Kodiak Products Co., Inc. v. Charles H. Deegear, Jr. and Deemaxx Components, Inc. ( 2015 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-13-00422-CV
KODIAK PRODUCTS CO., INC. APPELLANT
V.
CHARLES H. DEEGEAR, JR. AND APPELLEES
DEEMAXX COMPONENTS, INC.
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FROM THE 236TH DISTRICT COURT OF TARRANT COUNTY
TRIAL COURT NO. 236-252084-11
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MEMORANDUM OPINION1
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Appellant Kodiak Products Co., Inc. filed suit against Appellees Charles H.
Deegear, Jr. and Deemaxx Components, Inc., asserting claims for unfair
competition, misappropriation of trade secrets and confidential information,
violations of the Texas Theft Liability Act, and conversion. Deegear and
1
See Tex. R. App. P. 47.4.
Deemaxx pled the affirmative defense of settlement and release and
counterclaimed for declaratory judgment. After a series of motions for summary
judgment, the trial court entered a final judgment ordering that Kodiak take
nothing by its claims and awarded declaratory relief and attorney’s fees to
Deegear and Deemaxx. In four issues, Kodiak argues the trial court erred by (1)
granting Deegear and Deemaxx’s motion for traditional summary judgment on
their settlement and release defense; (2) granting Deegear and Deemaxx’s no-
evidence motion for summary judgment on Kodiak’s unfair competition claim; (3)
granting Deegear and Deemaxx’s motion for summary judgment on their
counterclaim for declaratory relief; and (4) awarding Deegear and Deemaxx trial
and appellate attorney’s fees. We affirm in part and reverse and remand in part.
I.
Background
This appeal arises out of the second lawsuit between the parties. Kodiak
manufactures, assembles, and sells disc brakes and brake components to trailer
manufacturers, trailer parts distributors, trailer axle manufacturers, and trailer
dealers across the country. Deegear began working at Kodiak as a part-time
employee in 1992. By 2004, Deegear was Kodiak’s president. He also sat on
the board of directors and owned fifty percent of Kodiak’s stock. As an employee
and president of Kodiak, Deegear acquired knowledge of Kodiak’s trade secrets
and confidential and proprietary information.
2
In 2009, Deegear initiated negotiations with William Glidewell—Kodiak’s
founder, chief executive officer, and owner of the other fifty percent of Kodiak’s
stock—to purchase Glidewell’s shares. According to Glidewell, Deegear made
him an “unfairly low offer” for his Kodiak shares and threatened to “take Kodiak’s
employees and customers and force Kodiak to liquidate if [Glidewell] wouldn’t
accede to his demands.” Glidewell claims that he then learned that Deegear had
committed corporate malfeasance, including misuse of corporate funds. On
August 17, 2009, Glidewell and Kodiak’s board of directors had Deegear
escorted from Kodiak’s premises and began a formal ethics investigation into his
activities as president of Kodiak. Glidewell claims Kodiak’s investigation
revealed that Deegear had breached his fiduciary duties to Kodiak, had failed to
properly report to the board of directors, had mismanaged key matters, had
improperly shared confidential information with third parties, had falsified
expense reports, had used company credit cards against company policy, and
had threatened to steal corporate employees, customers, and vendors to directly
compete with Kodiak and force it out of business.
In September 2009, Kodiak sued Deegear for breach of fiduciary duty,
breach of contract, theft, and declaratory and injunctive relief. Kodiak alleged,
among other things, that Deegear had taken its trade secrets and was
threatening to take its “customers and vendors and open his own business to
compete with Kodiak.” Kodiak sought a temporary and permanent injunction to
“restrain Deegear from using or disclosing or continuing to retain Kodiak’s
3
information” and to “restrain Deegear from directly competing with Kodiak for a
period of at least a year.”
On November 19, 2009, the parties settled the lawsuit and executed a
settlement agreement with an effective date of October 5, 2009. Kodiak agreed
to pay Deegear $330,000, and Deegear agreed to transfer all of his Kodiak stock
to Kodiak and to resign. Kodiak and Deegear also agreed to release their claims
against each other and to file a joint motion to dismiss the lawsuit with prejudice
within five days of the execution of the settlement agreement. On December 9,
2009, the trial court signed an order dismissing the suit with prejudice.
