Business Litigation | The Law Offices of Gregory D. Jordan

Texas Court Issues Opinion in “Business Divorce” Case Involving Non-Compete Agreement

Business relationships can quickly turn sour when one of the parties no longer shares common goals. These disputes often come about when business ownership interests transfer hands. As a recent example, the Court of Appeals for the Fifth District of Texas issued an opinion in a case involving a business dispute between a co-founder of a business and the other co-founder’s son, who took over his father’s interest.

The Facts of the Case

In 2002, Mr. Bihner and Mr. Chen formed a limited partnership called Bihner Chen. Bihner Chen provided structural engineering services to clients in and around Houston. Bihner and Chen were both equal partners.

The two men executed several formation documents, including a non-compete agreement. The agreement explained that Chen was to pay Bihner $38,800 for his agreement not to compete against Chen or the partnership as long as Bihner was a partner and for five years after he departed the company. The agreement also prohibited “use in any competition, solicitation, or marketing effort any confidential Information, any proprietary list, or any information concerning customers of Bihner Chen.” The agreement also contained a clause that made it binding to any permitted successors in interest for either party.

Seven years later, Bihner decided to retire. He wanted to transfer his interest in Bihner Chen to his son, Brett, who was also a licensed engineer and worked for Bihner Chen for several years. Although Chen had the right to object to Brett assuming his father’s interest, he did not do so. Once Brett took formal ownership of his father’s interest, Chen provided him with all of the agreements between Bihner and Chen. A few months later, Chen and Brett entered into a subsequent agreement under which Brett would be “bound by all of the governing documents, bylaws, and regulations of the Bihner Chen entities, as is, without limitation.” However, unlike the agreement with Bihner, Chen did not offer Brett any compensation.

About eight years later, Brett triggered the buy-sell provision of the limited partnership agreement. Under the terms of the buy-sell agreement, Chen had to either buy out Brett’s interest for $600,000 or sell his interest to Brett for $600,000. The two men met the next month, where Chen informed Brett that he wanted to buy Brett out. He also went over Brett’s obligations and responsibilities to the partnership if the transaction closed. Brett became angry, announced his immediate resignation, and announced his intent to start a competing business.

Chen responded by sending Brett a letter explaining the non-compete agreement and his intention to sue if Brett went through with opening a competing business. Brett ignored the letter and opened Bihner Engineering, PLLC. He also purchased a web domain with a very similar URL to the one used by Bihner Chen. In December 2020, the buy-sell transaction closed, and Brett received $600,000 from Chen.

Chen later learned that Brett took the “Christmas Card” list from Bihner Chen and sent a letter to all Bihner Chen customers announcing his new company. Chen then sent Brett a letter, asking him to stop using the name Bihner Engineering, PLLC.

Brett filed a petition against Chen, seeking permission to use his last name in his new business. He also claimed that the non-compete agreement was not enforceable against him. The trial court found in favor of Chen and issued a temporary injunction preventing Brett from using the Bihner Engineering name. The court also found that Brett misappropriated trade secrets by taking the “Christmas card” list of clients.

The Appeal

On appeal, Brett raised several issues. First, he argued that the trial court was wrong to issue a temporary injunction. Brett claimed that the “Christmas card” list was not a “trade secret” or confidential. Thus, he asserted that there was no basis for any relief. However, the court rejected Brett’s claims, finding that there was at least some evidence justifying the lower court’s decision to issue the temporary injunction. Among other things, the court noted the efforts Chen went through to maintain the secrecy of his client list.

The court did not weigh in on Brett’s challenge to the non-compete clause. Because there had been no decision below on this issue, the court required Brett to wait until there was a final decision on the merits before an appellate court would hear the issue.

Are you Involved in a Texas Business Dispute?

When success matters, every decision you make for yourself or your business is essential. Choosing which Austin business dispute attorney to represent you or your business is no exception. Attorney Gregory D. Jordan has over 30 years of experience helping businesses and their owners deal with a wide range of legal issues they confront, including breach of contract claims, fraud allegations, and more. We can confidently help you face the problems your business may be facing. To learn more about how we can help you efficiently resolve disputes, call 512-419-0684 to schedule a consultation today.

Texas Court Issues Opinion in Business Dispute Case Involving E-Signed Arbitration Agreement

Recently, a state appellate court issued an opinion in a Texas business dispute case involving one party’s claim that it never signed an arbitration agreement. The case Aerotek v. Boyd illustrates the challenges companies may face when using electronic signatures. However, the court ultimately held that an electronically signed document is valid, even in the face of the signing party’s claim they never signed the document, provided the party attempting to enforce the contract can show that the program contained sufficient security procedures.

