a result of this “copying,” 2.RR.56, Mr. Charette admitted that Dr. Zhao had, in fact, resigned his position with 17 Worldwide on February 28, 2015, the day after receiving his 2014 bonus, and promptly and readily returned to XO all company devices and information, including the external hard drives containing “copies” of XO’s allegedly “confidential” information. 2.RR.62–64 & 66. Indeed, having returned all such materials to the company, Mr. Charette conceded that it would have been impossible for Dr. Zhao to have continued working for Worldwide between the date of his resignation (February 28, 2015) and the date of his alleged termination for “Cause” (March 2, 2015). 2.RR.64.1 Mr. Charette admitted that, despite the benefits of discovery in the federal lawsuit, XO has no evidence that Dr. Zhao “took documents from the company and gave them to anybody.” 2.RR.64–65. He admitted that XO has no evidence that Dr. Zhao “put [company] documents on his personal computer.” 2.RR.66. And he admitted that Dr. Zhao was not prohibited, in any way, from backing up documents from his company computer to an external hard-drive, especially in connection with a criminal investigation such as the FERC investigation of XO in progress at the time of Dr. Zhao’s resignation. 2.RR.67–68. In support of its claim that XO would suffer a “probable, imminent, and irreparable injury” without injunctive relief, 1.CR.78, Mr. Charette offered 1 The hearing transcript suffers from several transcription errors due to the reporter’s difficulty interpreting the electronic recording of the proceedings. 2.RR.12. In relevant part, the transcript at page 64, lines 14–15 should read: “Can you explain how it is possible [for] a terminated employee [to continue to] work for [you]?” 2.RR.64. 18 testimony about trading on the CAISO market. He explained that new participants on the CAISO market are required to “deposit $500,000 in cash collateral or a line of credit, which is also equivalent of cash to be held by [CAISO] as financial security.” 2.RR.32–33. He stressed that the money is merely a security deposit— “just to get into the market”—and is “not available to trade against.” 2.RR.33. Mr. Charette explained that on top of the $500,000, individuals or entities wishing to actually trade on the market must post additional financial security, based on trading volume, that can easily exceed an additional $1,000,000. 2.RR.33. Mr. Charette read into the record a few random English words in the Chinese language “to-do” list (which he admittedly could not read), and stated his concern that Mr. Zhao, having received his $500,000 (after-tax) bonus “now has sufficient funds, liquid funds to actually make a deposit with the California ISO to become a market member and compete with XO Energy.” 2.RR.48–54 & 57–58. Mr. Charette offered no other testimony about Dr. Zhao’s financial status or his ability to fund the additional millions necessary to actually operate as a CAISO trader, as Mr. Charette described. Based on this thin record, the Associate Judge issued a Temporary Injunction. She explained that her interest was in “preserv[ing] the actual subject matter of this litigation, which is the funds,” and that XO “has shown that there is a potential for injury to that property.” 2.RR.82–83. She noted that XO, in fact, had 19 an “adequate remedy at law,” but reasoned that some unstated “exceptions” justified attachment of Dr. Zhao’s income. 2.RR.83. She ordered that Dr. Zhao promptly deposit his 2014 bonus and 401(k) employer match ($532,547.95) with the Registry of the Court “until further order of the Court” and set trial for December 1, 2015. 1.CR.197–200. I. The de novo Temporary Injunction Hearing. Pursuant to Section 54A.115(a) of the Texas Government Code, Dr. Zhao promptly requested a de novo temporary injunction hearing before District Judge Chad Bridges. 1.CR.201. In accordance with Texas law requiring leave of court to submit supplemental pleadings or additional evidence in connection with a de novo hearing, Dr. Zhao sought, and was granted, approval to file a responsive brief. 1.CR.201 & 213. Dr. Zhao’s brief was filed in advance of the hearing. 2.CR.239–270. XO did not seek leave of court to present additional evidence at the de novo hearing, but nevertheless issued a trial subpoena commanding Dr. Zhao’s testimony. 3.CR.613–615. Dr. Zhao filed a Motion for Protective Order to quash the improperly-issued subpoena. 3.CR.608–609. The morning of the October 22, 2015, hearing, XO apparently provided the Trial Court with a transcript of the initial TI hearing before the Associate Judge. 1.RR.3. Mr. Charette did not appear and the Trial Court was presented no other 20 evidence. The Trial Court entertained only a few minutes of argument from counsel before turning to the parties’ submissions. 1.RR.3–9. After reviewing them, the Trial Court permitted only a few seconds of argument on Dr. Zhao’s Motion for Protective Order before issuing his ruling. 1.RR.14–16. The Trial Court held that it was “going to keep the temporary restraining order in place” and require the parties to return the following week for a “full-on injunction hearing,” during which the Court could hear testimony from Dr. Zhao. 1.RR.16. When the parties could not identify a mutually available time for the hearing, the Trial Court changed course and held that it was simply “issuing the TI.” 1.RR.17 & 20. However, the Trial Court indicated some confusion over the procedural posture of the case, subsequently stating that it was only issuing a TRO in advance of a December 15, 2015, trial on the merits. 1.RR.20–21. After the parties clarified that at issue was a TI, the Trial Court reiterated that it was “comfortable with [its] ruling” (which ruling remained unclear) while still noting its desire to hear testimony from Dr. Zhao. 1.RR.21–22. Counsel for Dr. Zhao argued that the Trial Court’s desire for additional testimony suggested that XO has failed to meet its burden to justify injunctive relief and reminded the Trial Court of the evidentiary failings in XO’s submission. 1.RR.22–23. The Court responded that “[w]e’re going to get the December 15th trial date. You’re going to do a docket control order and we’ll be set for trial and your client [Dr. Zhao] will do 21 whatever he needs to do.” 1.RR.23. The Court subsequently issued the TI and clarified that it intended to set trial not for December 15, 2015, but for December 1, 2015—leaving the parties only 40 days to prepare. 3.CR.620–623. Dr. Zhao subsequently deposited $532,547.59 with the Registry of the Court. This appeal followed.2 V. SUMMARY OF THE ARGUMENT At issue is an ordinary breach of contract case involving (disproven) allegations that Defendant-Appellant Dr. Zhao, a former employee of Plaintiff- Appellee Worldwide, copied XO’s “Confidential” company information to two external hard drives in an attempt to start a competing business in violation of an Employment Agreement. Based on a patently unreasonably and unsupportable reading of the Employment Agreement, XO claims that this supposed breach entitles it to recover from Dr. Zhao his 2014 bonus and 401(k) employer match totaling $532,547.59. However, XO admits via sworn testimony that the mere copying of data to hard drives does not constitute a breach of the Employment Agreement and that no evidence exists that Dr. Zhao retained, used, or disclosed any company data. 2.RR.64–68. XO concedes that “an employee may lawfully 2 Since the filing of this appeal, XO and Dr. Zhao agreed to a trial continuance to April 26, 2016. During a November 18, 2015, off-the-record hearing on the parties’ Agreed Motion for Trial Continuance & Docket Control Order, the Trial Court instead set trial for March 22, 2015. The Trial Court stated that it saw little reason for delay since the attachments to XO’s pleadings (allegedly reflecting the copying of data from Dr. Zhao’s work computer to the external hard drives) “speak for themselves” and stated that a March trial date would “take care of” this appeal. 22 plan to compete with an employer and take active steps in furtherance of those plans” and offers no evidence of any actual competitive activity by Dr. Zhao. 1.CR.82. XO acknowledges that the breach alleged can be remedied via money damages—indeed, XO’s claim for money damages is the crux of its case. 1.CR.12 (seeking $532,547.59 in damages for Dr. Zhao’s alleged breach of contract); 1.CR.14 (seeking disgorgement or forfeiture of $532,547.95 [sic] for Dr. Zhao’s alleged breach of fiduciary duty). Despite this, XO was granted a Temporary Injunction attaching Dr. Zhao’s bonus and requiring him to place his earned income into the Registry of the Court pending the outcome of this litigation in order to secure XO’s collection of damages in the event of a final judgment in its favor. Texas law is clear and unequivocal that the facts presented here do not warrant or justify this manner of prejudgment relief. XO has failed to establish a “probable right to relief” on its claims as required for the issuance of a TI. Additionally, XO’s alleged harms can be remedied via money damages, which unquestionably undermines its entitlement to injunctive relief. XO failed to establish any set of facts to overcome the presumption against injunctive relief to secure money damages—an omission the Trial Court acknowledged, yet unlawfully disregarded. Accordingly, as the Trial Court failed to abide by well- settled law, the Temporary Injunction Order should be reversed and Dr. Zhao’s 23 money released from the Court Registry. VI. ARGUMENT A. Standard of Law Pre-judgment remedies, such as temporary injunctive relief and pre- judgment writs of attachment are considered extraordinary remedies that should only be awarded in narrow circumstances. See, e.g., In re Tex. Natural Res. Conservation Comm’n, 85 S.W.3d 201, 204 (Tex. 2002) (“An applicant for a temporary injunction seeks extraordinary equitable relief. He seeks to immobilize the defendant from a course of conduct which it may well be his legal right to pursue.”); In re Argyll Equities, LLC, 227 S.W.3d 268, 271 (Tex. App.—San Antonio 2007, no pet.) (“Pre-judgment attachment is a particularly harsh, oppressive remedy. As a result, the statutes and rules governing this remedy must be strictly followed.”). The party seeking prejudgment injunctive relief bears the burden of proof and must present admissible evidence in support of its claims. See, e.g., Forrest Prop. Mgmt. v. Forrest, No. 10-09-00338-CV, 2010 Tex. App. LEXIS 5863, at **9–10 (Tex. App.—Waco July 21, 2010, no pet.) (citing N. Cypress Med. Ctr. Operating Co. v. St. Laurent, 296 S.W.3d 171, 177 (Tex. App.