In June 2010, Deegear formed Deemaxx. Deemaxx designs,
manufactures, and sells disc brakes and brake components in the trailer industry
and competes with Kodiak. Kodiak claims that since 2010, it has received
reports from vendors, distributors, customers, and others in the industry that
Deegear and Deemaxx were trying to manufacture and sell rotors, brakes, and
other components in competition with Kodiak that appeared to be based upon
drawings that were nearly identical to Kodiak’s drawings for similar components
and parts. Some of Kodiak’s U.S. partners and distributors reported to Kodiak
that Deegear, acting through Deemaxx, was soliciting sales of competing
components and parts that appeared to be based on confidential information and
designs that Deegear had and had access to while he was at Kodiak. One of
Deemaxx’s representatives gave one of Kodiak’s customers a price sheet.
Kodiak customers and vendors also received Deemaxx brochures that described
4
Deemaxx’s brakes and extolled their virtues and alleged advantages over similar
Kodiak products. All of Kodiak’s larger customers and distributors reported
receiving repetitive calls from Deegear and Deemaxx trying to solicit business
away from Kodiak. Deemaxx’s website contained pictures and descriptions of
products similar to Kodiak’s products. Kodiak believed that Deemaxx’s brakes
and other parts were based on engineering drawings that contained
information—including verbatim instruction notes—virtually identical to
information contained in Kodiak’s drawings for the same parts. And at the
National Association of Trailer Manufacturers annual trade show in February
2011, Deegear and Deemaxx displayed three different disc brake sets that were
identical to Kodiak’s brakes. Kodiak believed that these brakes were made
based upon drawings and information belonging to Kodiak that Deegear obtained
while employed by Kodiak and that Deegear and Deemaxx had no right to use.
On April 6, 2011, Kodiak sued Deegear and Deemaxx, asserting claims for
unfair competition, misappropriation of trade secrets and confidential information,
violation of the Texas Theft Liability Act, and conversion. Kodiak also sought a
temporary and permanent injunction compelling Deegear and Deemaxx to return
Kodiak’s trade secrets or confidential information and to restrain Deegear and
Deemaxx from any further acts of unfair competition against Kodiak and from
using or disclosing its trade secrets or confidential information. In their answer,
Deegear and Deemaxx asserted several affirmative defenses, including prior
settlement and release based on the release language in the 2009 settlement
5
agreement. They also filed a counterclaim asserting breach of contract and
tortious interference claims and seeking a declaratory judgment to determine the
parties’ rights under the settlement agreement.
Deegear and Deemaxx filed a motion for summary judgment seeking a
traditional summary judgment on their prior settlement and release defense and
a no-evidence summary judgment on Kodiak’s unfair competition claim. The trial
court granted Deegear and Deemaxx’s summary judgment motion on their
affirmative defense with respect to Kodiak’s claims for misappropriation of trade
secrets and confidential information, violations of the Texas Theft Liability Act,
and conversion. Deegear and Deemaxx supplemented their no-evidence motion
for summary judgment. The trial court granted the supplemental motion, thereby
disposing of all of Kodiak’s claims.
Deegear and Deemaxx filed a motion for traditional summary judgment on
their declaratory judgment counterclaim. The trial court granted the motion and
declared that the settlement agreement released Deegear and Deemaxx from all
claims asserted by Kodiak in the 2009 lawsuit and any claims or causes of action
that could be brought by Kodiak on or after October 5, 2009, whether or not such
claims or causes of action were connected in any way to Deegear’s relationship
with Kodiak. The trial court also granted Deegear and Deemaxx’s claims for
attorney’s fees pursuant to the Declaratory Judgment Act and found that they
were entitled to recover attorney’s fees “in an amount to be determined.”
6
By agreement of the parties, the issue of attorney’s fees was submitted to
the trial court by motions and affidavits. The trial court granted Deegear and
Deemaxx’s request for attorney’s fees and entered a final judgment ordering that
Kodiak take nothing on its claims, declaring the parties’ rights under the
settlement agreement, and awarding Deegear and Deemaxx $215,559.62 in trial
attorney’s fees and conditional appellate attorney’s fees of $60,000 if Kodiak
unsuccessfully appealed the judgment to the court of appeals, $15,000 if Kodiak
filed a petition for review with the supreme court, $25,000 if the supreme court
ordered full briefing on the petition for review, and $20,000 if the supreme court
granted the petition for review. Kodiak appealed.
II.