The Facts of the Case

Aerotek is a company that hires workers for its client companies. Aerotek employs hundreds of thousands of workers across the country. To make the hiring process more efficient, it has developed an online-only hiring platform. The platform works much like any other online account; users create a username and password, answer security questions, and use their login information to complete the hiring process.

Among the documents provided to applicants is an Electronic Disclosure Agreement (EDA). When a prospective employee signs the EDA, they agree to be bound by the hiring documents, “as though they were in writing.” One of these documents is an arbitration agreement.

The plaintiffs in the case are several employees, all of whom completed the online onboarding process. Each plaintiff electronically signed the arbitration agreement; however, they all denied ever being presented with the agreement. For various reasons, the employees challenged the arbitration agreement, claiming the agreement could not legally bind them.

In support of enforcing the arbitration agreement, Aerotek presented two witnesses. One witness was a 20-year employee of Aerotek who helped the software developer come up with the online platform. She testified to the hiring process and explained that there had only been one glitch with the system that prevented applicants from responding to the emails they were sent and had nothing to do with the delivery of the arbitration agreement.

The other Aerotek witness was an administrative assistant who helped one of the plaintiffs complete the online application. She explained that she had helped hundreds of employees and, although she did not specifically recall assisting the plaintiff, she followed the same routine every time. Essentially, she would ensure that the applicant completed each form before continuing and would regularly get the applicant’s consent to continue the process.

In response, the plaintiffs presented signed affidavits that they did not receive a copy of the arbitration agreement.

The trial court denied Aerotek’s motion to compel arbitration. The trial court indicated that Aerotek needed to present the software developer to establish that the system was operational and contained the necessary security features. Aerotek appealed to the state’s high court.

The Appellate Opinion

The Texas Supreme Court began its analysis by noting that, to compel arbitration, a party must prove that the agreement exists. This requires the party attempting to compel arbitration to show that the other party consented to the contract.

The court then went on to review the lower court’s findings, which were that the employees’ actual signatures were not on the signed agreement (because they were electronically signed). The supreme court noted that it was required to credit the trial court’s finding. However, that did not end the inquiry, as if the parties agree to complete a document electronically, “an “electronic signature is attributable to a person if it was the act of the person.” The court noted that this could be shown “in any manner, including a showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable.”

Here, the court held that Aerotek’s witnesses presented sufficient testimony regarding the security features of the online hiring platform. The court explained that the witnesses’ testimony conclusively established that it would be impossible for the employees to have bypassed the arbitration agreement without signing it. Thus, the court found that the electronic signatures were attributable to the employees and reversed the lower court’s denial of Aerotek’s motion to compel arbitration.

Are You Dealing with a Texas Business Law Dispute?

When success matters, every decision you make for yourself or your business is essential. Choosing which Austin business dispute attorney to handle your case is no exception. Attorney Gregory D. Jordan has over 30 years of experience helping businesses of all types deal with the full range of legal issues they confront, including arbitration disputes, breach of contract claims, allegations of fraud, and more. Attorney Jordan can confidently help you face any problem your business is facing head-on. To learn more about how we can help your business effectively overcome its legal issues, call 512-419-0684 to schedule a consultation today.

Court Issues Opinion in Texas Employment Case Involving Non-Compete Agreements

A non-compete clause is a contractual term limiting an employee’s ability to compete with an employer for a certain period of time after their employment ends. Non-compete clauses are often valid in Texas; however, there are bounds to their enforceability. Generally, a non-compete clause must be supported by valid consideration and be reasonable in time, geographic area and the scope of prohibited activities.

Businesses use non-compete clauses to ensure that the time and money they put into employee training does not benefit a competitor. Earlier this year, a state appellate court issued an opinion in a Texas employment dispute case requiring the court to determine the validity of a non-compete clause.

The Facts of the Case

The case involved two companies, both of which arranged to provide large retail stores with “in-store consumer experiences,” such as product demonstrations. Product Connections was a newer company founded by a former employee of Crossmark. Crossmark sued Produce Connections, its founder, and several employees who formerly were employed with Crossmark. 

In this case, the matters at issue were Crossmark’s request for a preliminary injunction, ordering Product Connections to “produce company and personal digital storage devices for forensic review by Crossmark’s expert. Essentially, Crossmark wanted the court to order Product Connections’ employees to provide access to their phones and emails so that Crossmark’s experts could review all communication leading up to the employees’ departure.

