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In Texas, Litigation Abuse Is A Growing Threat To Businesses

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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