Case Updates for September, October, and November 2013

By John Barnes and Andrew Nelson ,Wright & Close, LLP


Appellate attorney’s fee awards: contingent on success?

Northern & Western Ins. Co, Ltd. v. Sentinel Investment Group, LLC, No. 01-12-00847-CV, 2013 WL __________ (Tex. App.—Houston [1st Dist.] Oct. 31, 2013, ____________)

Issue Presented: Must an award of appellate attorney’s fees be conditioned on a successful appeal?

Relevant Facts: A group of investors agreed to invest $1.5 million with the Panamanian company. The Panamanian company purchased a surety bond with Northern & Western as security for the investment. The investment did not deliver as promised, and the investors demanded payment under the surety bond. Northern & Western refused. The investors sued Northern & Western, and the trial court entered a summary judgment against Northern & Western on the investors’ breach of contract action. The judgment included an award of attorney’s fees: “It is ORDERED . . . that plaintiff Sentinel recover additional attorney’s fees in the amount of $50,000 in the event of an appeal.”

Legal Summary: Northern & Western appealed. One of its points was that the award of appellate attorney’s fees should have been conditioned upon Sentinel’s successful appeal. The court agreed with Northern & Western that appellate attorney’s fees must be conditioned on prevailing on appeal. However, the court refused to grant Northern & Western’s request to strike the fee award altogether. Rather, the court simply modified the judgment to condition the award of appellate attorney’s fees on a successful appeal.


Personal jurisdiction: non-residents and Texas real property

Curocom Energy, LLC v. Young-Sub Shim, No. 01-13-00462-CV, 2013 WL _________ (Tex. App.—Houston [1st Dist.] Nov. 14, 2013, _______)

Issues Presented: Are allegations of fraud in connection with a transaction involving Texas real property sufficient to subject a non-resident defendant to personal jurisdiction in Texas?

Relevant Facts: Shim was an officer of a Korean company and a resident of Korea. A subsidiary of the Korean company purchased oil and gas leases in Texas. Shim oversaw the purchase and traveled to Texas to visit the oilfield. Shim later sold a 90% interest in the oilfield to Curocom, following meetings between Shim and Curocom’s chairman in Korea. Curocom later filed suit against Shim, alleging that he fraudulently induced Curocom to enter into the contract by failing to disclose a bad production report he had received regarding the oilfield. Shim filed a special appearance, which the trial court granted. Curocom appealed.

Legal Summary: Curocom argued that Shim was subject to specific jurisdiction in the Texas because of his allegedly fraudulent dealings regarding property in Texas. The court noted that a defendant’s purchase or sale of real property in Texas would subject a defendant to specific jurisdiction in litigation regarding that property. However, Shim never personally owned an interest in the property—the property was owned by a subsidiary of the company of which Shim was an officer. Thus, the specific jurisdiction doctrine of “property ownership” would not apply to Shim.

Curocom argued that Shim was subject to jurisdiction because he visited the property in Texas shortly after negotiating purchase. However, the Curocom lawsuit dealt with a different transaction. Additionally, Shim’s allegedly fraudulent conduct occurred outside Texas. As a result, Shim could not be subjected to jurisdiction in Texas based on the commission of a tort outside of Texas, even if it was directed at property in Texas.

Next, Curocom asked the court to extend the jurisdictional nexus of Texas real property to any fraudulent inducement claims related to that property. The court refused this request, holding that an ownership right in the property is necessary for specific jurisdiction. Thus, although Shim’s alleged fraudulent inducement related to Texas real property, the court held that he could not be subjected to personal jurisdiction on those grounds because he did not personally own the property.


The impact of a bankruptcy stay on appellate jurisdiction

Saden v. Smith, No. 01-11-00202-CV, 2013 WL 5372748 (Tex. App.—Houston [1st Dist.] Sep. 26, 2013, no pet. h.)

Issue Presented: When a party files bankruptcy and invokes the automatic stay, can that party still appeal a judgment against him?