—Houston [14th Dist.] 2009, no pet.)); Baca v. Hoover, Bax & Shearer, No. A14-88-00418-CV, 1989 Tex. App. LEXIS 456, at *12 (Tex. App.—Houston [14th Dist.] March 9, 24 1989, no writ.) (not designated for publication); World Football League v. Dallas Cowboys Football Club, Inc., 513 S.W.2d 102, 105 (Tex. App.—Dallas 1974, writ ref’d n.r.e.). Prejudgment relief “is not proper when the claimed injury is merely speculative; fear of injury is not sufficient to support a temporary injunction.” Wash. DC Party Shuttle, LLC v. iGuide Tours, LLC, 406 S.W.3d 723, 742 (Tex. App.—Houston [14th Dist.] 2013, pet. denied); Fox v. Tropical Warehouses, Inc., 121 S.W.3d 853, 861 (Tex. App.—Ft. Worth 2003, no pet.). Even where a party demonstrates entitlement to a temporary injunction or writ of attachment preventing a transfer of assets, a defendant cannot be ordered to pay disputed funds into the court’s registry unless the movant offers evidence that, despite the injunction or writ, the funds are nevertheless, “in danger of being ‘lost or depleted.’” In re Reveille Res. (Texas), Inc., 347 S.W.3d 301, 304 (Tex. App.— San Antonio 2011, no pet.) (citing Castilleja v. Camero, 414 S.W.2d 431, 433 (Tex. 1967)); In re Deponte Invs., Inc., No. 05-04-01781-CV, 2005 Tex. App. LEXIS 898, at *4 (Tex. App.—Dallas, Feb. 3, 2005, no pet.). A trial court’s issuance of a temporary injunction is reviewed for an abuse of discretion. Tel. Equip. Network v. Ta/Westchase Place, 80 S.W.3d 601, 607 (Tex. App.—Houston [1st Dist.] 2002, no pet.). Reversal is warranted where the trial court’s actions were “so arbitrary as to exceed the bounds of reasonable discretion” or where the trial court erroneously applied the law to undisputed facts. Id. 25 1. Temporary Injunction. A temporary injunction “does not issue as a matter of right.” Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002). To obtain one, an applicant “must plead and prove: (1) a cause of action against the defendant; (2) a probable right to the relief sought; and (3) a probable, imminent, and irreparable injury in the interim.” Id. It is well-settled that “[a]n injury is irreparable if the injured party cannot be compensated in damages or if the damages cannot be measured by a certain pecuniary standard.” Id. Thus, “generally, a court will not enforce contractual rights by injunction, because a party can rarely establish an irreparable injury and an inadequate legal remedy when damages for breach of contract are available.” Nueva Generacion Music Group, Inc. v. Espinoza, __ S.W.3d __, 2015 Tex. App. LEXIS 7958, at *11 n.5 (Tex. App.—Houston [1st Dist.], July 30, 2015, pet. filed) (quoting Butnaru, 84 S.W.3d at 211); see also Victory Drilling, LLC v. Kaler Energy Corp., No. 04-07-000094-CV, 2007 Tex. App. LEXIS 4966, at *8 (Tex. App.—San Antonio June 27, 2007, no pet.) (“[When] an adequate and complete remedy at law is provided, our courts, though clothed with equitable jurisdiction, will not grant equitable relief.” (quoting Rogers v. Daniel Oil & Royalty Co., 130 Tex. 386 (1937))). “Damages are usually an adequate remedy at law, and the requirement of demonstrating an interim injury is not to be taken lightly.” Id. (quoting Walling v. Metcalfe, 863 S.W.2d 56, 57 (Tex. 1993)). 26 “Although it is unusual, circumstances can arise in which a temporary injunction is appropriate to preserve the status quo pending an award of damages at trial.” Walling, 863 S.W.2d at 58. Typically, these circumstances involve the threatened transfer or destruction of real property or unique and irreplaceable personal property or situations where the defendant’s conduct threatens to disrupt an ongoing business. See, e.g., Shor v. Pelican Oil & Gas Mgmt., LLC, 405 S.W.3d 737, 750 (Tex. App.—Houston [1st Dist.] 2013, pet. denied) (collecting cases). Where a claim is for pure money damages, unconnected to any unique asset, courts have issued injunctions to freeze assets only where the defendant is insolvent or likely to be insolvent at the time a judgment is rendered. See, e.g., Manheim v. Adam Dev. Props., L.P., No. 10-09-00259-CV, 2009 Tex. App. LEXIS 9824, at **5–6 (Tex. App.—Waco Dec. 30, 2009, no pet.). However, strict proof of insolvency and a showing that, absent an injunction, the plaintiff will be left without any potential remedy whatsoever, is required. Id., at **6–7. Thus, a plaintiff cannot merely claim that a defendant may be judgment- proof by the time litigation concludes. Id. Nor can a plaintiff seek to attach or enjoin funds merely to ensure a defendant has assets to satisfy a judgment. See, e.g., Harper v. Powell, 821 S.W.2d 456, 457 (Tex. App.—Corpus Christi 1992, no pet.). Such attempts “put[] the cart before the horse” and find no support in the law, which does not “authorize[] courts to issue writs of injunction against 27 defendants restraining them from disposing of their property upon which a plaintiff has no form of lien, pending litigation.” Id. Similarly, it is not enough to suggest that a defendant may dissipate its assets during the course of litigation. See, e.g., Nowak v. Los Patios Investors, 898 S.W.2d 9, 6–7 (Tex. App.—San Antonio 1995, no pet.). In such cases, the Texas Uniform Fraudulent Transfer Act has been held to offer a viable remedy for such actions. See, e.g., Victory Drilling, LLC, 2007 Tex. App. LEXIS 4966, at *8; see Camp Mystic, Inc. v. Eastland, 399 S.W.3d 266, 274 (Tex. App.—San Antonio 2012, no pet.) (“Generally, a temporary injunction is not available to secure a potential money judgment when a party has other existing legal remedies.” (collecting cases)); see also Ballenger v. Ballenger, 694 S.W.2d 72, 77 (Tex. App.—Corpus Christi 1985, no writ) (holding that an injury is not irreparable if it “can be cured by monetary damages, regardless of the passage of time between entry of a judgment and satisfaction thereof”). Lest the courts become tools of “injustice” utilized by plaintiffs to “immobilize” a defendant as the sole aim of the litigation, the conditions to issuance of a temporary injunction are strictly enforced. See State v. Sw. Bell. Tel. Co., 526 S.W.2d 526, 528 (Tex. 1975). As Texas courts are quick to point out: Every suitor who resorts to chancery for any sort of relief by injunction may, on a mere statement of belief that the defendant can easily make away with or transport his money or goods, impose an injunction on him . . . disabling him to use so much of his funds or property as the court deems necessary for security or compliance with its possible decree. And, if so, it is difficult to see why a plaintiff in 28 any action for a personal judgment in tort or contract may not, also, apply to the chancellor for a so-called injunction sequestrating his opponent’s assets pending recovery and satisfaction of a judgment in such a law action. No relief of this character has been thought justified in the long history of equity jurisprudence. Victory Drilling, LLC, 2007 Tex. App. LEXIS, at **6–7 (quoting De Beers Consol. Mines v. United States, 325 U.S. 212, 222–23 (1945)); Nowak, 898 S.W.2d at 11 (same). Thus, appellate courts do not hesitate to reverse trial court injunctions that are unsupported by adequate proof on each of the elements for temporary injunctive relief. See, e.g., Reyes v. Burrus, 411 S.W.3d 921 (Tex. App.—El Paso 2013, pet. denied) (reversing order of and dissolving temporary injunction because the plaintiff “failed to establish that she ha[d] no adequate remedy at law to secure potential money damages”); Camp Mystic, Inc., 399 S.W.3d at 273–77 (same); Chin Tuo Chen v. Braxton, No. 06-09-00088-CV, 2010 Tex. App. LEXIS 171, at **9–10 (Tex. App.—Texarkana Jan. 13, 2010, pet. Denied) (same); Victory Drilling, LLC, 2007 Tex. App. LEXIS 4966, at **6–8 (same); Fox, 121 S.W.3d at 861 (same); Nowak, 898 S.W.2d at 11 (same); Ballenger, 694 S.W.2d at 77 (same); see also Wash. DC Party Shuttle, LLC, 406 S.W.3d at 741–43 (affirming denial of a temporary injunction because the plaintiff failed to prove the money damage were incapable of calculation and would not adequately compensate its alleged injuries); Law v. William Marsh Rice Univ., 123 S.W.3d 786, 794 (Tex. App.— 29 Houston [14th Dist.] 2003, pet. denied) (same); Rushlake Hotels (USA) v. Hyatt Corp., No. 01-94-00827-CV, 1994 Tex. App. LEXIS 3140, at **15–16 (Tex. App.—Houston [1st Dist.] Dec. 22, 1994, no pet.) (not designated for publication) (same). 2. Writ of Attachment. A remaining option for a breach of contract plaintiff seeking prejudgment relief is to seek a statutory writ of attachment. “A writ of attachment is available to a plaintiff in a suit if it proves that: (1) the defendant is justly indebted to the plaintiff; (2) the attachment is not sought for the purpose of injuring or harassing the defendant; (3) the plaintiff will probably lose his debt unless the writ of attachment is issued; and (4) specific grounds for the writ exist under Section 61.002 [of the Texas Civil Practice & Remedies Code].” TEX. CIV. PRAC. & REM. CODE § 61.001. A defendant is “justly indebted” to a plaintiff if, and only if, he is obligated to pay a “liquidated debt” under a contract. See In re Argyll Equities, 227 S.W.3d at 271. The “long-standing rule” in Texas “is that a writ of attachment will not issue in a suit for unliquidated damages.” E.E. Maxwell Co. v. Arti Décor, Ltd., 638 F. Supp. 749, 753 (N.D. Tex. 1986) (applying Texas law). The only exception is where personal service cannot be made on the defendant. See id.; S.R.S. World Wheels v. Wnlow, 946 S.W.2d 574, 575 (Tex. App.—Ft. Worth 1997, no pet.); 30 TEX. CIV. PRAC. & REM. CODE § 61.005. “The term ‘debt’ has been defined as an obligation to pay a liquidated sum on an express or implied contract.” E.E. Maxwell Co., 638 F. Supp. at 753 (citing El Paso Nat’l Bank v. Fuchs, 34 S.W. 206, 207 (1896)). For the sum to be “liquidated,” (1) the harm caused by the breach must be incapable of being estimated or is difficult to estimate at the time of the agreement, and (2) the sum charged must be a reasonable estimate of damages. See BMG Direct Mktg. v. Peake, 178 S.W.3d 763, 766 (Tex. 2005); Baker v. Int’l Record Syndicate, Inc., 812 S.W.2d 53, 55 (Tex. App.