Standards of Review
We review a summary judgment de novo. Travelers Ins. Co. v. Joachim,
315 S.W.3d 860, 862 (Tex. 2010). We consider the evidence presented in the
light most favorable to the nonmovant, crediting evidence favorable to the
nonmovant if reasonable jurors could, and disregarding evidence contrary to the
nonmovant unless reasonable jurors could not. Mann Frankfort Stein & Lipp
Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). We indulge every
reasonable inference and resolve any doubts in the nonmovant’s favor. 20801,
Inc. v. Parker, 249 S.W.3d 392, 399 (Tex. 2008). A plaintiff is entitled to
summary judgment on a cause of action if it conclusively proves all essential
elements of the claim. See Tex. R. Civ. P. 166a(a), (c); MMP, Ltd. v. Jones, 710
7
S.W.2d 59, 60 (Tex. 1986). A defendant is entitled to summary judgment on an
affirmative defense if the defendant conclusively proves all the elements of the
affirmative defense. Frost Nat’l Bank v. Fernandez, 315 S.W.3d 494, 508–09
(Tex. 2010); see Tex. R. Civ. P. 166a(b), (c). To accomplish this, the defendant-
movant must present summary judgment evidence that conclusively establishes
each element of the affirmative defense. See Chau v. Riddle, 254 S.W.3d 453,
455 (Tex. 2008).
After an adequate time for discovery, the party without the burden of proof
may, without presenting evidence, move for summary judgment on the ground
that there is no evidence to support an essential element of the nonmovant’s
claim or defense. Tex. R. Civ. P. 166a(i). The motion must specifically state the
elements for which there is no evidence. Id.; Timpte Indus., Inc. v. Gish, 286
S.W.3d 306, 310 (Tex. 2009). The trial court must grant the motion unless the
nonmovant produces summary judgment evidence that raises a genuine issue of
material fact. See Tex. R. Civ. P. 166a(i) & cmt.; Hamilton v. Wilson, 249 S.W.3d
425, 426 (Tex. 2008).
When reviewing a no-evidence summary judgment, we examine the entire
record in the light most favorable to the nonmovant, indulging every reasonable
inference and resolving any doubts against the motion. Sudan v. Sudan, 199
S.W.3d 291, 292 (Tex. 2006). We review a no-evidence summary judgment for
evidence that would enable reasonable and fair-minded jurors to differ in their
conclusions. Hamilton, 249 S.W.3d at 426 (citing City of Keller v. Wilson, 168
8
S.W.3d 802, 822 (Tex. 2005)). We credit evidence favorable to the nonmovant if
reasonable jurors could, and we disregard evidence contrary to the nonmovant
unless reasonable jurors could not. Timpte Indus., 286 S.W.3d at 310 (quoting
Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 582 (Tex. 2006)). If the
nonmovant brings forward more than a scintilla of probative evidence that raises
a genuine issue of material fact, then a no-evidence summary judgment is not
proper. Smith v. O’Donnell, 288 S.W.3d 417, 424 (Tex. 2009); King Ranch, Inc.
v. Chapman, 118 S.W.3d 742, 751 (Tex. 2003), cert. denied, 541 U.S. 1030
(2004).
III.
Analysis
A. Summary Judgment on Deegear and Deemaxx’s Affirmative Defense
In its first issue, Kodiak complains the trial court erred by granting Deegear
and Deemaxx’s motion for summary judgment on their affirmative defense of
settlement and release. Specifically, Kodiak argues that summary judgment was
improper because (1) the settlement agreement specifically states that the
parties were only releasing claims that arose “prior to, or at the time of, the
effective date” of the settlement agreement and Kodiak’s claims in this lawsuit
arose after the effective date and (2) Deemaxx was not a party to the settlement
agreement and did not exist when the settlement agreement was executed.
9
1. Applicable Law
A release is an agreement or contract in which one party agrees that a
legal right or obligation owed by the other party is surrendered. Dresser Indus.,
Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508 (Tex. 1993). It is subject to
the normal rules of contract construction, including the rules of ambiguity. Nat’l
Union Fire Ins. Co. of Pittsburgh, Pa. v. Ins. Co. of N. Am., 955 S.W.2d 120, 127
(Tex. App.—Houston [14th Dist.] 1997), aff’d, 20 S.W.3d 692 (Tex. 2000). A
release extinguishes a claim or cause of action and is an absolute bar to any
right of action on the released matter. Dresser Indus., 853 S.W.2d at 508.