Relevant Facts: Saden and Smith were partners. Smith sued Saden for breach of contract and breach of fiduciary duty. Smith obtained a judgment against Saden. After the verdict, but before judgment was entered, Saden filed for bankruptcy. The bankruptcy court modified the automatic stay to permit the trial court to enter judgment on the verdict. The bankruptcy court then entered an order declaring that the judgment against Saden would be non-dischargeable through bankruptcy. Saden appealed the judgment. Smith filed a motion to dismiss the appeal for lack of appellate jurisdiction, arguing that the bankruptcy trustee—not Smith—had the authority to bring the appeal.

Legal Summary: The court began the analysis by noting that Saden filed an emergency motion in the bankruptcy court to confirm his authority to file the appeal. The bankruptcy court modified the stay to allow Saden to bring his appeal, but expressly declined to rule on the issue of whether the court of appeals had jurisdiction over the appeal. Thus, although the stay did not prevent Saden from filing an appeal, the court analyzed whether any other issues would prevent him from bringing the appeal.

Saden argued that the non-dischargeability determination by the bankruptcy court provided him with standing to bring the appeal. The appellate court agreed. The court noted that while a discharge under Chapter 7 bankruptcy ordinarily extinguishes a debtor’s personal liability for a debt, the bankruptcy court’s non-dischargeability order meant that Saden retained a pecuniary interest in the outcome of the bankruptcy case. Because the judgment against Saden would not be extinguished as a result of the Chapter 7 bankruptcy proceedings, and in light of the bankruptcy court’s modification of the stay, the court held that Saden had standing to pursue the appeal in his personal capacity, giving the court of appeals jurisdiction over the appeal.


William M. Bishop, et al. v. E. Barger Miller III, et al., No. 14-12-00264-CV (consolidated with No. 14-12-00318-CV) (Tex. App.—Houston [14th Dist.] September 12, 2013)

Issue Presented: This consolidated appeal presented issues concerning the vicarious liability of a corporation for its officer's misappropriation of trade secrets belonging to a third party.

Relevant Facts: These cross-appeals concerned the alleged misappropriation of trade secrets relating to a process for mining potash (potassium-containing ore) in a particular region near Moab, Utah known as Ten Mile Area. William M. Bishop ("Bishop"), a geologist and mechanical engineer, was the developer of a patented "pipe-in-pipe" or concentric-pipe heat exchanger for use in the solution mining of minerals contained in underground salt formations. While working for Parsons Brinckerhoff-Kavernen Bau und Betroeb (PB-KBB), an engineering firm, and examining materials provided by Buttes Resources Company ("Buttes"), Bishop began to formulate a process for selective solution mining ("SSM") of the Ten Mile Area. SSM involves injecting a mining solution (typically brine) underground and extracting a mineral in a crystallized form that is separated from the mining solution, which solution can then be returned underground. SSM requires a certain temperature differential between the deposit and the surface, and differs from the basic process of solution mining, wherein the mineral is dissolved with the mining solution itself (usually freshwater) and later processed for separation, requiring large retention ponds and typically leaving behind large salt deposits. The standard climate in the Ten Mile Area did not afford the proper temperature differential to use SSM as normally employed, but Bishop's plan called for the use of his pipe-in-pipe heat exchanger to achieve the correct temperature balance.

After leaving PB-KBB, Bishop began to solicit potential investors with the intent of obtaining the potassium mining rights in Ten Mile Area and developing his plan for mining in the area. The mining rights in Ten Mile Area by this time were owned by Reunion Potash Company ("Reunion"). Bishop met E. Barger Miller III ("Miller"), potential investor, and the two formed a partnership. In 2002, Bishop and Miller signed a letter agreement pledging joint participation in the project. In 2003, after additional investors failed to materialize, Miller sent Bishop a letter regarding terms for Miller's possible exit from the project, and in late 2004 or early 2005, Miller informed Bishop that he (Miller) no longer took any responsibility for the joint project.

In June 2005, Miller formed a new company, Carnallite Enterprises, LLC, with other investors, and created a business plan for the development of Ten Mile Area, which he used in an attempt to sell all or part of the project to BHP-Billiton (BHP). Miller also used the business plan to obtain a loan from Texas Community Bank, which he used to purchase Reunion (and its rights in Ten Mile Area) on behalf of Carnallite. Miller than became president of Reunion.