—Dallas 1991, no writ). The fee must be agreed upon by the parties at the time of contract formation, though “a term fixing unreasonably large liquidated damages is void as a penalty.” BMG Direct Mktg., 178 S.W.3d at 767; Baker, 812 S.W.2d at 55 (quoting TEX. BUS. & COM. CODE § 2.718(a)). Section 61.002 sets forth an exclusive list of circumstances that must also be present in order to justify issuance of the writ: (1) The defendant is not a resident of this state or is a foreign corporation or is acting as such; (2) The defendant is about to move from this state permanently and has refused to pay or secure the debt due the plaintiff; (3) The defendant is in hiding so that ordinary process of law cannot be served on him; 31 (4) The defendant has hidden or is about to hide his property for the purpose of defrauding his creditors; (5) The defendant is about to remove his property from this state without leaving an amount sufficient to pay his debts; (6) The defendant is about to remove all or part of his property from the county in which the suit is brought with the intent to defraud his creditors; (7) The defendant has disposed of or is about to dispose of all or part of his property with the intent to defraud his creditors; (8) The defendant is about to convert all or part of his property into money for the purpose of placing it beyond the reach of his creditors; or (9) The defendant owes the plaintiff for property obtained by the defendant under false pretenses. TEX. CIV. PRAC. & REM. CODE § 61.002. In order to establish entitlement to a writ of attachment, a plaintiff must submit sworn testimony, based on personal knowledge, setting forth specific facts bearing on each element of the statute. See S.R.S. World Wheels, 946 S.W.2d at 575; TEX. CIV. PRAC. & REM. CODE § 61.022(a). This includes facts establishing that the plaintiff is unlikely to recoup a future judgment absent the writ. In re Argyll Equities, 227 S.W.3d at 272. Conclusory statements that the defendant is, or is likely to become, insolvent are insufficient. Id. Instead, a plaintiff must offer evidence of, for example, the defendant’s cash on hand, source of revenue, and liabilities. See In re Reveille Res. (Texas), Inc., 347 S.W.3d at 304–05. 32 3. The Court’s “Inherent Authority” to Attach Assets. Finally, Texas courts have an “inherent authority” to order that a “disputed fund,” shown to be in danger of being “lost or depleted,” be placed into the registry of the court during the pendency of litigation to determine the fund’s owner. See Behringer Harvard Royal Island, LLC v. Skokos, No. 05-09-00332-CV, 2009 Tex. App. LEXIS 9456, at **9–10 (Tex. App.—Dallas Dec. 14, 2009, no pet.). Importantly, however, this inherent authority does not supersede “the carefully constructed statutes concerning garnishment, attachment, receivership, etc.” Alliance Royalties, LLC v. Booth, 313 S.W.3d 493, 497 (Tex. App.—Dallas 2010, no pet.). However, a trial court may be entitled to exercise broader authority in accordance with statutory protective regimes, such as with respect to a court- supervised guardianship proceeding. See, e.g., In re Bays, 355 S.W.3d 715 (Tex. App.—Ft. Worth 2011, no pet.). In all other cases, “disputed fund” has been narrowly construed to extend to money for which the only question before the court is its owner. This “inherent authority” has been utilized to protect, for example, (i) the proceeds from the sale of community property being held by the husband-constructive trustee, who threatened to dispose of the money rather than permit the court to distribute it in accordance with divorce proceedings, Ex parte Preston, 347 S.W.2d 938 (Tex. 1961); (ii) lottery winnings over which multiple parties claimed ownership, 33 Castilleja v. Camero, 414 S.W.2d 424 (Tex. 1967) & 414 S.W.2d 431 (Tex. 1967); and (iii) funds earmarked to pay receiver’s fees, Harmon v. Daggett, No. B14-88- 00103-CV, 1988 Tex. App. LEXIS 2006, at **6–7 (Tex. App.—Houston [14th Dist.] Aug. 11, 1988, no pet.). Efforts by litigants to invoke the court’s “inherent authority” to attach funds to satisfy a potential future judgment have been soundly and summarily rejected. See Alliance Royalties, LLC, 313 S.W.3d at 497; In re Wakefield, No. 14-10- 01160-CV, 2010 Tex. App. LEXIS 9922, at **1–2 (Tex. App.—Houston [14th Dist.] Dec. 15, 2010, no pet.); Behringer Harvard Royal Island, LLC, 2009 Tex. App. LEXIS 9456, at **8–10 (collecting cases); see also Berry v. Chase Home Fin. LLC, No. C-09-116, 2010 U.S. Dist. LEXIS 12531, at **7–10 (S.D. Tex. Feb. 12, 2010) (applying Texas law). Texas courts are clear: “[A] trial court does not have authority—beyond the purview of the attachment statutes—to order that funds be deposited in the court’s registry to generally secure payment of a possible future judgment.” Behringer Harvard Royal Island, LLC, 2009 Tex. App. LEXIS 9456, at *11. Thus, “[i]f a plaintiff wants to protect its right to collect a potential judgment, it must follow the specific statutes designed for that purpose.” Alliance Royalties, LLC, 313 S.W.3d at 497. 34 B. Analysis The Trial Court abused its discretion in issuing a Temporary Injunction requiring Dr. Zhao to deposit his 2014 incentive compensation with the Registry of the Court in order to secure XO’s ability to recover damages in the event of a judgment in its favor. In issuing the TI, the Trial Court ignored glaring deficiencies in XO’s evidentiary submission and disregarded settled law disallowing prejudgment injunctive relief over a litigant’s assets in an ordinary case for money damages such as this. Notably, XO did not come before the Trial Court with mere suspicions of wrongdoing. For months, XO had the opportunity to pursue—and did pursue— discovery in support of its case. It admits that it has found no evidence that Dr. Zhao misappropriated, transferred to any third party, or retained any of XO’s confidential company information. 2.RR.65–66. Instead, all that has been discovered is that he backed-up data to hard drives that were immediately turned over to XO upon his resignation from Worldwide and which remain in XO’s possession. 2.RR.67–68. XO concedes that nothing in Dr. Zhao’s Employment Agreement, or any other company policy, prohibits this conduct. 2.RR.68. Equally unavailing are XO’s claims that Dr. Zhao was imminently planning to compete with Worldwide in violation of any non-compete obligations, which is supported entirely by XO’s speculative interpretation of a “rough” translation of a 35 document written in Chinese supposedly directed to plans by Dr. Zhao to become a CAISO trader. 2.RR.48–54. Even if XO’s interpretation of this document had evidentiary support, nothing in the so-called “to-do” list indicates any efforts by Dr. Zhao to compete with Worldwide in its business of providing software and support to trading entities. 1.CR.219–220; 2.CR.299 & 301; 2.RR.26 & 60. And even if Dr. Zhao’s Employment Agreement could be judicially re-drafted to render the XO CAL entities parties to it, and energy trading a “competitive” activity, XO’s evidence establishes—at best—merely a plan. XO has offered no evidence that Dr. Zhao has actually engaged in competing activities and concedes that “an employee may lawfully plan to compete with an employer and take active steps in furtherance of those plans.” 1.CR.82. Its speculative assertions that Dr. Zhao intended to use his 2014 bonus to set up a competing business is devoid of fact, illogical, and starkly undermines any claim that Dr. Zhao could not satisfy a judgment in this action. Indeed, despite ample opportunity to do so, XO has conspicuously avoided seeking any discovery into Dr. Zhao’s ability to pay damages in this case. XO simply proclaims that he will be unable to satisfy a judgment, ignoring entirely that Dr. Zhao, a highly educated, high-performing professional, earned over $1,000,000 in his short time at XO alone, after working for decades in other employment, and with ample opportunities to secure well-paying employment in the future. Absent 36 a showing of insolvency, an injunction to secure money damages cannot be had. In short, XO rests on nothing more than hyperbole and speculation, ignoring entirely the wealth of information that has been exchanged in discovery, none of which support its insistent, but baseless, proclamation that Dr. Zhao has breached contractual and fiduciary duties to Worldwide in a manner than cannot be remedied by recoverable money damages. The Trial Court’s apparent conclusion that XO established a “probable right to recovery” and a “probable, imminent, and irreparable injury” is unsupported by fact or law. The Trial Court abused its discretion in issuing the Temporary Injunction and the TI Order should be reversed. 1. The Trial Court Abused its Discretion in Issuing a Temporary Injunction over Dr. Zhao’s Income. a. XO did not establish a probable right to recovery. The Trial Court abused its discretion, and improperly applied fact to law, in evaluating XO’s probable right to recovery—a key element that must be satisfied in order to justify prejudgment injunctive relief. In its pleadings and submissions in support of its request for a TI, XO engages in sleight of hand. It fails to connect Dr. Zhao’s alleged misconduct to any language in the Employment Agreement prohibiting such conduct and misstates the business of XOE and Worldwide in an unsupportable attempt to broaden the scope of the Employment Agreement by fiat. These failings are readily apparent and should have been acknowledged by the 37 Trial Court. First, XO’s request for injunctive relief rests on its allegation that Dr. Zhao, in advance of his resignation, “engaged in the wholesale copying of [XO’s] Confidential Information onto two (2) external hard drives.” 1.CR.9–10. It speculates that Dr. Zhao engaged in this “theft” of data so that he could “carry” it away and use it “for his personal benefit or for the benefit of his competing business.” 1.CR.10–12. However, mere allegations of wrongdoing are insufficient to establish a probable right to recovery; instead, as XO concedes, such allegations must be supported by admissible evidence. 1.CR.80. Here, XO offered no evidence in support of its claim of data theft. Instead, it admits that there is no evidence that any company information was misappropriated by Dr. Zhao. 1.RR.65–66. Additionally, as it must under the terms of Dr. Zhao’s Employment Agreement, which does not prohibit him from backing up data to hard drives, but only from “disclos[ing] to anyone, or us[ing] in competition with [Worldwide] or any of its subsidiaries or affiliates, any Confidential Information of or pertaining to [Worldwide],” XO concedes that merely copying information to hard drives is not prohibited. 2.RR.67–68. In order to be legally viable, the TI Order issued by the Trial Court must rest on evidence of wrongdoing; as no such evidence was presented by XO, the TI Order must be reversed. Second, notwithstanding the foregoing, while XO continues to insist that Dr. 38 Zhao was planning to compete with Worldwide in violation of his Employment Agreement, it concedes, as it must, that merely “planning” to compete is not unlawful. 