To release a claim effectively, the releasing instrument must “mention” the
claim to be released. Victoria Bank & Trust Co. v. Brady, 811 S.W.2d 931, 938
(Tex. 1991); see Keck, Mahin & Cate v. Nat’l Union Fire Ins. Co. of Pittsburgh,
Pa., 20 S.W.3d 692, 698 (Tex. 2000). Claims not clearly within the subject
matter of the release are not discharged, even if those claims exist when the
release is executed. Keck, 20 S.W.3d at 698. It is not necessary, however, for
the parties to anticipate and explicitly identify every potential cause of action
relating to the subject matter of the release. Id. Although releases include
claims existing at the time of execution, they may also include unknown claims
and damages that develop in the future. See id.
In construing a release, as with other contracts, the primary effort is to
ascertain and give effect to the intention of the parties to the release, considering
the instrument as a whole. Stafford v. Allstate Life Ins. Co., 175 S.W.3d 537, 541
10
(Tex. App.—Texarkana 2005, no pet.) (reasoning that a contract must be read as
a whole rather than isolating a certain phrase, sentence, or section of the
agreement). The contract’s language is to be given its plain grammatical
meaning unless doing so would defeat the parties’ intent. Id. In determining
intent, we must look to the contract, not what the parties allegedly meant. Union
Pac. R.R. v. Novus Int’l, Inc., 113 S.W.3d 418, 421 (Tex. App.—Houston [1st
Dist.] 2003, pet. denied). An unambiguous contract will be enforced as written.
David J. Sacks, P.C. v. Haden, 266 S.W.3d 447, 450 (Tex. 2008).
2. Application
In their motion for summary judgment, Deegear and Deemaxx contended
that in the settlement agreement, Kodiak released them from the claims asserted
in the 2011 lawsuit that arose from or related to the same factual bases, claims,
and causes of action in the 2009 lawsuit. In the 2009 lawsuit, Kodiak alleged that
as an employee and officer of Kodiak, Deegear had acquired knowledge of
Kodiak’s trade secrets and confidential and proprietary information, including, but
not limited to (1) its product development plans; (2) the limitations of its products;
(3) its engineering designs and design concepts; (4) the technical data and
specifications of its products; (5) its product costs and pricing information; (6) its
financial information; (7) the compensation levels it could and did offer its
employees and outside sales agents; (8) its business development plans; (9) its
marketing plans and strategy; and (10) information on its customer prospects and
on customer contacts. Kodiak alleged, among other things, that Deegear had
11
taken Kodiak’s trade secrets and was threatening to take Kodiak’s “customers
and vendors and open his own business to compete with Kodiak.” Kodiak sought
a temporary and permanent injunction to “restrain Deegear from using or
disclosing or continuing to retain Kodiak’s information” and to “restrain Deegear
from directly competing with Kodiak for a period of at least a year.”
The settlement agreement provided in relevant part as follows:
This SETTLEMENT AGREEMENT (the “Agreement”) is made
effective as of October 5, 2009, (the “Effective Date”) by and
between Kodiak Products Co., Inc. (“Kodiak”)[,] William E. Glidewell
(“Glidewell”), Sylvia Hartless (“Hartless”)[,]2 and Charles H. Deegear,
Jr. (“Deegear”), and is entered into with the full consent and approval
of Deegear’s spouse.
....
WHEREAS, the parties desire to resolve and settle these
disputes and finally and forever resolve all claims of any kind and
character relating to or arising from the events and allegations set
forth in the Lawsuit . . . .
....
2. Covenants by Kodiak: In consideration of these recitals
and the promises and agreements set forth in this Agreement, on
which the other parties hereto rely in agreeing to their covenants,
Kodiak agrees to perform the following:
....
2.4 Release of Deegear: Kodiak, for itself and
anyone claiming through it or on its behalf,
IRREVOCABLY AND UNCONDITIONALLY
2
Hartless was a third-party defendant in the 2009 lawsuit. The record does
not reflect the claims against her, but based upon the settlement agreement, it
appears that she was aligned with Kodiak and Glidewell.
12
RELEASES, ACQUITS AND FOREVER DISCHARGES
Deegear, and anyone or any entity acting through or on
his behalf, including without limitation any past, present,
and future agents, employees, shareholders, directors,
insurers, officers, heirs, administrators, executors,
spouses, and attorneys, from any and all claims or
causes of action whatsoever, whether known or
unknown, whether accrued or unaccrued, and whether
connected in any way with Deegear’s relationships with
Kodiak, Glidewell, Hartless, or not, including, but not
limited to, any claims or causes of action arising under
contract, any law, common or statutory, that provides
any sort of right, benefit, or cause of action that can be
the subject of a release under applicable law, which
may have arisen, or which may arise, prior to, or at the
time of, the Effective Date of this Agreement.