In support of its claim, Crossmark presented the court with signed non-compete agreements. The non-compete agreements were valid for six months after the termination of employment. Crossmark alleged that several of the employees concealed the fact that they planned to leave Crossmark to join Product Connections. 

The Standard Applied by the Court

A preliminary injunction is an order by the court commanding or prohibiting a party from taking certain actions. Preliminary injunctions essentially hold the status quo as the lawsuit progresses through the system. 

In its opinion, the court explained that standard to obtain a preliminary injunction. More specifically, a party must meet each of the four elements:

  1. A cause of action against the defendant;
  2. A probable right to the relief sought; and
  3. A probable, imminent, and irreparable injury in the interim.

Essentially, a party must show that they have a good chance of success on their underlying claim and that monetary damages would not be a good substitute for the relief sought. 

The Court’s Opinion

Product Connections challenged the second and third elements of the preliminary injunction. Specifically, Product Connections argued that Crossmark did not have a probable right to seeking relief. The court disagreed. 

The court explained that one of the claims Crossmark brought was the theft of trade secrets. Specifically, Crossmark claimed that Product Connections misappropriated its “playbook,” which enabled them to compete more effectively. The court found it relevant that several of the Product Connection employees worked with the same clients when they were employed with Crossmark and that these same employees concealed their intentions to join Product Connections. The court also noted that the timing of Product Connection’s new digital demo product was close in time to when the employees joined Product Connections and was “eerily similar” to a similar product released by Crossmark. 

The court then went on to discuss whether Crossmark could potentially suffer probable, imminent, and irreparable injury absent a preliminary injunction. Again, the court found for Crossmark. Here, the court found it important that “the use of confidential information in cases such as this has been described as the epitome of irreparable injury.”

While this is a brief summary of a complex employment law case, it illustrates how a non-compete agreement can protect a business’s interests. 

Are You Dealing With an Employment Dispute?

If you are dealing with an employment dispute or fear that one may be on the horizon, reach out to Austin employment lawyer Gregory D. Jordan. The Law Offices of Gregory D. Jordan has represented the interests of businesses and employees for more than three decades. Attorney Jordan commands an impressive knowledge of employment laws. He uses this familiarity to draft effective and legally sound agreements on behalf of employers, ensuring their interests are protected in the future. To learn more and to schedule a consultation with Attorney Jordan, call 512-419-0684. You can also reach the firm through its online contact form.

Texas Court Issues Opinion in Case Involving Fraudulent Business Venture

Earlier this month, a state appellate court issued an opinion in a Texas business law case involving allegations that the founders of a business committed fraud when soliciting new investments. The case was brought by former Houston-Oilers cornerback, Tomur Barnes.

The Facts of the Case

According to the court’s opinion, since retirement, Barnes began a career as a personal trainer. While at the gym, Barnes met a woman named Patoka, who told him about an investment opportunity. Evidently, Patoka, one of the defendants in the case, was opening a physical rehabilitation center with former Houston-Rockets star, Robert Horry. She explained to Barnes that she was looking for other athletes to make an investment, hoping this would bring credibility and notoriety to the newly opened facility, the Robert Horry Center.

Barnes agreed to invest $100,000, which he borrowed from another party. Barnes believed that he was investing in the Robert Horry Foundation. However, in reality, his investment was for a percentage of a separate company called K&K Holdings. As it turns out, K&K holdings was formed by Patoka and her then-boyfriend, Smith, to protect them from any liability arising out of the Robert Horry Center.

The history leading up to the filing of the case is complex. However, in short, Patoka and Smith, the sole members of K&K Holdings, had a profit-sharing agreement with the Robert Horry Center. Under the agreement, K&K Holdings was to receive 15 percent of the profits from the Robert Horry Center, with the remaining income to stay within the company.

Barnes eventually filed a Texas fraud lawsuit. Barnes explained that he was told by Patoka that he was investing in the Robert Horry Center and that all discussions he had with Patoka before he made his investment were centered around the Center. He testified that Patoka never mentioned the existence of K&K Holdings. It was not until a year later, when he received a letter indicating he owned a 12 percent ownership in K&K Holdings. At that time, Barnes was told that K&K Holdings was a holding company that owned all of the Robert Horry Center. It was not until later that he learned that was not the case, and that he did not have any direct ownership interest in the Robert Horry Center.

Patoka also testified. She testified that she made it clear to Barnes that he was investing in K&K Holdings, and that the company only held a 12 percent stake in the Robert Horry Center. However, Patoka could not produce any documentation of this. She also explained that she and Smith, who has since gotten married, opened Robert Horry Sports Medicine, LLC, in 2015. This business was an entirely separate legal entity from the Robert Horry Center, and that Barnes had no legal interest in the new company.