1.CR.81. Yet, at best, XO only adduced evidence of a plan. XO does not allege, and has to evidence to show, that Dr. Zhao was actually engaged in competitive activities in breach of the Non-Compete provisions of his Employment Agreement. The Trial Court’s apparent conclusion to the contrary is an abuse of discretion and requires reversal of the TI Order. Nevertheless, even if XO had evidence that Dr. Zhao had taken actual steps toward establishing a company to trade on the CAISO market, such activity is not prohibited by the terms of his Employment Agreement. The Non-Compete provision of Dr. Zhao’s Employment Agreement plainly states that he is prohibited only from “engag[ing] in a business that competes with the business of [Worldwide] or any of its subsidiaries or affiliates as it relates to [Worldwide’s] business.” 1.CR.26; 2.CR.273. XO admits that Worldwide is a technology company “in the business of providing software services and support,” to trading entities. 2.CR.299; 2.RR.26 & 60. XO does not allege, and has no evidence to suggest, that Dr. Zhao was planning to engage in the software business. The Trial Court erred in finding a probable breach of the Non-Compete provisions of the Employment Agreement, further demonstrating the Trial Court’s error in issuing a TI. 39 Third, even if XO could offer evidence that Dr. Zhao probably breached his Employment Agreement, it offers no evidence that such breach amounted to “Cause” for termination under the Agreement or that such “Cause” triggers an automatic forfeiture of earned income from past years. XO cannot explain how it could terminate an employee days after he resigned his employment, 2.RR.64, and it offers no evidence that the misconduct that Dr. Zhao allegedly engaged in constitutes “willful misconduct . . . that is materially and demonstrably injurious economically to [Worldwide],” or, as noted above, violated the Non-Compete provision of Dr. Zhao’s Employment Agreement. Such misconduct is required (in relevant part) to terminate Dr. Zhao for “Cause.” 1.CR.28; 2.CR.275. Absent a termination for “Cause,” XO has no conceivable claim over Dr. Zhao’s 2014 bonus. The Court’s apparent conclusion to the contrary is unsupported by fact or law. Moreover, XO’s claim that it can recoup Dr. Zhao’s bonus money relies on a nonsensical reading of the Employment Agreement that renders all “deferred incentive compensation” paid to any Worldwide employee at any time during the employee’s tenure with the company subject to forfeiture. Such a position defies logic, a plain reading of the Employment Agreement, and is almost certainly unconscionable under Texas law. Instead, a fair reading of the Employment Agreement provides that an employee who “(a) breaches any of the covenants [of 40 the Non-Compete provisions of the Employment Agreement], (b) is terminated for Cause . . . , or (c) terminates his or her employment without Good Reason” forfeits any rights to deferred compensation for the year in which the employee separates from the company. 1.CR.27; 2.CR.274. XO’s claim that it can recover moneys paid (and taxed) for past performance is dangerously farfetched. The Trial Court’s failure to evaluate the legal and factual viability of such a reading constitutes an abuse of discretion demanding reversal of the TI Order. b. XO did not establish a “probable, imminent, and irreparable” injury. The Trial Court further erred in concluding that XO established a “probable, imminent, and irreparable” injury, as required for issuance of a TI. XO’s entire case is built around its efforts to secure—through a prejudgment remedy—money. Texas law is clear that money damages constitute an “adequate legal remedy” foreclosing injunctive relief and that an issuance of an injunction that effective attaches funds merely to ensure payment of a possible future judgment constitutes reversible error. Two recent decisions of the Texas Court of Appeals are directly on point. In Nueva Generacion Music Group, Inc. v. Espinoza, __ S.W.3d __, 2015 Tex. App. LEXIS 7958 (Tex. App.—Houston [1st Dist.] July 30, 2015, pet. filed), the plaintiff appealed from a decision of the district court denying issuance of a temporary injunction. The plaintiff Nueva was an artist management company that 41 had previously represented the defendant musician pursuant to a Representation Agreement. Id., at 2–3. The parties had a falling out that resulted in litigation that was ultimately settled pursuant to a “Final Settlement Agreement” (“FSA”). Id., at 3. The FSA required, in relevant part, that the defendant continue to honor the Representation Agreement while he made three payments totaling $4,500,000 over the ensuing year. Id., at 4. After the defendant allegedly breached the agreement by utilizing other artist managers and failing to pay the final $3,500,000 payment, Nueva brought a new suit and sought a temporary injunction. Nueva claimed that the defendant was booking performances through other artist managers, under- reporting earnings, and failing to pay required commissions. Id., at 7. Nueva argued that this alleged misconduct threatened its ability to ultimately collect the $3,500,000 due under the FSA (which was complicated by the fact that the defendant lived, and the FSA was performable, in Mexico) and that an injunction was therefore required “to prohibit [the defendant] from engaging in other representations.” Id., at 5–8. The district and appellate courts disagreed. The appellate court noted that all of Nueva’s claims—including related tort claims for breach of fiduciary duty and fraud—“relate to its allegations that [the defendant] breached the Representation Agreement and FSA by withholding commissions or failing to perform career obligations obtained for him by Nueva in order to satisfy the terms of the FSA.” 42 Id., at 12. Although Nueva offered evidence that the defendant was using different booking agencies to book performances, thus frustrating Nueva’s efforts to collect the $3,500,000 due under the FSA, none of the evidence “demonstrate[d] a harm that [could] not be adequately compensated in damages following a trial on the merits of Nueva’s claim that [the defendant] breached the FSA.” Id., at 13. Absent a “probable, imminent, and irreparable injury,” a temporary injunction could not be had. Id., at 16. In Manheim v. Adam Development Properties, L.P., No. 10-09-00259-CV, 2009 Tex. App. LEXIS 9824 (Tex. App.—Waco Dec. 30, 2009, no pet.), plaintiff- appellee Adam Development Properties (“ADP”) alleged that the defendant furniture manufacturer failed to fulfill contractual obligations to design, produce, and deliver custom furniture to ADP and received funds under the contract from ADP to which it was not entitled. Id., at **1–2. The manufacturer admitted that it used funds from ADP to purchase inventory for other projects. Id., at *2. ADP, seeking money damages, alleged that the manufacturer had insufficient assets to satisfy a potential future judgment. Id. It sought, and was granted by the trial court, an injunction placing ADP’s inventory under court supervision to prevent it from being “destroy[ed], s[old], encumber[ed], secret[ed], or any way harm[ed].” Id., at *3. The appellate court reversed. The court noted that while the availability of 43 money damages typically forecloses the right to obtain temporary injunctive relief, an injunction may be appropriate if “the defendant is insolvent.” Id., at *6. However, the party seeking injunctive relief must adduce evidence “under standard rules of evidence” establishing the defendant’s insolvency. Id. ADP offered nothing more than a company representative’s testimony that he suspected that the manufacturer was “hardly in strong financial shape.” Id., at **7–8. But this was not enough, especially as the manufacturer had not “as of the time of the injunction, . . . admitted that [it] was insolvent or financially unable to satisfy a judgment obtained against him.” Id., at *8. Thus, ADP failed to meet its burden to establish an “irreparable” injury and the injunction was dissolved. The same result is compelled here. XO’s claimed harm for breach of contract and breach of fiduciary duty, for which it seeks injunctive relief, can be remedied entirely by the money damages it seeks to encumber via a prejudgment remedy. This fact alone undermines its claim for injunctive relief. Moreover, XO admits that it is seeking an injunction merely to protect its future ability to recover a potential judgment. Texas law disallows this use of injunctive relief. The one exception, where a defendant is insolvent, requires an evidentiary showing that XO does not, and cannot make. Instead, all XO offered was its corporate representative’s speculative opinion that Dr. Zhao might have been thinking about potentially utilizing his 2014 bonus money as a security deposit with CAISO. The 44 problems with this testimony are manifest. Aside from being purely speculative and entirely disconnected from admissible factual evidence, XO’s claims are illogical. XO admits that in order for Dr. Zhao to establish the CAISO trading entity it alleges, he would have to deposit, in addition to the $500,000 “just to get into the market,” at least another $1,000,000 in order to actually trade on the market. 2.RR.32–33. Thus, if XO’s suspicions could fairly be taken as fact, as the Trial Court’s TI Order suggests they were, Dr. Zhao must have at his disposal millions of dollars, starkly undermining any claim by XO of Dr. Zhao’s insolvency and instead establishing his ready ability to satisfy a judgment. Contrary to XO’s claim that once these funds are provided to CAISO, they are lost forever, it admits that these funds are merely held as security and are not dissipated by trading activity. 2.RR.32–33. Thus, if Dr. Zhao has the means to engage in this allegedly “competing” enterprise, as XO insists he does, he has the means to pay damages in the (unlikely) event of a judgment against him in this suit, either through the millions in liquid assets he must have if XO’s story is to be believed, or by recovering deposits made with CAISO. Thus, the Trial Court abused its discretion in concluding that XO faced a “probable, imminent, and irreparable injury” absent prejudgment injunctive relief. The TI Order should be reversed. 