Contracts Trade Secrets

Former Fitness Club Executive Accused of Stealing Trade Secrets

Kyle Bauer has long worked in the fitness industry and recently founded ReNew You, a fitness club in Houston, Texas. But now his former employer, the nationwide fitness chain Life Time Fitness Inc., is coming after him for allegedly misappropriating trade secrets as well as for breach of fiduciary duty, breach of contract, and tortious interference with contracts. On January 19, 2016, the fitness chain filed a lawsuit against Bauer in the United States District Court for the Southern District of Texas.

Bauer was hired by Life Time Fitness in 2010 as a Regional Vice President in a deal that also included the company paying $5.4 million to purchase a fitness club that Bauer owned in Texas. He worked for five years as the Regional Vice President in charge of overseeing twenty-five fitness clubs in the states of Texas, Georgia, and Alabama. However, according to Life Time Fitness, Bauer was using this opportunity to steal the company’s trade secrets, including its business plans, service menus, and pricing models, in order to start another fitness chain of his own. Life Time Fitness claims that this misappropriation of trade secrets constitutes a violation of both Texas state law and the Computer Fraud and Abuse Act, a federal statute.

Life Time Fitness also alleges that Bauer engaged in various activities that constitute a breach of fiduciary duty. Every employment relationship contains an implied fiduciary duty that is owed by the employee to serve his or her employer with good faith and loyalty. Bauer is accused of failing to meet the loyalty component of this duty. The company states that Bauer used Life Time Fitness’s computers and resources to prepare business plans, negotiate with future employees, conduct financial transactions for his new business, design a new logo, and draft documents outlining employee benefits for ReNew You. They also claim that Bauer improperly solicited a Dr. R. Scott Yarish to partner with him at his new club during a time at which both were employed by Life Time Fitness. The duty of loyalty prohibits employees from soliciting co-workers to leave their current employer in order to work for them in the future.

Bauer is also accused of breach of contract based upon the non-compete agreements that Life Time Fitness included in his employment contract. Non-compete agreements limit the ability of an employee to enter into another job, for a defined period of time, where they would compete with their current employer. Bauer had signed such an agreement that forbade him from competing with Life Time Fitness for a period of three years after his employment with them ended. Such agreements are somewhat controversial and treated much differently in different states. California, for example, has nearly outlawed the provisions, while most other states will tolerate them so long as the restrictions are narrowly construed in terms of the time, geographic area, and scope of industry in which the employee is forbidden from competing. At this stage in the proceedings, it is unclear whether or not the Texas federal court will uphold the non-compete clause in Bauer’s employment contract. Bauer will likely need to demonstrate that the clause was overly broad based on one of the three dimensions previously discussed: time, area, and scope.

The tortious interference claims stem from Bauer’s relationship with Dr. R. Scott Yarish. As Regional Vice President at Life Time Fitness, one of Bauer’s responsibilities was to negotiate an extension of Yarish’s employment contract with Life Time Fitness. At the time, Bauer informed the company that Yarish was not interested in extending his contract. Now that the two are partners with their own fitness club venture, Life Time Fitness is accusing Bauer of tortious interference with prospective contracts and tortious interference with existing contracts.

Many employees envision leveraging the knowledge, experience, and contacts that they have developed in an industry to strike out on their own and start a company. However, they must be careful when engaging in such ventures to protect themselves from the potential liability that Kyle Bauer now faces. Starting a new business is exciting, but facing a lawsuit in federal court is a quick way to dampen the mood.