When asked about specifics regarding Barnes’ interest in the Robert Horry Center, Patoka knew little, and could not provide the court with documentation supporting her version of the events. She alluded to “informal meetings” where she explained everything to Barnes. However, she could not recall if there was any document that was ever given to Barnes clearly indicating his ownership interests.

Ultimately, the jury returned a verdict in favor of Barnes, awarding him $850,000. The award consisted of $500,000 in actual damages and $350,000 in punitive damages. Patoka and Smith appealed on several grounds.

Statute of Limitations

The appellants’ first issue on appeal was that Barnes’ claims of fraud were time-barred because he waited too long to file them. They argued that Barnes’ case arose when Barnes signed the document indicating he owned 12 percent of K&K Holdings. However, the court rejected the appellants’ argument, finding that the ongoing misrepresentations made by Smith and Patoka meant that Barnes’ cause of action accrued much later. The court explained, according to Barnes, he was not provided with any documentation of his interest, and that he was not given the full picture when asked to sign that document. The jury credited Barnes’ testimony, thus, his cause of action did not accrue upon the signing of the document.

Sufficiency of the Evidence

The appellants also challenged the sufficiency of the evidence on appeal. However, after reviewing the elements of Barnes’ specific allegations, the court affirmed the jury’s verdict. The court explained that there was ample evidence suggesting that Patoka and Smith were not acting in good faith when they solicited an investment from Barnes, and that the jury was free to accept Barnes’ testimony, as it did.

To be sure, this case is a complex one. However, in essence, it illustrates the importance of having an experienced attorney at your side throughout business negotiations. Had either party been working with an attorney, this case could likely have been avoided. Of course, some disputes are unavoidable, in which case having an attorney is also crucial.

Reach Out to a Dedicated Austin Business Lawyer

When success matters, every decision you make for yourself or your business is essential. Choosing which Austin business dispute attorney to handle your case is no exception. Attorney Gregory D. Jordan has over 30 years of experience helping businesses of all types deal with the full range of legal issues they confront, including breach of contract claims, fraud allegations, and more. To learn more about how we can help your business through the issues it faces, call 512-419-0684 to schedule a consultation today.

Court Issues Opinion in Texas Business Law Case Involving “Imploding Partnership”

Earlier this month, a state appellate court issued an opinion in a Texas business law case discussing a partner’s claims against a former partner. The case is a good illustration of how business relationships can sour and what can be done to minimize the chances of a dramatic ending.

The Facts of the Case

According to the court’s opinion, four architects formed a partnership in 2000. Years later, two of the founding members retired and, in 2005, the firm was reorganized into a professional limited liability corporation (PLLC).

By 2014, the relationship between the remaining two partners, Boucher and Thacker, began to sour. The firm was heavily in debt and Thacker accused Boucher of “not pulling his weight.” Boucher refused to inject additional capital into the company and, in late 2014 or early 2015, the two began talking about dissolving the company.

In early February 2010, the two went over the firm’s debts and discussed how to dissolve the firm. Boucher explained that he intended to retire and, under the terms of the agreement, would receive $300,000 upon his retirement. Thatcher responded that the firm did not have the money to pay this lump-sum amount, and the two should focus on shutting down the firm instead.

By February 16, the two had agreed to dissolve the firm, with both partners splitting the firm’s debt evenly. However, later that day, Boucher sent Thatcher a notice of his intent to retire on February 20. In response, Thatcher immediately withdrew from the firm. Both parties continued to conduct business individually after the dissolution of the firm.

Thacker subsequently sued Boucher for breach of contract, arguing that he had abandoned “the firm at the time of dissolution and fail[ed] to pay all obligations, losses and debts of the firm.” Thacker claimed that Boucher’s actions resulted in the unnecessary accrual of interest and also sought attorney’s fees. Boucher filed a counterclaim, seeking the $300,000 in retirement compensation.

The trial court determined that Boucher breached the agreement, by not paying his share of the debts and by not participating in the winding down of the business. The court also found that Boucher violated his fiduciary duty to the firm. Finally, the court ruled against Boucher in his counterclaim for retirement compensation. The court awarded Thacker the full amount of attorney’s fees he requested.

The Court’s Opinion

The court reviewed the evidence presented below and largely affirmed the lower court’s decision. The appellate court explained that the evidence suggested that the firm had been dissolved upon Thacker’s withdrawal. Thus, because the firm was no longer in existence at the time Boucher retired, the court explained that Thacker did not breach any duty owed to the firm or Boucher, and that Boucher was not entitled to the retirement compensation.