45 2. XO is Not Entitled to a Writ of Attachment. Although XO requested a writ of attachment in its Original Petition, it appeared to abandon that request at the TI hearings. Nevertheless, to the extent the Trial Court’s Order could be interpreted as relying on the attachment statute, such reliance is wholly supported by fact or law and an abuse of discretion. First, Dr. Zhao is not “justly indebted” to XO. At issue in this case is whether Dr. Zhao breached an Employment Agreement and, if so, the proper measure of damages for such breach. The Employment Agreement does not contain a liquidated damages provision and nothing in Texas law allows for a discretionary bonus to be construed as “liquidated” damages. Given that the amount of any such bonus could not be known by Dr. Zhao at the time the Employment Agreement was executed, he could not possibly have agreed that such sum would constitute a fair measure of damages for a breach of any of the myriad provisions of the Agreement. See BMG Direct Mktg., 178 S.W.3d at 766. Nor can it be said that the amount sought by XO here—more than half a million dollars—is not an unlawful penalty under the contract, given the lack of any actual harm to XO from Dr. Zhao’s backing-up company data to external hard drives. Id. Absent a liquidated debt under a contract, a writ of attachment cannot be had. In re Argyll Equities, 227 S.W.3d at 271; see also E.E. Maxwell Co., 638 F. Supp. at 753. Second, given the vast discovery that has been exchanged in this case, and 46 the litigation of a previous lawsuit by XO against Dr. Zhao on identical allegations as those presented here, it cannot be said that XO’s request for a writ “is not sought for the purpose of injuring or harassing” Dr. Zhao. On the contrary, XO’s aim is plainly apparent—to prevent Dr. Zhao from accessing his lawfully earned income (income on which he has paid income taxes) to meet his financial obligations following his resignation from employment and to mount a defense to XO’s slanderous claims to FERC. XO’s conduct should not be countenanced through the “extraordinary” award of a writ of attachment. Third, XO can offer nothing more than pure speculation that it will “probably lose its debt” unless a writ is issued. Having failed to pursue discovery on this question, XO cannot simply rest on conclusory and xenophobic assertions that Dr. Zhao intends to start a competing business or move his money to China. 2.RR.21, 58. Fourth, especially having deposited Dr. Zhao’s 2014 bonus and 401(k) employer match outside the state of Texas, where it remains, XO cannot establish any of the Section 61.002 factors necessary to obtain a writ of attachment. There can be no intention to remove property from the jurisdiction of the Trial Court that was never within its jurisdiction in the first place. Thus, absent a liquidated debt at risk of loss via the transfer of such funds out-of-state, XO cannot establish entitlement to a writ of attachment. To the extent 47 the Trial Court’s TI Order could be interpreted as issuing a writ, such issuance constitutes an abuse of discretion and should be reversed. 3. The Trial Court Abused its Discretion in Exercising “Inherent Discretion” to Order Dr. Zhao to Deposit his 2014 Bonus with the Registry of the Court. Finally, Texas law is clear: XO cannot attempt an end-run around the legal requirements for obtaining prejudgment relief via an injunction or writ of attachment by resort to the Court’s “inherent authority” to issue injunctive relief. To the extent the Trial Court relied on such authority, doing so constitutes an abuse of discretion. A Trial Court’s “inherent authority” to award prejudgment relief is to be sparingly exercised in only the most limited of circumstances involving a “disputed fund” in a case that does not implicate “the carefully constructed statutes concerning garnishment, attachment, receivership, etc.” Alliance Royalties, LLC, 313 S.W.3d at 497. At issue here is not a fund whose ownership is in doubt. Instead, XO presents an ordinary breach of contract action and request for damages that can only be awarded upon a finding that Dr. Zhao breached his Employment Agreement and caused XO recoverable damages. Unlike marital assets, lottery winnings, or receivership fees, the parties to this case do not concede that the only issue to be decided is who “owns” Dr. Zhao’s 2014 bonus. On the contrary, at issue is whether Dr. Zhao breached an 48 enforceable agreement and thereby proximately caused XO recoverable damages. While XO maintains that the proper measure of damages for Dr. Zhao’s alleged breach is his 2014 bonus, its contractual theory does not convert Dr. Zhao’s bonus into a “disputed fund.” Moreover, XO offered evidence that the fund is in “danger of being lost or depleted.” Again, despite ample opportunity to do so, XO adduced no evidence of Dr. Zhao’s financial status and ability to pay a judgment in this case. Especially after months of discovery, conclusory, speculative, and illogical claims are insufficient to justify the extraordinary remedy sought. The basis of the Trial Court’s TI Order is unclear, but to the extent it relied on some “inherent authority” to issue the Order, doing so is in patent contravention of well-settled and controlling Texas law holding that “[a] trial court does not have authority—beyond the purview of the attachment statutes—to order that funds be deposited in the court’s registry to generally secure payment of a possible future judgment.” Behringer Harvard Royal Island, LLC, 2009 Tex. App. LEXIS 9456, at *11. The Trial Court abused its discretion in issuing such extraordinary relief and the TI Order should be reversed. VII. PRAYER XO alleges an ordinary breach of contract and fiduciary duty case for which its seeks money damages. Nothing in XO’s allegations, and certainly nothing in 49 the facts developed through discovery or offered during the Temporary Injunction hearings, justify prejudgment relief. The Trial Court abused its discretion in issuing the TI Order, which is unsupported by fact or law. Accordingly, Dr. Zhao respectfully requests that the Order be reversed, the Temporary Injunction dissolved, and his income promptly returned to him by the Registry of the Court. Dr. Zhao further requests an order awarding costs of suit and all other relief to which he may be justly entitled. Respectfully submitted, STURM LAW, PLLC /s/ Shannon A. Lang Charles A. Sturm Texas Bar No. 24003020 csturm@sturmlegal.com Shannon A. Lang Texas Bar No. 24070101 slang@sturmlegal.com 723 Main Street, Suite 330 Houston, Texas 77002 (713) 955-1800 tel. (713) 955-1078 fax Attorneys for Defendant-Appellant Liang “Benny” Zhao 50 CERTIFICATE OF SERVICE I hereby certify that on December 2, 2015, pursuant to Texas Rule of Appellate Procedure 9.5(b)(1), a true and correct copy of the foregoing document was served on counsel of record for Plaintiffs-Appellees identified below via the electronic filing manager utilized to file this document with the Court. Thomas C. Van Arsdel tvanarsdel@winstead.com WINSTEAD P.C. 1100 JPMorgan Chase Tower 600 Travis Street Houston, Texas 77002 (713) 650-2728 tel. (713) 650-2400 fax. Attorney for Plaintiffs-Appellees XO Energy LLC and XO Energy Worldwide, LLLP /s/ Shannon A. Lang Shannon A. Lang 51 CERTIFICATE OF COMPLIANCE This brief complies with the Maximum Length requirement of Texas Rule of Appellate Procedure 9.4(i)(2)(B) because this brief contains 11,041 words, excluding the parts of the brief exempted by Texas Rule of Appellate Procedure 9.4(i)(1), as determined by the word count function of the word processing program used to generate this document. Dated: December 2, 2015 /s/ Shannon A. Lang Shannon A. Lang Attorney for Defendant-Appellant Liang “Benny” Zhao 52 APPENDIX CASE NO. 01-15-00937-CV IN THE FIRST COURT OF APPEALS HOUSTON, TEXAS LIANG “BENNY” ZHAO, Defendant-Appellant, v. XO ENERGY, LLC, and XO ENERGY WORLDWIDE, LLLP, Plaintiffs-Appellees. INDEX TO APPENDIX Bookmark Document (1) Amended Temporary Injunction Order [3.CR.620–623] (2) Employment Agreement [1.CR.25–32] (3) Transcript of Temporary Injunction Hearing (September 30, 2015) [2.RR.1–86] (4) Transcript of de novo Temporary Injunction Hearing (October 22, 2015) [1.RR.1–24] (5) Plaintiff’s Answers to Second Interrogatories [2.CR.297–300] (6) Technology & Professional Services Agreement [3.CR.301–308] 620 621 622 623 EMPLOYMENT AGREEMENT WITH LIANG "BENNY" ZHAO DATE: November27,2012 The parties to this Employment Agreement (this "Agreement") are XO Energy, Worldwide, LLLP (the "Employer"), and Liang "Benny" Zhao (the "Employee"). The Employer desires to ensure itself of the services of the Employee as of XXX TBD XXX and the Employee desires to accept such employment on the terms and conditions set forth in this Agreement. Accordingly, the parties, intending to be legally bound, agree as follows: I. Employment and Term. The Employer offers to employ the Employee as an [Analyst], and the Employee accepts that employment with the Employer. Employee's employment under this Agreement shall commence as of XXX TBD XXX (the "Commencement Date") and shall continue on an "at will" basis until termination of Employee's employment as provided in Section 7 of this Agreement (the "Term"). Upon approval of the Employee's background check and due diligence package by the UVI Research and Technology Park (RTP), Employee will become a Class B Limited Partner. 2. Duties. The Employee shall report to and perform such duties as may be assigned from time to time by the Employer's Managing Members and/or such other senior executives of the Employer as the Managing Members may designate. The Employee shall devote his or her best efforts to promote the Employer's interests, and he or she shall perform his or her duties and responsibilities fa.ithfully, diligently and to the best of his or her ability, consistent with sound business practices and at the location designated by the Employer. The Employee shall devote his or her full working time to the business and affairs of the Employer. 3. Base Salary/Vacation. Employer shall pay the Employee a base salary/minimum distribution (the "Base Salarv") at an annual rate not less than .$125,000. The Base Salary shall be payable in accordance with the Employer's regular payroll practices. Employee's Base Salary may be adjusted at the discretion of the Employer at the end of each fiscal year, and shall not be reduced during the course of any fiscal year. Upon becoming a Partner, Base Salary will then be converted to a Minimum Distribution and reported to employee at year end on a Kl. Income and Self Employment taxes are the responsibilty of the Partner. Vacation days accrue during the Term. The initial level of vacation accural shall equal an annualized rate of 15.0 days (3 weeks). Vacation days shall be pre-approved by Employee's immediate supervisor. 4. Incentive Compensation. In addition to the Base Salary, Employee may be awarded certain incentive compensation (Profits Share) as determined in the sole discretion of the Employer. At the end of each calendar year, Employer shall evaluate whether Employee shall be awarded a share of Profits for the year then ending. 