Miller also prepared a series of PowerPoint presentations, which he showed to a number of potential investors, including Gordon Gray, owner of Allied Crude Purchasing ("Allied"). Allied eventually purchased Reunion from Carnallite on March 23, 2007 for $1.23 million, out of which Carnallite satisfied several accounts payable and made a shareholder distribution, including to Miller's company, E. B. Miller & Co. Miller then resigned as president of Reunion, being replaced by Gray, but remained on as its secretary and continued to act as its agent to develop an Operating Plan for the Ten Mile Area leases. As of the date of the appeal, the Bureau of Land Management (BLM) had rejected the Operating Plan as incomplete, but Reunion was still pursuing its plans to develop the leases.

Meanwhile, Bishop, while seeking investors for his planned project, learned of Carnallite's purchase of Reunion and filed suit on behalf of himself and the partnership, alleging, amongst other things, fraud and breach of contract against Miller and misappropriation of trade secrets against Miller and Reunion. At trial, the jury found (1) that Bishop and Miller had formed an equal partnership, that Miller had breached his duty of loyalty to Bishop, and Bishop was entitled to $1.04 million in damages; (2) that Miller had failed to comply with his duty of loyalty to the partnership, entitling it to $2.08 million in damages; and (3) that Miller had breached a confidentiality agreement and a letter agreement, resulting in a diminishment in Bishop's interest in the joint venture of $1.04 million. The jury charge also inquired whether each item in a list of thirteen pieces of information constituted trade secrets belonging to Bishop, as well as whether a compilation of any or all of the items constituted a trade secret. The jury found that three of the items (Bishop's calculations of temperature and concentration in the Ten Mile Area, Bishop's plan for use of heat exchangers, and the economic and environmental advantages of using a heat exchanger in a closed-loop system in the development of potash beds that exist at anomalously high temperatures) individually constituted trade secrets and that a compilation of some of the items likewise constituted a trade secret, and that these had been misappropriated by Miller and Reunion, proximately causing damages to Bishop in the amount of $1,696,428.55. In its judgment, the trial court concluded that the jury verdict favored Bishop, and that Bishop had assigned his claims to Pinnacle Potash. The trial court therefore entered judgment in favor of Pinnacle, awarding (1) $1.04 million in actual damages, plus $1,456,929.84 in attorneys' fees, against Miller on the contract claims; (2) $1,357,142.84 against Miller, individually, for misappropriation of trade secrets; and (3) $339,285.71 against Miller and Reunion, jointly and severally, for misappropriation of trade secrets. The court further ordered Reunion to pay 12.4% of Pinnacle's court costs, and Miller to pay 84.6% of those costs.

Reunion appealed (Miller did not), challenging the legal sufficiency of the evidence on the following points: (1) that Bishop owned any trade secrets; (2) that Reunion used Bishop's trade secrets; or (3) that Bishop suffered damages as a result.

Outcome/Holding: The Court affirmed the trial court judgment. The Court reasoned that Bishop's calculations constituted a trade secret because the evidence demonstrated that the calculations were what permitted the use of the SSM technique that he developed. The Court further found that the use of a heat exchanger to compensate for anomalously high temperatures for SSM was demonstrated to be unique by the testimony of Bishop at trial, which was unrebutted by Reunion's industry expert, and therefore also was a trade secret. The Court also found that Bishop's testimony comparing the mining method he devised to those in use in other potash mines, emphasizing the economic and environmental benefits of this approach, was sufficient to establish this, too, as a trade secret. The Court also concluded that the compilation of information that went into Bishop's process, even though some of the information was originally sourced from Buttes, and therefore was also in the possession of Reunion, likewise constituted a trade secret. Based on the efforts of Bishop, including, but not limited to, making those with whom he shared his process sign confidentiality agreements, the Court concluded that Bishop had maintained the secrecy of his process, as required for protection under In re Bass, 113 S.W.3d 735 (Tex. 2003). The Court held that Reunion had "made use" of the trade secrets because Miller, though holding himself out to BHP as the president of Carnallite, had nonetheless openly negotiated for the development of mineral leases owned by Reunion, of which he was then president, and had used the information obtained from Bishop that constituted his trade secrets in order to entice BHP to invest large sums of money in the project, which would have inured to the benefit of Reunion. Moreover, though unsuccessful, Reunion, through Miller, had submitted its Operating Plan, of which fifteen parts were directly incorporated from Bishop's plan, and a further six were modified variants of the remaining parts of Bishop's plan, to the BLM with the intent of seeking to profit from doing so via development of the leases. As to damages, the Court found that Bishop's expert had adequately detailed the basis for his conclusions, even though he had not broken out his calculations for each of the items that the jury found to be Bishop's trade secrets, and that Reunion's expert had failed to rebut the testimony.