In the 2011 lawsuit, Kodiak alleged that “Deegear had and ha[s] access to
Kodiak’s trade secrets and confidential information only because he was
employed by Kodiak” and that “Deegear, following his resignation [from Kodiak],
retained copies of documents and other things containing Kodiak’s [c]onfidential
[i]nformation, including product specifications and designs, customer lists,
vendors lists, vendor capabilities, vendor cost and pricing information, customer
and product pricing information, customer purchase requirements, and marketing
strategies.” Kodiak further alleged that Deegear and Deemaxx had
misappropriated Kodiak’s trade secrets and confidential information. Kodiak also
asserted conversion and Texas Theft Liability Act claims against Deegear.
Kodiak sought temporary and permanent injunctive relief enjoining Deegear from
any further use or disclosure of Kodiak’s trade secrets or confidential information
and compelling Deegear and Deemaxx to return any and all documents or other
13
things that contained Kodiak’s trade secrets or confidential information. Even
though the claims in the 2009 lawsuit differ from those asserted in the 2011
lawsuit, both lawsuits arise from and relate to Deegear’s employment with Kodiak
and the information he allegedly gained during his tenure at Kodiak.
Kodiak argues that because the settlement agreement’s release provisions
only released Deegear from claims or causes of action arising prior to October 5,
2009, its claims in the 2011 lawsuit were not barred by the release. The release
provision in the settlement agreement is divided into two parts. The first part
reads as follows:
2.4 Release of Deegear: Kodiak, for itself and anyone claiming
through it or on its behalf, IRREVOCABLY AND
UNCONDITIONALLY RELEASES, ACQUITS AND FOREVER
DISCHARGES Deegear, and anyone or any entity acting through or
on his behalf, including without limitation any past, present, and
future agents, employees, shareholders, directors, insurers, officers,
heirs, administrators, executors, spouses, and attorneys, from any
and all claims or causes of action whatsoever, whether known or
unknown, whether accrued or unaccrued, and whether connected in
any way with Deegear’s relationships with Kodiak, Glidewell,
Hartless, or not,
And the second part states:
including, but not limited to, any claims or causes of action arising
under contract, any law, common or statutory, that provides any sort
of right, benefit, or cause of action that can be the subject of a
release under applicable law, which may have arisen, or which may
arise, prior to, or at the time of, the Effective Date of this Agreement.
[Emphasis added.]
14
Kodiak contends the underlined clause at the end of part two applies to all of
paragraph 2.4, and therefore, the settlement agreement does not release claims
arising after the settlement agreement’s effective date.
Part one releases Deegear “from any and all claims or causes of action
whatsoever, whether known or unknown, whether accrued or unaccrued, and
whether connected in any way with Deegear’s relationships with Kodiak,
Glidewell, Hartless, or not.” This broad language releases Deegear from all
possible claims, including future claims. Kodiak contents that this broad
language is limited by part two. Part two, however, is illustrative, stating that the
released claims include, but are not limited to, “any claims or causes of action
arising under contract, any law, common or statutory, that provides any sort of
right, benefit, or cause of action that can be the subject of a release under
applicable law.”
Under the “last antecedent” doctrine, the final clause of part two does not
limit the broad language of part one of paragraph 2.4. The “last antecedent”
doctrine is “a canon of contract and statutory construction” by which “‘relative and
qualifying words, phrases and clauses are to be applied to the words or phrases
immediately preceding, and are not to be construed as extending to or including
others more remote.’” Certain Underwriters at Lloyd’s of London Subscribing to
Policy Number: FINFR0901509 v. Cardtronics, Inc., 438 S.W.3d 770, 782 (Tex.
App.—Houston [1st Dist.] 2014, no pet.) (op. on reh’g) (quoting Montanye v.
Transamerica Ins. Co., 638 S.W.2d 518, 521 (Tex. App.—Houston [1st Dist.]
15
1982, no writ)). “[M]odifiers are intended to refer to the words closest to them in
the sentence.” Samano v. Sun Oil Co., 621 S.W.2d 580, 581–82 (Tex. 1981).