5. Covenants of the Employee. In order to induce the Employer to enter into this Agreement, the Employee hereby covenants and agrees as follows: 5611829.4 BOST_I912541.2 25 (a) Prior Restrictions. By accepting employment with Employer, the Employee agrees that he or she is not currently bound by any agreement that could prohibit or restrict him or her from being employed by Employer or from performing any duties under this Agreement. (b) Assignment. The Employee irrevocably assigns to the Employer, or to any party designated by the Employer, his or her entire right, title and interest in all Developments that are made, conceived, or developed by the Employee, in whole or in part, alone or jointly with others, within the scope of his or her affiliation with the Employer. Such assignment shall include, without limitation, all Intellectual Property Rights in such Developments. "Developments" shalt mean all discoveries, inventions, designs, improvements, enhancements, ideas, concepts, techniques, know-how, software, documentation or other works of authorship, whether or not copyrightable or patentable, in any form, related to any business or technology that has been developed or is under development by the Employer. "Intellectual Property Rights" shall mean all forms of intellectual property rights and protections that may be obtained for, or pertain to, the Confidential Information (as defined in Section 6) and Developments, or arise from work performed by Employee under this Agreement, and may include without limitation all right, title and interest in and to (i) all letters patent and all filed, pending or potential applications for letters patent, including any reissue, reexamination, division, continuation or continuation-in-part applications throughout the world now or hereafter filed; (ii) all trade secrets, and all trade secret rights and equivalent rights arising under the common law, state law, Federal law and laws of foreign countries; (iii) all mask works, copyrights other literary property or author's rights, whether or not protected by copyright or as a mask work, under common law, state law, Federal law and laws of foreign countries; and (iv) all proprietary indicia, trademarks, tradenames, symbols, logns and/or brand names under common law, state law, Federal law and laws of foreign countries. (c) Records. All papers, books and records of every kind and description relating to the business and affairs of the Employer, or any of its affiliates, whether or not prepared by the Employee, other than personal notes prepared by or at the direction of the Employer, shall he the sole and exclusive property of the Employer, and the Employee shall surrender them to the Employer immediately upon expiration of the Term and at any time upon request by the Employer. (d) Non-Comoetition. The Employee shall not, during the Term and for a period of two (2) years following the expiration of the Term for any reason (the "Restricted Period"), directly or indirectly: (i) Be engaged, directly or indirectly, either as an agent, employee, consultant, partner, officer, director, stockholder, proprietor, owner, or otherwise of any person, firm, corporation or organization engaged or attempting to become engaged in a business that competes with the business of the Employer or any of its subsidiaries or affiliates as it relates to the Employer's business (hereinafter, "Competitive Business"), including without limitation all existing and potential competitors and vendors of Employer, except for services rendered to Employer or a successor of Employer; provided, however, that nothing contained in this Section 5(d)(i) shall restrict Employee from owning stock of a publicly held and traded utility company; or 2 $611829.4 aOST_1912547,2 26 (ii) for Employee's own account, or for the account of any person, firm, corporation or organization engaged or attempting to become engaged in any aspect of a Competitive Business on a worldwide basis, sell to, solicit, contact or service to any person, firm, corporation or other organization that is or was a customer or prospective customer of Employer, with which Employee had contact during Employee's employment, regardless of the time when said customer or prospective customer became a customer or prospective customer of Employer. During the Restricted Period, Employee shall ioform every new employer, prio~ to accepting employment, of the existence of this Agreement and the provisions of this Section 5. (e) Non-Solicitation. The Employee shall not, during the Restricted Period, directly or indirectly: (i) Solicit for employment or engagment on the Employee's own behalf, or on behalf of a Compteitive Business, any individual or entity who is or has been an employee, agent or independent contractor of the Employer during the Restricted Period; or (ii) Contact or attempt to persuade any agent, broker or employee of Employer or its affiliated companies to terminate his or her relationship with Employer or do any act that may result in the impairment of the relationship between Employer and such agent, broker or employee. (f) Blue Pencil. The provisions contained in this Section 5 as to the time periods, geographic area and scope of activities restricted are severable, so that if any provision contained in this Section 5 is determined to be invalid or unenforceable, that provision shall be deemed modified so as to be valid and enforceable to the full extent lawfully permitted. (g) Breach; Enforcement. (i) Nothwithstanding any other remedy at law or in equity to which Employer may be entitled or may pursue, in the event Employee (a) breaches any of the covenants contained in this Section 5, (b) is terminated for Cause (as defined below), or (c) terminates his or her Employment without Good Reason (as defined below), he or she shall automatically forfeit any and all rights to any deferred Bonuses or other deferred incentive compensation (including without limintation any options relating to equity in Employer or its affiliates), and any grant by Employer of such remuneration shall be automatically void. (ii) The Employee agrees and warrants that the covenants contained herein are reasonable, that valid consideration has been and will be received therefor and that the agreements set forth herein are the result of arms-length negotiations between the parties hereto. The Employee recognizes that the provisions of this Section 5 are vitally important to the continuing welfare of the Employer, and its affiliates, and that money damages constitute a totally inadequate remedy for any violation thereof: Accordingly, in the event of any such violation by the Employee, the Employer, and its affiliates, in addition to any other remedies they may have, shall have the right to institute and maintain a proceeding to compel specific performance thereof or to issue an injunction restraining any action by the Employee in violation of this Section 5. 3 5611829.4 BOST.I912547.2 27 6. Confidentiality. The Employee shall not, directly or indirectly, disclose to anyone, or use in competition with the Employer or any of its subsidiaries or affiliates, any Confidential Information of or pertaining to the Employer, including without limitation, any trade secrets, advertising arrangements, costs, financial data, employee information or information as to organization structure of the Employer or any of its subsidiaries or affiliates. "Confidential Information" shall mean confidential or other proprietary information that is owned by the Employer or any of its subsidiaries or affiliates, including without limitation, hardware and software designs, product specifications and documentation, business and product plans, customer lists, and other confidential business information. Confidential Information shall not include information which: (i) is or becomes public knowledge without any action by, or involvement of, the Employee in violation of this Agreement; (ii) is disclosed by the Employee with the prior written approval of the Employer; or (iii) is disclosed pursuant to any judicial or governmental order or in any dispute with the Employer, provided that the Employee gives the Employer sufficient prior notice to contest such order. The Employee shall not disclose to the Employer or any of its subsidiaries or affiliates, use in the Employer's or any of its subsidiaries' or affiliates' business, or cause the Employer or any of its subsidiaries or affiliates to use, any confidential or proprietary information or materials of any third party. Nothing in this S.ection 6 is designed to narrow the Employer's enforcement rights under any state of federal law. 7. Termination of Employment. (a) Death or Disability. The Employee's employment under this Agreement shall terminate upon his or her death or Permanent Disability. For purposes of this Agreement "Permanent Disability" shall mean a physical or mental disability or infirmity that prevents the material performance by Employee of his or her duties hereunder (i) lasting for a continuous period of ninety (90) days or longer; or (ii) for ninety (90) days out of any one hundred· twenty (120) day period. (b) Termination by the Employer. The Employer may terminate the Employee's employment under this Agreement with or without Cause (as defined below) by giving written notice to the Employee of such termination. In the event of a termination without Cause, the Employer shall provide the Employee with at least 30 days'. advance written notice of his termination. For purposes of this Agreement, the Employer shall have "Cause" to terminate the Employee's employment under this Agreement in the event of: (i) the Employee's willful and continued failure to perform and to discharge his or her duties and responsibilities under this Agreement for any reason (other than the Employee's disability) after (x) the Employer has provided the Employee with written notice of its intent to terminate his employment under this clause, and (y) the Employee has failed to resume the performance of such duties within fifteen (15) days following receipt of such notice; (ii) any other willful misconduct by the Employee that is materially and demonstrably injurious economically to the Employer; (iii) the Employee's final conviction of any felony or any misdemeanor involving moral turpitude; or (iv) the Employee's violation of any ofthe provisions of Section 5 of this Agreement. (c) Termination by the Employee. The Employee may terminate his or her employment under this Agreement with or without Good Reason (as defined below) by giving prior written notice to the Employer. If the Employee terminates his or her employment without Good Reason, he or she shall provide the Employer with at least 30 days advance written notice 4 5611829.4 BOST_1912547 .2 28 of his intent to terminate his or her employment. For purposes of this Agreement, the Employee shall have "Good Reason" to terminate his or her employment upon: (i) the Employer's breach of a material provision of this Agreement, (ii) written notice to the Employer describing the nature of the breach proving an intent to terminate the Agreement for Good Reason under this clause, and (iii) the Employer's failure to correct the breach within fifteen (15) days following the written notice required in Section 7(c)(ii). 