In Texas, Litigation Abuse Is A Growing
Threat To Businesses
October 25, 2019
4 min
read
Small
business has always been America’s driving economic force when it comes to job
creation and opportunity. Entrepreneurship is vital especially in
underserved communities — and the evidence is clear that American Latinos, for
example, are reaching new economic heights in the American marketplace with
small business creation.
While
unnecessarily cumbersome and needless regulations have been a hindrance to
creating opportunities and jobs for all small businesses, they now pale in
comparison to alarming developments in our judicial system that place
extraordinary strains on business relationships.
The
success referenced above of Hispanic-owned businesses, for example, is a boon
to the entire country. Business groups estimate at over 4.3 million and
growing, contributing over $700 billion annually to the American economy. A
September 2018 report by CNBC also shows that in just one
year, revenue from Hispanic-owned businesses has increased by 26.5%.
Texas
is a driving force behind this growth. Three of the top five cities for Hispanic
entrepreneurs are in Texas: Laredo, Corpus Christi, and San Antonio.
Additionally, one out of every five Latino small
business loan requests in the United States is made in the Lone Star state.
But a
recent 2018 court case in San Antonio that resulted in one of the largest trade
secret judgments in American history could set a troubling new precedent for
small businesses seeking to expand their economic outreach, build new
commercial relationships, and contribute to the American economy.
While
issues in business-related trials are often obscure or mundane, even a quick
glance at key specifics of the case in question is perplexing to the point of
comedy.
The
case involved housing valuation startup HouseCanary suit against Amrock, a
title insurance firm and HouseCanary’s former business partner, for allegedly
misappropriating trade secrets.
In a
reasonable world, HouseCanary’s case would have crumbled when a key witness testified that Amrock hadn’t used any of the
purported trade secrets. Or when Amrock CEO Jeff Eisenshtadt then received an unsolicited email from a HouseCanary
whistleblower stating that the company gave Amrock faulty wireframes and apps,
and that Amrock was “lied to repeatedly.”
Or when
that employee’s concerned email inspired three additional whistleblowers who
served as top HouseCanary executives to come forward. Each individual attested
under oath to HouseCanary’s blatant deceit and inability to deliver a
functioning product.
HouseCanary
also aimed to silence those privy to their unethical business practices,
according to a previous employee’s sworn statement. The employee was offered a $250 an hour
consulting agreement with the startup despite the fact that there was “no
specifically-defined scope of work, nor any minimum or maximum number of hours
per month.” The employee concluded that HouseCanary was attempting to prevent
him from telling the truth.
But the
result was a jaw-dropping $706.2 million verdict against. . . Amrock.
This
verdict should raise red flags for both small and large firms. Many small
businesses cannot and should not have to allocate finances toward large
punitive damages and legal costs elicited by these types of weak legal
allegations. In fact, verdicts of the magnitude exhibited in this case will
result in businesses permanently closing their doors and the loss of many jobs.
Moreover,
larger firms shouldn’t have to be skittish around potential partners. If large
firms walk into a potential commercial relationship with a startup worried that
they could be duped at any moment, they will think twice about shaking hands
with that prospective entrepreneur.
This
court case has demonstrated that dishonest and deceitful maneuverings of one
business partner can lead to disastrous consequences for the other — even in
our court system. Judicial officials should reconsider this verdict so that
small businesses in all communities can continue to pursue the American dream.
Mario
H. Lopez is president of the Hispanic Leadership Fund, a public policy advocacy
organization that promotes liberty, opportunity, and prosperity for all
Americans.
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