Thus, in this case, the final clause refers back to the illustrative language in part
two. It does not limit the broad release language in part one.
Next, Kodiak contends that because Deemaxx was not a party to the
settlement agreement and did not exist when the settlement agreement was
executed, Kodiak did not release its claims against Deemaxx. Paragraph 2.4
applies not only to Deegear, but to “anyone or any entity acting through or on his
behalf, including without limitation any past, present, and future agents,
employees, shareholders, directors, insurers, officers, heirs, administrators,
executors, spouses, and attorneys.” This includes Deemaxx.
We conclude that paragraph 2.4 of the settlement agreement releases all
of Kodiak’s claims against Deegear and Deemaxx, including those arising after
the effective date of the settlement agreement. Therefore, Deegear and
Deemaxx conclusively proved their affirmative defense as a matter of law, and
the trial court did not err by granting summary judgment with respect to Kodiak’s
claims for misappropriation of trade secrets and confidential information,
violations of the Texas Theft Liability Act, and conversion. Accordingly, we
overrule Kodiak’s first issue.
16
B. No-Evidence Summary Judgment on Kodiak’s Unfair Competition
Claim
By its second issue, Kodiak argues the trial court erred by granting
Deegear and Deemaxx’s supplemental no-evidence motion for summary
judgment on Kodiak’s unfair competition claim. In support of its unfair
competition claim, Kodiak alleged in paragraphs 42 and 43 of its first amended
petition as follows:
42. Likewise, Deegear’s and Deemaxx’s false advertising
constitutes unfair competition. Deegear and Deemaxx make false
statements (on the internet and in marketing materials provided to
prospective customers and distributors) that: (a) their products are
the subject of pending patent applications; (b) their products are
unique compared to others in the industry, including Kodiak’s; and
(c) their products out-perform others in the industry, including
Kodiak’s.
43. Deegear and Deemaxx have made these statements on
the internet and in marketing materials provided to prospective
customers and distributors with the intent to deceive those
prospective customers and distributors (as well as the public,
generally) concerning the nature of their products, the patent
protection of their products, and their products’ relative performance.
These statements are also made with an intent that prospective
customers and distributors (as well as the public, generally) rely on
those statements when making decisions to purchase Deemaxx’s
products or to purchase competitors’ products (including Kodiak’s).
In their supplemental no-evidence motion for summary judgment, Deegear
and Deemaxx characterized Kodiak’s claim as a false advertising claim under the
Lanham Act and argued that there was no evidence to support the claim. See 15
U.S.C.A. § 1125(a)(1)(B) (West 2009) (“Any person who . . . in commercial
advertising or promotion, misrepresents the nature, characteristics, qualities, or
17
geographic origin of his or her or another person’s goods, services, or
commercial activities, shall be liable in a civil action by any person who believes
that he or she is or is likely to be damaged by such act.”). Kodiak specially
excepted to Deegear and Deemaxx’s motion, arguing that the motion’s grounds
were unclear and ambiguous because Deegear and Deemaxx challenged a
cause of action that Kodiak had not pled.
Kodiak argues that the trial court erred in granting Deegear and
Deemaxx’s no-evidence motion for summary judgment for three reasons. First,
the trial court erred in overruling Kodiak’s special exceptions.3 Second, Deegear
and Deemaxx’s motion, which asserted there was no evidence of a false
advertising claim under the Lanham Act, erroneously challenged a claim not
asserted by Kodiak. Third, notwithstanding the label placed on Kodiak’s
allegations in its first amended petition, it presented sufficient evidence to raise
genuine issues of material fact that precluded the granting of summary judgment.
We address each of these arguments in turn.
3
The record does not show that the trial court ruled on Kodiak’s special
exceptions, but by granting Deegear and Deemaxx’s no-evidence motion, it
implicitly overruled Kodiak’s special exceptions. See Fieldteck Avionics &
Instruments, Inc. v. Component Control.Com, Inc., 262 S.W.3d 813, 824 n.3 (Tex
App.—Fort Worth 2008, no pet.) (“[A] trial court implicitly overrules special
exceptions when it grants summary judgment on the motion to which the special
exceptions pertain.”).