8. Compensation Upon Termination. (a) Compensation uoon Termination for Any Reason. Subject to Section S(g) of this Agreement, if the Employee's employment under this Agreement is terminated for any reason, then the Employee shall be entitled to receive the following benefits (collectively, the "Standard Termination Benefits"): (i) the amount of his or her Accrued Obligations (as defmed below), to be paid in a single lump sum cash payment within thirty (30) days of the date of termination, and (ii) any payments which the Employee, his or her spouse, beneficiaries or estate may be entitled to receive pursuant to any employee benefits plan or program of the Employer. As used in this Agreement, "Accrued Obligations" means, as of the date of termination, (A) any accrued but unpaid Base Salary, (B) any accrued and unpaid reasonable expense reimbursements, and (C) any accrued, but unpaid vacation. (b) Additional Termination Comqensation. If the Employer terminates the Employee's employment without Cause, if the Employee terminates his or her employment for Good Reason, or if Employee's employment is terminated under Section 7(a) of this Agreement, the Employee (or in the case of his or her death, his or her estate or beneficiary, as the case may be) shall be entitled to receive, in addition to the Standard Termination Benefits set forth in Section 8(a) above, the following additional benefits (the "Additional Termination Benefits'') within thirty (30) business days following his/her termination of employment: (i) a cash amount equal to two (2) months of the Employee's Base Salary as of the date of termination, payable in a lump-sum; and (ii) a pro-rata amount of his or her target bonus earned in the year of termination. The benefits referred to in this Section 8(b) ("Severance Pay") shall be given in lieu of any other claims, termination benefits or payments held by or due to or the Employee. In addition, all payments given hereunder shall be given only in exchange for the execution and delivery of a general release, in a form and substance agreeable to the Company, which releases any claims the Employee might have against the Company related to Employee's employment. Employee will forfeit any and all amounts due as Severance Pay hereunder upon the breach of any covenants in Section 5. 9. Miscellaneous. (a) Binding Effect. This Agreement shall be binding upon and inure to the benefit of the heirs and representatives of the Employee and the successors and assigns of the Employer. 5 5611829.4 BOST_191l547.l 29 (b) Notices. Any notice or other communication under this Agreement shall be in writing and shall be considered given when mailed by registered, return receipt requested mail, to the parties at the following addresses (or at such other address as a party may specify by notice to the others): To the Employer: To the Employee: XO ENERGY WORLDWIDE, LLLP 6501 Red Hook Plaza, Suite 201 St Thomas, VI 00802-1306 Attn: Shawn Sheehan/John Charette Addresses may be changed by written notice sent to the other party at the last recorded address of that party. (c) Jurisdiction and Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. The parties hereto consent to the jurisdiction and venue of any state or federal court in the State of Delaware and agree that any permitted lawsuit may be brought to such courts or other court of competent jurisdiction upon the consent of both parties. (d) Severability. If any provision of this Agreement, or the application of any provision to any person or circumstance, shall for any reason and to any extent be invalid or unenforceable, the remainder of this Agreement and the application of that provision to other persons or circumstances shall not be affected but shall be enforced to the full extent permitted by law. (e) Prior Understandings. This Agreement embodies the entire understanding of the parties hereof, and supersedes all other oral or written agreements or understandings between them regarding the subject matter hereof. No change, alteration or modification hereof may be made except in a writing, signed by each of the parties hereto. (f) Successors, (i) Employer's Successors. No rights or obligations of the Employer under this Agreement may be assigned or transferred except that the Employer may assign this Agreement to any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Employer if such successor expressly assumes and agrees to perfonn this Agreement in the same manner and to the same extent that the Employer would be required to perform it if no such succession had taken place. As used in this Agreement, "Employer" shall mean the Employer as herein before defined and any successor to its business and/or assets (by merger, purchase or otherwise) which executes and delivers the agreement provided for in this Section 9(f)(i) or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (ii) Employee's Successors. No rights or obligations of the Employee under this Agreement may be assigned or transferred by the Employee other than his rights to 6 5611829.4 SOST_I912S47.2 30 payments or benefits hereunder, which may be transferred only by will or the laws of descent and distribution. Upon the Employee's death, this Agreement and all rights of the Employee hereunder shall inure to the benefit of and be enforceable by the Employee's beneficiary or beneficiaries, personal or legal representatives, or estate, to the extent any such person succeeds to the Employee's interests under this Agreement. The Employee shall be entitled to select and change a beneficiary or beneficiaries to receive any benefit or compensation payable hereunder following the Employee's death by giving the Employer written notice thereof. In the event of the Employee's death or a judicial determination of his incompetence, reference in this Agreement to the Employee shall be deemed, where appropriate, to refer to his beneficiary(ies), estate or other legal representative(s). lf the Employee should die following his date of termination while any amounts would still be payable to him hereunder if he had continued to live, all such amounts unless otherwise provided herein shall be paid in accordance with the terms of this Agreement to such person or persons so appointed in writing by the Employee, or otherwise to his legal representatives or estate. (g) Non-Disclosure. Unless otherwise required by applicable law or the rules of any stock exchange or quotation system on which the securities of the Employer are listed, or by legal process, each of the parties to this Agreement shall hold the terms of this Agreement in the strictest confidence and shall not disclose or otherwise make public any of the terms and conditions of. this Agreement; provided, that, any disclosure made by Executive to his spouse, attomey(s) or financial adviser(s) shall not be deemed to be a breach of this Section 9(g). (h) No Waiver. The failure of any party at any time or times to demand strict performance by any other party of the terms, covenants, or conditions set forth in this Agreement shall not be construed as a continuing waiver or relinquishment thereof, and any party may at any time demand strict and complete performance of such terms, covenants, and conditions. (i) Integration. This Agreement constitutes the final, exclusive, and complete expression of the agreement of the parties hereto, and it embodies all of the terms and conditions of the Agreement between the parties with respect to the subject matter hereof. This Agreement is expressly intended to replace and supersede all prior and contemporaneous agreements, proposals, negotiations, representations, and warranties, if any, between the parties. There are no agreements, representations, or warranties that have not been included in this Agreement. It represents the result of arms length negotiation between the parties and shall be interpreted and construed without regard to any presumption or other rule requiring construction against the party who caused the Agreement to be drafted. G) Execution in Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which together shall constitute but a single instrument. [The remainder of this page is intentionally left blank.] [Signature lines appear on the following page.] 7 l611829.4 BOST_1912S47.2 31 IN WITNESS WHEREOF, the parties hereto have exeouted and delivered this Agreement as· of the day and yead'irst abQve written, ·.· ·. EMPLOYER: xo~. GY:~.~oo~ ~· ~Bi:P.'r By=~s Title: EMPLOYEE; L;o.nd zhao - 9 5-61 111~.4 BOS1cl911l4J.1 32 Temporary Injunction September 30, 2015 1 REPORTER'S RECORD 2 VOLUME 2 OF 3 VOLUME FILED IN 1st COURT OF APPEALS HOUSTON, TEXAS 3 TRIAL COURT CAUSE NO. 15-DCV-226436 11/12/2015 3:11:05 PM 4 CHRISTOPHER A. PRINE Clerk 5 XO ENERGY LLC and ) IN THE DISTRICT COURT OF XO ENERGY WORLDWIDE, LLLP ) 6 Plaintiffs, ) ) 7 VS. ) FORT BEND COUNTY, TEXAS ) 8 LIANG "BENNY" ZHAO, ) Defendant. ) 240TH JUDICIAL DISTRICT 9 10 11 12 TEMPORARY INJUNCTION 13 14 15 On the 30th day of September, 2015, the following 16 proceedings came on to be held in the above-titled and 17 numbered cause before the Honorable Stuti Patel, 18 Associate Judge Presiding, via digital recording under 19 Rule 199.1(c), held in Richmond, Fort Bend County, 20 Texas, pursuant to the Texas Rules of Civil Procedure. 21 TRANSCRIPTION UNDER RULE 203.6(a) by a Certified 22 Shorthand Reporter. 23 24 25 Temporary Injunction 2 September 30, 2015 1 APPEARANCES 2 3 MR. TOM VAN ARSDEL SBOT NO. 24008196 4 Attorney at Law 1100 JP Morgan Chase Tower 5 600 Travis Street Houston, TX 77002 6 Telephone: 713-650-2728 7 AND 8 MR. ZACHARY B. ALLIE SBOT NO. 24063997 9 Attorney at Law 1100 JP Morgan Chase Tower 10 600 Travis Street Houston, TX 77002 11 Telephone: 713-650-2728 12 Attorneys for Plaintiff XO Energy LLC and 13 XO Energy Worldwide, LLLP. 14 15 16 17 MS. SHANNON ASHLEY LANG 18 SBOT NO. 24070103 723 Main Street, Suite 330 19 Houston, TX 77002 Telephone: 713-955-1800 20 Attorney for Defendant Liang "Benny" Zhao 21 22 23 24 25 Temporary Injunction 3 September 30, 2015 1 WITNESS INDEX 2 John Charette Direct Cross V.Dire 3 By Mr. Van Arsdel 24 v2 4 By Ms. Lang 60 v2 5 6 Closing Statement by Mr. Van Arsdel ..............71 2 7 Closing Statement by Ms. Lang ....................74 2 8 The Court's Ruling by Judge Patel ................82 2 9 Reporter's Certificate ...........................86 2 10 * * * * * * * 11 EXHIBIT INDEX 12 EXHIBIT DESCRIPTION OFFERED ADMITTED 13 # 2. California Independent 28 System Operator Corp. 14 Electronic Tarniff 15 # 7. Offer of Employment to 37 38 Mr. Zhao 16 # 8. Employment Agreement to 41 41 17 Mr. Zhao 18 # 13. Exhibit D to Petition 53 Screen shots 19 # 14. Paystub for Mr. Zhao 56 56 20 # 16. Letter of Termination to 56 57 21 Mr. Zhao 22 23 24 25 Temporary Injunction 4 September 30, 2015 1 (The following hearing is being 2 transcribed from a digital audio recording 3 provided by Stuti Patel, Associate Judge 4 for the 240th District Court.) 