However, the court disagreed with the lower court regarding the award of attorney’s fees. The court explained that to obtain attorney’s fees, “a party must 1.) prevail on a cause of action for which attorney’s fees are recoverable, and 2.) recover damages.”

Here, the court held that because Thacker did not recover any economic damages as a result of Boucher’s conduct, he was not entitled to an award of attorney’s fees. The court acknowledged that there were exceptions to this general rule but found that neither applied in this case. One exception is when the agreement between the parties provides for an award of attorney’s fees absent an award of damages. However, the partnership agreement between the parties did not provide for such an award. Thus, the court reversed the award of attorney’s fees to Thacker.

Are You Dealing With a Texas Business Dispute?

When success matters, every decision you make for your business is essential. Choosing which Austin partnership dissolution attorney or contract dispute attorney to handle the unique issues your business faces is no exception. At the Law Offices of Gregory D. Jordan, we have over three decades of experience helping all types of businesses deal with the full range of legal issues they confront, including breach of contract claims and business fraud cases. We also routinely assist businesses through the dissolution process, reducing the chances of costly and time-consuming litigation. To learn more about how we can help your business through the issues it faces, call 512-419-0684 to schedule a consultation today.

Texas Court Rules in Subcontractor’s Favor in Prompt Payment Act Claim

The Prompt Payment Act is a federal law that was passed to ensure the timely payment to all tiers of contractors who work on federally funded construction projects. The Act accomplishes this by providing a timeline of when payments will be released to the prime contractor, subcontractors, and suppliers. The State of Texas has its own version of the Prompt Payment Act that applies to state-funded construction projects.

Recently a state appellate court issued an opinion in a Texas construction payment dispute case under the Prompt Payment Act. The lawsuit arose when a window company, a subcontractor, installed windows on a hotel construction project at the request of the general contractor. The two companies entered into an agreement outlining the terms of the project, as well as how payment would be made.

As the project got underway, the owner of the hotel contacted the general contractor, concerned that the construction was not going according to schedule. As a result, the owner of the hotel began to withhold payment to the general contractor. Eventually, the general contractor submitted a bill to the hotel owner, including an amount for the windows that were installed by the subcontractor. However, while the hotel owner paid most of the amount due, it withheld a certain sum that was designated for the general contractor’s “overhead and profit.” Rather than take the potential loss itself, the general contractor kept the money and only paid select subcontractors. The window company was not paid by the general contractor. Eventually, after finding out what the general contractor had done, the hotel owner terminated the general contractor for cause.

The hotel owner then sued the general contractor, and the window company intervened in that lawsuit, claiming breach of contract, violation of the Prompt Payment Act, quantum meruit, breach of fiduciary duty, violation of the Construction Trust Fund Act, and unjust enrichment. The general contractor responded by explaining that the hotel owner did not pay the general contractor, and that it was permissible to pass this loss on to the subcontractor.

The trial court heard and granted the subcontractor’s motion for summary judgment, and awarded the subcontractor the amount it was due.

The Court’s Analysis

The court began its analysis by citing the language from the Prompt Payment Act, which provides:

A contractor who receives a payment from the owner . . . in connection with a contract to improve real property shall pay each of its subcontractors the portion of the owner’s payment, including interest, if any, that is attributable to work properly performed or materials suitably stored or specially fabricated as provided under the contract by that subcontractor, to the extent of that subcontractor’s interest in the owner’s payment. The payment . . . must be made not later than the seventh day after the date the contractor receives the owner’s payment.

The court went on to explain that the only exception to this requirement arises when there is a “good faith dispute concerning the obligation to pay or the amount of payment.”

The court then noted that, to prove its claim under the Prompt Payment Act, the subcontractor needed to show that the general contractor received payment from the hotel owner that was attributable to the work performed by the subcontractor. The general contractor argued that, because some of the windows were installed after the hotel owner started to withhold payment to the general contractor, the hotel owner was responsible for paying the subcontractor. However, as the court pointed out, the agreement between the general contractor and subcontractor provided that the general contractor would pay the subcontractor, not the owner of the hotel.

Ultimately, the court agreed that the subcontractor was entitled to payment from the general contractor, pursuant to their agreement. In so holding the court rejected the general contractor’s argument under the Construction Trust Fund Act. The Construction Trust Fund Act provides that:

It is an affirmative defense to prosecution or other action brought under section 162.031(a) that the trust funds not paid to the beneficiaries of the trust were used by the trustee to pay the trustee’s actual expenses directly related to the construction or repair of the improvement or have been retained by the trustee, after notice to the beneficiary who has made a request for payment, as a result of the trustee’s reasonable belief that the beneficiary is not entitled to such funds or have been retained as authorized or required by statute.

