March, 2014 | The Law Offices of Gregory D. Jordan

Texas jury hears anti-trust claim

A federal jury in Texas has heard opening arguments from a defunct steel distributor claiming that it was run out of business by a group of suppliers and manufacturers, including Nucor Corp. and Reliance Steel & Aluminum Co.

During opening arguments of the antitrust lawsuit, MM Steel LP’s attorney said that the larger companies had organized a boycott that cut off MM Steel’s access to supplies, locking it out of the steel distribution market.

Matt Schultz and Mike Hume founded MM Steel after decades working for American Alloy Steel Inc. and for Reliance. Now, they claim that the two companies asked steel manufacturers JSW Steel (USA) Inc. and Nucor Corp. to refrain from doing business with them. That action stands in violation of federal antitrust statutes, MM Steel’s attorney argued.

MM Steel claims lost future profits as high as $80 million from the point when its supply of steel was cut off by the alleged boycott. The company is also seeking exemplary and treble damages under antitrust law.

An attorney for Reliance said the company had the right to refuse to do business with anyone associated with Schultz and Hume, who committed a “betrayal” by raiding key employees and clients from their former employers.

Attorneys for the defendants added that MM Steel’s failure was due in part to undercapitalization and the fact that it began operating at a time when steel supplies were low.

City of Dallas Sued by Oil Producer for Denying Drilling Rights

Trinity East Energy, an oil and gas producer, has filed a lawsuit against the city of Dallas for denying the company drilling rights to 3,600 acres it leased from the city.

In the lawsuit filed in Dallas County District Court, Trinity East claims that the city leased two tracts of land to the company and kept millions in bonus payments, but refused to issue zoning permits that would allow the company to drill on the land. The lawsuit claims that the denial of drilling rights is “arbitrary and capricious” and amounts to taking property with no “just compensation.”

The office of the Dallas city attorney had no immediate comment and said it was still reviewing the lawsuit. Advocates for more restrictive drilling rules in Dallas said that Trinity East was attempting to undermine the civic process and that the lawsuit had no merit.

The lawsuit stems from the August 2008 lease of mineral interests to Trinity East, which brought the city $19 million in bonus payments. On the same day the lease was signed, Mary Suhm, the city manager of Dallas, wrote in a letter that the city was “reasonably confident” that drilling rights would be granted for a tract of parkland, and that the city would use “reasonable efforts” to bring the matter to the city council, which would make the decision on permits.

According to Trinity East, the company would not have entered into the lease without the assurances made in the city manager’s letter. However, the letter did state that drilling rights were not guaranteed and were not legally binding as part of the lease.

The drilling permits were finally denied by the city council in March 2013, after years of debate over the city’s drilling regulations and the company’s drilling rights. Five months later, the decision was affirmed after the company appealed.

Two other companies had also leased land from the city for drilling purposes, but they dropped out after the city began to consider stricter drilling regulations.

Dallas modified its drilling regulations in December 2013, requiring a 1,500-foot setback between new rigs, compressor stations and “protected use” areas such as businesses, homes and churches. This is five times larger than the previous setback requirement, and it is one of the strictest in Texas.

Trinity East claims in the lawsuit that inability to drill on the land is likely to cost the company hundreds of millions of dollars over the lifetime of the wells.

Medical Device Maker Seeks $2 Million from Competitors in Noncompete Lawsuits

Smith & Nephew (S&N), a medical device maker, has filed lawsuits against two competing companies in Texas federal court, seeking $1 million from each company on allegations that they poached sales personnel who were bound by covenants not to compete.

The lawsuits were filed against Central Texas Orthopedic Products Inc., an Austin-based distributor for Biomet Inc., and Exact Surgical Inc., a Tulsa-based distributor for Exactech Inc. Both lawsuits involve independent contractors who allegedly left Smith & Nephew to work for the other companies despite having signed noncompete agreements promising not to work for a competitor for one year after leaving S&N.

The lawsuits claim that sales representatives are privy to a large amount of confidential information regarding pricing, marketing, customers and product technology. The company also said in court documents that it invests substantial resources in training its sales reps.

Both lawsuits claim that Smith & Nephew’s competitors used the contractors to take customers away from S&N. In both lawsuits, Smith & Nephew filed cease-and-desist letters that it sent to the ex-contractors with the court, stating that the noncompete agreements were being violated and that both the sales representatives and the companies that employed them risked litigation.

Smith & Nephew previously filed a $56 million lawsuit against a group of former managers and sales representatives that also took jobs with a competing company, allegedly in violation of noncompete agreements.

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