5 (PROCEEDINGS) 6 THE COURT: We are on the record for 7 15-DCV-226436. If the attorneys could state their names 8 and who they represent for the record. 9 MR. VAN ARSDEL: Yes. Tom Van Arsdel for 10 XO Energy, LLC, and XO Energy Worldwide LLLP, the 11 Plaintiffs. 12 MR. ALLIE: Zachary Allie for the same 13 parties. 14 MS. LANG: Shannon Lang on behalf of the 15 Defendant, Liang Zhao. 16 THE COURT: Okay. Thank you, counsel. It 17 is my understanding before we got on the record this 18 morning that y'all had an opportunity to meet and have 19 reached I guess a partial agreement or the Defendant is 20 not opposed to entry of certain parts of the order; is 21 that correct? 22 MR. VAN ARSDEL: That's right. 23 MS. LANG: That's correct. 24 THE COURT: Okay. Do one of y'all want to 25 cite for the record just briefly -- and I'm referencing Temporary Injunction 5 September 30, 2015 1 to the proposed temporary injunction order that was 2 filed on 9-29 of this year under this cause number. Do 3 one of the attorneys want to go ahead and state for the 4 record what part of that proposed order is not opposed 5 or unopposed? 6 MR. VAN ARSDEL: Sure. This order asks 7 for, starting on page 2, the middle of page 2, certain 8 elements of relief A, B, and C. As to A, the parties -- 9 the Defendant is not opposed to the relief requested in 10 Section A of the order, so long as every part of the 11 phrase after the word "judgment" is struck. So, the 12 phrase would read, "Contacting or soliciting any and all 13 Plaintiffs' clients, customers, vendors, or suppliers 14 that the Defendant came into contact with as an employee 15 of Plaintiffs, or for which he obtained confidential 16 information about during his employment until final 17 judgment." 18 And then as to the relief requested in 19 Section B including all subparts and Section C, the 20 Defendant is unopposed to an entry of order for that 21 relief as well. 22 THE COURT: And is that correct, Ms. Lang? 23 MS. LANG: That is correct. 24 THE COURT: Okay. So, we have placed on 25 the record the part of the proposed order that is not Opening Statement by Mr. Van Arsdel 6 September 30, 2015 1 opposed. It is my understanding that this afternoon 2 when we reconvene after the Court's recess, we will hear 3 arguments, law, evidence about the remaining issue, 4 which is the Plaintiffs' request for the deposit in the 5 Court registry. Is that the only issue remaining? 6 MR. VAN ARSDEL: That's right. 7 MS. LANG: Yes, and then perhaps some 8 changes to the preparatory language. 9 THE COURT: Yes. That is correct. And it 10 could affect the other language. So, with all that 11 being stated on the record, we are going to go off the 12 record at this time. The Court stands in recess in this 13 cause number until -- we will start exactly at 1:30 p.m. 14 Does that work for both parties? 15 MR. VAN ARSDEL: Okay. That would be 16 fine. 17 THE COURT: Okay. Then we are going to go 18 off the record at this time. 19 (Off the record.) 20 THE COURT: We are back on the record in 21 Cause Number 15-DCV-226436. If I could have the 22 attorneys state their name and who they represent for 23 the record again since we restarted it. 24 OPENING STATEMENT 25 MR. VAN ARSDEL: Yes. Tom Van Arsdel for Opening Statement by Mr. Van Arsdel 7 September 30, 2015 1 XO Energy, LLC, and XO Energy Worldwide, LLLP, the 2 Plaintiffs. 3 MR. ALLIE: Zachary Allie for the same 4 Plaintiffs. 5 MS. LANG: Shannon Lang on behalf of the 6 Defendant. 7 THE COURT: Okay. Thank you. And, 8 Mr. Van Arsdel, are you going to be the primary 9 presenting for the Plaintiff? 10 MR. VAN ARSDEL: I will be. 11 THE COURT: And you are the movant today, 12 so, I will let you go ahead and give the Court some 13 opening remarks briefly about what you are asking for. 14 MR. VAN ARSDEL: Thank you, Your Honor. 15 XO Energy and XO Energy Worldwide are companies involved 16 in the wholesale of electricity trading market. They 17 operate out of an office in Saint Thomas U.S. Virgin 18 Islands. They also have an office in Landenberg, 19 Pennsylvania, outside of Philadelphia. 20 And to accomplish their business 21 objectives they hire a number of traders and analysts to 22 support their trading activity. Mr. Zhao, the 23 Defendant, was formally an analyst with XO Energy. He 24 was employed beginning in 2013, and his employment was 25 terminated earlier this year in March of 2015. Opening Statement by Mr. Van Arsdel 8 September 30, 2015 1 As part of fulfilling his duties for XO 2 Energy as an analyst, Mr. Zhao was given access to 3 certain confidential information that was necessary for 4 the work he needed to do to facilitate trades and make 5 good decisions on what energy markets to trade in. So, 6 to receive this information he signed a number of 7 agreements that allowed him access to the information 8 and also required him to take certain measures to 9 protect it, and we will have evidence of that in the 10 record. 11 In addition to that, he had to sign an 12 employment agreement. The employment agreement said 13 that he was to receive a salary. That salary was 14 $125,000 annually. A number of benefits he was also 15 eligible for. And he was also eligible for deferred 16 compensation, essentially a year-end bonus based on 17 performance and the performance of the companies that 18 would be determined solely in the discretion of 19 management. 20 There are some additional provisions in 21 the agreement that impact whether or not he gets a 22 bonus. One of those is if he has violated Section 5 of 23 the agreement. The agreement says that, "All payments 24 of compensation are automatically void." Section 5 of 25 the agreement contained a non-compete clause for two Opening Statement by Mr. Van Arsdel 9 September 30, 2015 1 years that prevents him from doing anything to compete 2 with XO Energy in this industry. The reason that's in 3 there, Your Honor, is because these analysts and traders 4 receive very specialized training, they receive not only 5 the confidential information, they receive some training 6 on how to use it. So, what they don't want is for 7 employees to come on board, get all this information, 8 learn the ropes, and then immediately set up shop next 9 door to compete. So, they have a two year non-compete 10 in there. And it says, again, that if that's violated 11 then any grant by the employer of such remuneration 12 shall be automatically void, and that includes deferred 13 bonuses. 14 What we have here is we discovered -- XO 15 Energy -- discovered in February of 2015 that Mr. Zhao 16 had been downloading and copying confidential 17 information that was contained in various parts of 18 XO Energy's computer system. He downloaded this on to 19 an external drive from his home in Katy. Incidentally, 20 Mr. Zhao was the only employee or representative of XO 21 that lived outside of either Landenberg, Pennsylvania or 22 Saint Thomas Virgin Islands, he lived in Katy. 23 THE COURT: His house is in Katy, 24 Fort Bend County? 25 MR. VAN ARSDEL: It is. And there is a Opening Statement by Mr. Van Arsdel 10 September 30, 2015 1 computer software package that was activated on his 2 computer to capture all the activity and screen shots on 3 his computers during a period from roughly 4 February 13th, to February 27th. And what those screen 5 shots capture is his personal copying of various pieces 6 of confidential information contained in proprietary 7 software, contained in licensed software, contained in 8 emails, maps that had been obtained from the independent 9 service organizations that run these utility markets 10 that are provided in exchange for confidentiality 11 agreements -- 12 THE COURT: Who put that software in his 13 computer to capture the screen shots? 14 MR. VAN ARSDEL: The company did. It's on 15 everyone's computer, but you have to manually turn it 16 on, and they did turn on the screen shot capability on 17 his computer in mid February of 2015. And all of the 18 information or a selection of the information that was 19 captured during those screen shots is attached to the 20 petition. 21 So, what we also saw, in addition to the 22 copying, was he was developing a to do list and 23 accessing the website for an organization called CAISO, 24 C-A-I-S-O, it's a California electricity company. And 25 what he was doing is he was looking for what the Opening Statement by Mr. Van Arsdel 11 September 30, 2015 1 requirements are to set up to be a trader on that 2 utility grid, and he was making a to do list of 3 everything that he needed to do to set himself up to 4 trade on that ISO. So, we have evidence that he was 5 making imminent plans to compete against XO Energy. He 6 was going to quit the company, set up himself to compete 7 on the CAISO and violate his non-compete. 8 So, once that was discovered, 9 unfortunately the payment of the bonus that he was 10 supposed to get for his performance in 2014 was not 11 discovered in time to hold back that payment. Because 12 the company would have invoked and, in fact, has invoked 13 the breach and enforcement provision of the employment 14 contract which says that that remuneration is 15 automatically void. It was evidenced before he was to 16 be made the payment, it was just not discovered until 17 that payment was already in process and deposited in his 18 account. 19 So, what we are asking the Court to do is 20 enforce this part of the agreement, to compel Mr. Zhao 21 to pay that money into the registry of the Court pending 22 the outcome of this case. We are disputing the 23 ownership of the funds, and we believe that the 24 agreements in place and under Texas law, we are entitled 25 to this relief. Opening Statement by Ms. Lang 12 September 30, 2015 1 THE COURT: So, you are asking that he be 2 ordered to pay that amount -- I think it was around 500 3 something thousand dollars -- I have it in your 4 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/4074049. Public record. Not legal advice.