In reaching this conclusion, the court noted that the subcontractor was not a beneficiary to the Construction Trust, and that the Act did not apply.

Is Your Business Dealing with a Complex Texas Contract Issue?

When success matters, every decision you make for your business is essential. Choosing which Austin contract dispute or business litigation attorney to handle the unique issues your business faces is no exception. At the Law Offices of Gregory D. Jordan, we have over 30 years of experience helping all types of businesses deal with the full range of legal issues they confront, including breach of contract claims and business fraud cases. To learn more about how we can help your business through the issues it faces, call 512-419-0684 to schedule a consultation today.

Texas Court Discusses the Formation of a Texas Contract Through Email

In Texas, a contract can be something as simple as an agreement between two parties that is supported by consideration. Notably, not all contracts need to be written to be enforceable. However, before a court determines that a contract is enforceable, the party in favor of the contract must show that there was, indeed, an agreement between the parties. In contract law, this is referred to as a “meeting of the minds.”

Recently, a state appellate court issued a written opinion in a case involving a Texas contract dispute illustrating how courts analyze agreements. The specifics of the purported agreement are not particularly relevant to the court’s discussion. Essentially, a group of sellers, the defendants, agreed to develop and eventually sell a group of assets worth hundreds of millions of dollars. The sellers moved forward with development and, when it came time to sell the assets, enlisted the assistance of a third-party.

The third-party solicited bids from several potential buyers. The plaintiff was one of the high bidders. The parties exchanged several emails back and forth. Eventually, the plaintiff sent a counter offer with the following email:

We will not be modifying or accepting any changes to the base deal described above and don’t want to be jerked around anymore. We will give you till 5:00 pm CST tomorrow to accept. Best we can do and you hopefully understand I have recommended to my Board to pass if the timeline is not met or a counter proposal is sent.

An agent for the sellers responded that they are ready to “move forward” with the sale. However, before the contract was drawn up, another bidder revised their offer, making it more favorable to the sellers. The sellers then accepted the other buyer’s offer and the plaintiff filed a breach-of-contract claim against the sellers.

The case ultimately came down to whether a contract was formed through email. If so, then the sellers were committed to selling the assets to the plaintiff. However, if a contract had not formed by the time the sellers accepted the other bidder’s offer, then the sellers were under no obligation to the plaintiff.

The court determined that no contract existed, and that the sellers were free to accept the other bidder’s offer. The court explained that, in general, parties are free to write contracts however they see fit. Included in this freedom of contract, is the ability to insert language into negotiations explaining when a contract comes into existence. Here, the sellers included the following language in the Confidentiality Agreement that they sent out to all prospective buyers:

The Parties hereto understand that unless and until a definitive agreement has been executed and delivered, no contract or agreement providing for a transaction between the Parties shall be deemed to exist and neither Party will be under any legal obligation of any kind whatsoever with respect to such transaction by virtue of this or any written or oral expression thereof.

The court explained that this “no obligation” clause required a definitive agreement before a legally enforceable contract could be formed. The court then held that the emails between the parties did not constitute a definitive agreement.

In concluding that the emails were not a definitive agreement, the court explained that the emails resembled a preliminary agreement in that they represented a “precontractual understanding in which two commercial parties allocate their contributions to an undertaking but do not specify all the important terms of the deal.” The court noted that a definitive agreement requires a “final solution” that is “authoritative and apparently exhaustive.”

The court explained that the emails contemplated the need for an upcoming formal agreement. In fact, the court pointed out that the emails even referenced a purchase and sale agreement. In addition, the court found that a contract was not created merely by laying out the “assets to be sold, the purchase price, a closing day, and other key provisions.” The court explained that the emails “left much to the imagination” and that there were still key areas that needed to be negotiated.

Is Your Business Dealing with a Complex Texas Contract Issue?

When success matters, every decision you make for your business is essential. Choosing which Austin contract dispute attorney to handle the unique issues your business faces is no exception. At the Law Offices of Gregory D. Jordan, we have over 30 years of experience helping all types of businesses deal with the full range of legal issues they confront, including breach of contract claims and business fraud cases. To learn more about how we can help your business through the issues it faces, call 512-419-0684 to schedule a consultation today.