Justice Christopher filed a concurring opinion, as she further believed that Reunion had failed to preserve some of its complaints regarding the legal sufficiency of the evidence supporting the damages finding.


Mark A. D'Andrea, M.D., et al. v. Epstein, Becker, Green, Wickliff & Hall, P.C., et al., No. 14-12-00494-CV (Tex. App.—Houston [14th Dist.] October 31, 2013)

Issue Presented: The issues presented by this appeal were whether the preparation of a memo concerning the behavior of Appellant D'Andrea by outside counsel at the direction of the corporation's general counsel, and the furnishing of said memo to said general counsel after he was terminated by the corporation, violated outside counsel's duty of loyalty to (a) the corporation; and/or (b) D'Andrea, whom outside counsel was representing, individually, in an unrelated bankruptcy proceeding.

Relevant Facts: This was an attorney malpractice action brought by D'Andrea and various business entities of which he is the alleged "de facto owner" (the entities will be collectively referred to as "Gulf Coast"). The law firm of Epstein, Becker, Green, Wickliff & Hall, P.C. (the "Firm") represented Gulf Coast and D'Andrea in various matters, including a bankruptcy matter involving D'Andrea.

The representation at issue concerns a memo prepared in 2009 by the Firm at the behest of Gulf Coast general counsel and corporate secretary Kirk Kennedy, in which serious allegations were made against D'Andrea. The evidence showed that the memo was prepared entirely from the unsubstantiated allegations communicated to the Firm by Kennedy, and that those allegations formed the entire factual basis of the opinions contained in the memo concerning potential exposure of Gulf Coast as a consequence of D'Andrea's supposed conduct. As work on the memo progressed, the Firm became aware or had reason to know that Kennedy would be leaving employment with Gulf Coast and intended to use the memo against Gulf Coast and/or D'Andrea. Facts demonstrating this included prior communications between Kennedy and Firm attorneys concerning (a) Kennedy's seeking employment with the Firm, (b) Kennedy's request for advice concerning his employment contract with Gulf Coast; (c) Kennedy's representation that he would be fired soon and that he wanted the memo transmitted to his personal e-mail account; (d) the Firm's awareness that Kennedy had solicited a recently-fired employee to help investigate Gulf Coast; and (e) Kennedy's request that the memo specifically include a reference to section 161.134 of the Texas Health and Safety Code, which prohibits retaliatory termination by medical facilities of employees who report violations.

The memo was prepared and transmitted, initially to Kennedy's corporate e-mail account with Gulf Coast, then to his personal e-mail address when those transmissions proved undeliverable. A copy of the memo was also forwarded to Gulf Coast's president. Kennedy's possession of the memo ultimately caused considerable expense and frustration to both Gulf Coast and D'Andrea, the latter's medical practice being virtually destroyed by its publication. As a result, Gulf Coast and D'Andrea sued the Firm, alleging negligence, breach of fiduciary duty, an unspecified intentional tort, and common-law fraud. The Firm filed a traditional and no-evidence motion for summary judgment, which the trial court granted, finding that (1) D'Andrea was not a client of the firm as to the memo, and lacked standing to assert the rights of Gulf Coast, so the Firm owed him no duty; (2) the attorney-client relationship between D'Andrea and the Firm, a bankruptcy proceeding, was unrelated to the memo; and (3) even if the Firm's preparation of the memo was negligent, Kennedy's subsequent use thereof was not foreseeable, and therefore broke the chain of proximate causation. D'Andrea and Gulf Coast appealed.