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1. Kodiak’s special exceptions
Kodiak argued in its special exceptions that Deegear and Deemaxx’s
supplemental no-evidence motion was unclear and ambiguous because (1) it
was premised on the erroneous assumption that Kodiak asserted a false
advertising claim under the Lanham Act and (2) Deegear and Deemaxx did not
address the actual grounds upon which Kodiak’s unfair competition claim was
based—Deegear and Deemaxx’s misappropriation of Kodiak’s designs for disc
brake and brake components and their false statements about their products on
the Internet and in marketing materials. Kodiak asserts that the trial court should
have sustained Kodiak’s special exceptions and required Deegear and Deemaxx
to redraft their no-evidence motion.
In summary judgment proceedings, special exceptions are intended to
ensure that the parties and the court are focused on the same grounds. See
McConnell v. Southside Indep. Sch. Dist., 858 S.W.2d 337, 342–43 (Tex. 1993).
The trial court has broad discretion in ruling on special exceptions, and its ruling
will not be disturbed absent an abuse of discretion. Alejandro v. Bell, 84 S.W.3d
383, 389 (Tex. App.—Corpus Christi 2002, no pet.). Even though Kodiak did not
agree with the summary-judgment grounds alleged in Deegear and Deemaxx’s
motion, the grounds were clear from the motion. Thus, we conclude that the trial
court did not abuse its discretion by implicitly overruling Kodiak’s special
exceptions.
19
2. Deegear and Deemaxx’s supplemental no-evidence motion for
summary judgment
Kodiak argues alternatively that the trial court erred in granting Deegear
and Deemaxx’s supplemental no-evidence motion for summary judgment
because the motion was fatally defective in that it raised a no-evidence ground
on the presumption that Kodiak had pled a false advertising cause of action
under the Lanham Act. In the further alternative, Kodiak argues that if we
conclude that it alleged a false advertising claim under the Lanham Act or that
the elements of a Lanham Act claim are common to Kodiak’s unfair competition
claim, the trial court erred in granting the motion because Kodiak presented
sufficient evidence to raise a genuine issue of material fact on the elements
challenged by Deegear and Deemaxx.
Kodiak contends that its unfair competition claim as pled in paragraphs 42
and 43 arose under the Texas common law, not the Lanham Act. “The law of
unfair competition is the umbrella for all statutory and nonstatutory causes of
action arising out of business conduct which is contrary to honest practice in
industrial or commercial matters.” U.S. Sporting Prods., Inc. v. Johnny Stewart
Game Calls, Inc., 865 S.W.2d 214, 217 (Tex. App.—Waco 1993, writ denied)
(quoting Am. Heritage Life Ins. Co. v. Heritage Life Ins. Co., 494 F.2d 3, 14 (5th
Cir. 1974)). Unfair competition includes a number of types of objectionable trade
practices, including trademark infringement, dilution of good will,
misappropriation of business value, palming off, passing off, and theft of trade
20
secrets. Healthpoint, Ltd. v. River’s Edge Pharms., LLC, No. SA-03-CV-984-RF,
2005 WL 356839, at *3 (W.D. Tex. Feb. 14, 2005); U.S. Sporting Prods., 865
S.W.2d at 217. Unfair competition requires that the plaintiff show an illegal act by
the defendant that interfered with the plaintiff’s ability to conduct its business.
Schoellkopf v. Pledger, 778 S.W.2d 897, 904–05 (Tex. App.—Dallas 1989, writ
denied). The illegal act need not necessarily violate criminal law, but it must at
least be an independent tort. Id. (“Without some finding of an independent
substantive tort or other illegal conduct, we hold that liability cannot be premised
on the tort of ‘unfair competition.’”).
In support of its unfair competition claim, Kodiak alleged that Deegear and
Deemaxx engaged in false advertising. As pointed out by Deegear and
Deemaxx in their summary judgment reply and on appeal, Texas does not
recognize a common law false advertising claim. See VendEver LLC v.
Intermatic Mfg. Ltd., No. 3:11-CV-201-B, 2011 WL 4346324, at *4, n.4 (N.D. Tex.
Sept. 16, 2011) (“It is unclear whether there is in fact a common law cause of
action for false advertising under Texas law.”); see also Charles M. Hosch,
Business Torts, 65 SMU L. Rev. 315, 328 (2012) (“The [VendEver] court’s point
was well taken because there really is no such cause of action as ‘common law
false advertising’ in Texas or in many other states.”). Additionally, false
advertising claims are different from unfair competition claims. “[I]n the former
case, the defendant makes no secret of the origin of the goods in himself, but
merely misrepresents certain qualities or characteristics that his goods may or
21
may not have; in the latter case, the defendant misrepresents his goods to be
those of another.” Chevron Chem. Co. v. Voluntary Purchasing Grps., Inc., 659
F.2d 695, 701 (5th Cir. 1981).