Texas appellate court hears business dispute centering on tortious interference and misappropriation claims

Last month, a state appellate court issued an opinion in a Texas tortious interference case discussing whether the defendant corporation improperly “poached” workers whom the plaintiff corporation had “located and groomed.” Ultimately, the appellate court concluded that the defendant corporation was entitled to summary judgment on each of the plaintiff’s claims, affirming the dismissal of the case. 

The facts of the case

According to the court’s opinion, both plaintiff and defendant corporations are in the business of supplying offshore labor to energy companies. The plaintiff had a contract with two other companies in which one company would provide the plaintiff with laborers that the plaintiff would then place with one of its energy clients. In effect, the plaintiff corporation was the middleman in the staffing transaction. 

On December 15, 2015, the plaintiff’s client gave notice to the plaintiff that it would no longer continue to use the plaintiff’s services, because it needed a lower-cost option. After several months of discussion between the defendant corporation, the labor supplier and the plaintiff’s former client, the defendant was invited to submit a bid for the client’s business. The defendant corporation did so, and ultimately secured the client’s business. The agreement provided that the defendant would supply the same laborers that had previously been provided by the plaintiff corporation. The plaintiff corporation filed a lawsuit against the defendant alleging that the defendant engaged in tortious interference with its contracts between the labor supplier and its client. 

The trial court granted the defendant’s motion for summary judgment, noting that the plaintiff’s case was contingent on proving that the defendant misappropriated workers from the plaintiff. However, the court pointed out that the theory of misappropriation had not been applied to people, explaining “had the workers in question been employed by the plaintiff they could not have been prevented from going to work for defendants or anyone else. Why, then, where the plaintiff does not employ the workers in question, could plaintiff prevent them going to work for Defendants or anyone else?” The plaintiff appealed. 

The appellate court affirms the lower court’s decision

The court began its analysis by noting that a defendant bringing a motion for summary judgment must show “that no genuine issues of material fact exist on at least one essential element of the cause of action asserted against it and that it is entitled to judgment as a matter of law.”

To establish a claim of misappropriation, or unfair competition, the court explained that a plaintiff must establish three elements:

  • The plaintiff created a product through extensive time, labor, skill and money;
  • The defendant used that product in competition against the plaintiff, gaining a special advantage because the defendant did not have to incur the expense to develop the product; and
  • The plaintiff suffered commercial damage as a result.

The plaintiff’s claim centered on a finding that its system of locating, hiring, training and getting offshore laborers to domestic corporations constitutes a “work product.” In support of its claim, the plaintiff argued that the “institutional knowledge that it developed over time and used to craft this pool of labor,” and its “ability to navigate the international customs issues involved” constitute work product.

The court rejected the plaintiff’s claim. Initially, the court noted that knowledge, training and expertise, are not typically considered work product. The court went on to explain that the training and certification provided by the plaintiff were similarly not work product. These assets, the court held, could not be separated from the laborers themselves, once they were imparted. The court also noted that the contract the plaintiff relied on to establish its claim clearly states that the employees themselves were to remain employees of the labor-supplying corporation, meaning that they never “belonged” to the plaintiff.  

The court went on to affirm the denial of the plaintiff’s remaining claims, finding that the plaintiff’s evidence was insufficient to establish a claim of tortious interference. In so holding, the court noted that the contract between the plaintiff and its client was not in effect at the time when the defendant engaged the client, and that the plaintiff could not point to any evidence that the defendant induced the labor-supplying corporation to terminate its contract with the plaintiff.

Texas High Court Holds Limitation-Of-Liability Clause Can Effectively Bar a Party From Obtaining Punitive Damages

In November 2018, the state supreme court issued a written opinion in a Texas breach of contract case discussing whether a clause purporting to limit the availability of punitive damages in a contract between two business was enforceable. Ultimately, the court concluded that the term was enforceable and reversed the lower court’s award of punitive damages.

According to the court’s opinion, the plaintiffs planned to purchase an aircraft from the defendant manufacturer, Bombardier. The nature of the transaction was somewhat complex in that it involved several purchasing companies and subsidiaries; however, in essence, the transaction was for the sale of an aircraft.

During negotiations, Bombardier required the plaintiffs to execute a management agreement so that Bombardier could handle preliminary matters such as inspection and registration of the aircraft. The contract contained a clause stating that neither party could be held liable to the other party for any “indirect, special or consequential damages and/or punitive damages for any reason, including delay or failure to furnish the aircraft or by the performance or non-performance of any management services covered by this Management Agreement.”

While Bombardier marketed the plane as new, the aircraft’s engines were previously installed on other planes. When the plaintiffs found this out, they filed several claims against Bombardier, including a claim for punitive damages. The case proceeded to trial, and the jury awarded $2,694,160 in actual damages for fraud and $5,388,320 in exemplary (punitive) damages.