Outcome/Holding: Justice Busby, writing for the Court, concluded that the preparation of the memo violated the Firm's duty of loyalty owed separately to both D'Andrea and Gulf Coast. The Firm owed a duty of loyalty to each not to take or assist in action that was adverse to the interests of their clients, D'Andrea and Gulf Coast, even if the Firm's immediate representation of those clients was on matters unconnected to the matters described in the memo. The Court further concluded that the Firm had knowledge that Kennedy was about to be or had already been fired at the time that they provided the memo to Kennedy and that litigation over his firing was possible. Consequently, fact issues existed as to (a) whether Kennedy was adverse to D'Andrea and Gulf Coast at the time that the memo was furnished to him; and (b) whether Kennedy's subsequent use of the memo was foreseeable, so as to preclude it being an intervening cause. Accordingly, the Court reversed and remanded.


Houston Medical Testing Services, Inc. v. Rand Mintzer, No. 14-12-00506-CV (consolidated with No. 14-12-00524-CV) (Tex. App.—Houston [14th Dist.] November 14, 2013)

Issue Presented: The issue presented by these cross-appeals is whether the existence of an implied contract, as opposed to an express contract, precludes recovery in quantum meruit.

Relevant Facts: Mintzer is an attorney. In connection with his defense of a man charged with sexual assault of a minor, Mintzer arranged for Houston Medical Testing Services, Inc. (the "Service") to review the State's forensic tests, which indicated that Mintzer's client had fathered a child with the client's minor step-daughter. The review confirmed the State's results, and the Service subsequently sent Mintzer multiple invoices for payment, which he did not pay.

The Service sued Mintzer, seeking payment on alternative theories of breach of contract and quantum meruit. At trial, the jury concluded that there was a contract between Mintzer and the Service, but that Mintzer had not breached it, but they nonetheless concluded that he was liable in quantum meruit to the tune of $2,200 as they found that the Service had rendered valuable services or materials to Mintzer who knowingly accepted them and used them and should have known that the Service expected to be compensated for the work. Mintzer moved for judgment notwithstanding the verdict (JNOV), arguing among other things that the Service was barred from recovering in quantum meruit by the jury's finding that a contract existed. The trial court denied the motion, and signed a judgment on the verdict, which Mintzer appealed.

On Appeal, the Service argued, among other things, that the jury's finding regarding the existence of a contract could have been a finding of an implied, as opposed to express, contract, which the Service maintained would not preclude recovery in quantum meruit.

Outcome/Holding: Justice Busby, writing for the Court, took note of the Supreme Court's opinion in Haws & Garrett Gen. Contractors, Inc. v. Gorbett Bros. Welding Co., 480 S.W.2d 607, 609 (Tex. 1972), in which it stated that there is little, if any difference between an express and an implied-in-fact contract (Justice Busby concluded that the implied contract referenced by the Service could not be an implied-in-law contract, as the existence of such would have been a legal question for the trial court). On this basis, the Court determined that it did not matter whether the jury had found an express or an implied-in-fact contract existed between Mintzer and the Service, the result would be the same: quantum meruit recovery would not be available. As such, the Court determined that the parties' contract barred quantum meruit recovery, and the trial court had erred in denying Mintzer's motion for JNOV. The Court therefore reversed and rendered judgment that the Service take nothing.

Chief Justice Frost filed a dissenting opinion. In her dissent, Justice Frost opined that, because the existence of a contractual bar to quantum meruit recovery is an affirmative defense, and Mintzer's motion for JNOV and appeal had both only addressed the express contract issue, Mintzer had failed to preserve the issue of whether recovery in quantum meruit would be barred by the existence of an implied contract, which she believed to be a question of first impression.