Bombardier appealed, making several arguments including that the award for punitive damages was improper based on the valid agreement signed by the plaintiffs. Initially, the court agreed with the plaintiffs that, absent the agreement, punitive damages would have been appropriate. However, the court explained that it has “long recognized the strongly embedded public policy favoring freedom of contract,” and that the parties in this case indisputably entered into a contract agreeing to waive any right to pursue punitive damages.

The plaintiffs argued that Bombardier knew that the engines were not new and violated a fiduciary duty when it failed to inform them that the engines were used. However, the court held that the plaintiffs’ general claim that Bombardier fraudulently concealed this information did not specifically mention the violation of a fiduciary duty. Thus, the court did not consider whether the violation of a fiduciary duty eliminated any protection the contract provided to Bombardier. Instead, the court held that any fraud on Bombardier’s part did not void the agreement because the court must “respect and enforce terms of a contract that parties have freely and voluntarily entered.”

Contact an experienced business litigation attorney

When success matters, every decision you make for your business is important. Choosing which Austin business litigation firm to handle the unique issues your business faces is no exception. At the Law Offices of Gregory D. Jordan, we have over 25 years of experience assisting businesses in dealing with the full range of issues they confront, including breached contracts and business fraud cases. We also provide guidance and advice to companies looking to anticipate their future needs. To learn more about how we can help your business through the issues it faces, call 512-419-0684 to schedule a consultation today.

Are Texas Arbitration Agreements Between Employers and Their Employees Always Enforceable?

Over the past decade, it has become common to see arbitration agreements in a variety of business agreements. Indeed, arbitration is the preferred method for many businesses to resolve all kinds of Texas business disputes, whether a dispute is between a company and its customers, employees, suppliers or another business.

Recently, forced arbitration clauses have come under fire, with appellate courts across the country hearing a wide range of cases involving the circumstances in which arbitration agreements are valid. Last year, the U.S. Supreme Court issued an opinion strengthening a business’ ability to compel arbitration based on a validly executed arbitration agreement.

The case consisted of three separate cases that were consolidated before the Court. In each case, employees signed agreements before or during their employment, agreeing that they would resolve any claims that arose during their employment individually and through arbitration, rather than through the court system.

Each of the three cases was based on a dispute that is not relevant to the issue at hand. What is important is that an employee filed a claim against his employer in federal court. The case was filed as a “class action lawsuit,” meaning that a single employee filed the claim, but did so on behalf of other similarly situated employees. The employers sought dismissal of the plaintiff’s claims against them, asking the court to enforce the agreement in which the employees agreed to resolve their grievances through arbitration.

The employees argued that the clause in the agreement requiring they resolve their claim individually violated their rights under the National Labor Relations Act (NLRA). Specifically, the right to take “concerted action” with fellow employees against an employer. The lower court agreed with the employees. On appeal to the Ninth Circuit, the court added that, because the agreement violated the NLRA, the entire contract was invalid, including the arbitration portion of the agreement. The employers appealed the case to the United States Supreme Court.

In its opinion, the Court noted that the terms of the agreement were clear in that the contract called for employees’ claims to be resolved individually and through arbitration. The Court acknowledged that the National Labor Review Board (the federal agency that is responsible for enforcing the NLRA) believed that compelling individualized dispute resolution was a violation of the NLRA. However, the Court added that this was a recent change in the National Labor Review Board’s policy.

The U.S. Supreme Court ultimately reversed the lower courts’ decisions, notwithstanding the National Labor Review Board’s agreement with the employees. The Court explained that the Federal Arbitration Act (FAA) instructs federal courts “to enforce arbitration agreements according to their terms” and that the NLRA “does not mention class or collective action procedures.” Thus, the Court determined that the NLRA does not “displace” the FAA.

The Court reasoned that, when presented with two acts of Congress that could possibly be read to conflict with one another, if possible, the Court must read both in a manner such that there is no conflict. Thus, the Court based its decision on the fact that the FAA explicitly condones individualized dispute resolution and the NLRA does not confer a right to pursue a class action lawsuit.

Are you involved in a Texas business dispute?

When success matters, every decision you make is important. Choosing which Texas business law firm will handle your case is no exception. At the Law Offices of Gregory D. Jordan, we have over 25 years of experience assisting businesses in dealing with the full range of issues they confront, including breach of contract, employment law and franchise litigation. To learn more about how we can help your business through the issues it faces, call 512-419-0684 to schedule a consultation today.

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