Thus, we construe Kodiak’s unfair competition claim as a claim for false
advertising in violation of the Lanham Act. See Healthpoint, Ltd. v. Ethex Corp.,
No. SA-01-CA-646-OG, 2004 WL 2359420, at *9 (W.D. Tex. July 14, 2004)
(“Healthpoint’s allegations in support of its claim of common law unfair
competition are those also alleged for false advertising in violation of the Lanham
Act. Accordingly, the claim for common law unfair competition will be analyzed
under the elements of the claim of false advertising in violation of the Lanham
Act.”); see also Healthpoint, Ltd. v. Allen Pharm., LLC, No. SA-07-CA-0526-XR,
2008 WL 728333, at *4 (W.D. Tex. Mar. 18, 2008) (finding common law unfair
competition claim in false advertising case dependent on Lanham Act false
advertising claim and analyzing such claim under the elements of the Lanham
Act). To establish liability for false advertising under the Lanham Act, the plaintiff
must show that (1) the defendant made a false statement of fact about its product
in a commercial advertisement; (2) the statement actually deceived or has a
tendency to deceive a substantial segment of its audience; (3) the deception is
likely to influence a purchasing decision; (4) the defendant caused the false
statement to enter interstate commerce; and (5) the plaintiff has been or is likely
to be injured as a result. Astoria Indus. of Iowa, Inc. v. SNF, Inc., 223 S.W.3d
616, 629–30 (Tex. App.—Fort Worth 2007, pet. denied) (op. on reh’g).
22
In their supplemental no-evidence motion for summary judgment, Deegear
and Deemaxx alleged there was no evidence to support any of the elements of
Kodiak’s false advertising claim. Thus, Kodiak was required to bring forward
evidence raising a genuine issue of material fact on each element. See Tex. R.
Civ. P. 166a(i). Kodiak, however, failed to bring forward any evidence to raise a
genuine issue of fact that Deegear and Deemaxx’s alleged deception was likely
to influence a purchasing decision.
Additionally, Kodiak failed to present more than a scintilla of probative
evidence that it was or is likely to be injured as a result of Deegear and
Deemaxx’s alleged false statements. Kodiak attached to its response an affidavit
from Christopher Martinez, its damages expert. Martinez stated that Kodiak’s
annual sales during its fiscal years 2006 through 2010 trended in a manner
similar to personal expenditures for durable goods, but after Deemaxx entered
the market in March 2011, Kodiak’s sales during fiscal year 2011 fell, even
though personal expenditures for durable goods continued to rise. Martinez
further stated that Kodiak’s sales fell in fiscal year 2012 and trended downward
through August 2012. Based on the assumption that Kodiak’s sales would have
continued to trend in a manner similar to personal expenditures for durable
goods but for Deegear and Deemaxx’s acts, Martinez calculated that Kodiak
would have realized additional revenues of $1,956,326 from March 1, 2011,
though August 31, 2012, and, based upon these lost revenues, calculated that
Kodiak suffered $524,524 in lost profits. There was no evidence, however, that
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Deemaxx’s entry into the market caused the drop in Kodiak’s sales. In fact,
Martinez expressly stated that “[f]or the purpose of assessing the extent of
potential damages, I have assumed that the observed decline in Kodiak’s sales
beginning in March 2011 is attributable to the alleged acts of [Deegear and
Deemaxx].”
Kodiak argues that Martinez’s assumption is supported by Glidewell’s
affidavit testimony and that together, their affidavit testimony raises genuine
issues of material fact that Deegear and Deemaxx caused or were likely to cause
Kodiak harm. Glidewell testified that Deegear and Deemaxx were attempting to
solicit business away from Kodiak; were trying to manufacture and sell rotors,
brakes, and other components to compete with Kodiak’s products; had created
and distributed marketing materials to Kodiak’s customers and vendors
promoting Deemaxx’s brakes over Kodiak’s brakes; and were targeting Kodiak’s
customers, distributors, and vendors. This testimony, however, is insufficient to
support Martinez’s assumption that the decline in Kodiak’s sales is attributable to
Deegear’s and Deemaxx’s acts. Nor is it sufficient on its own to raise a genuine
issue of material fact that Kodiak was or is likely to be injured as a result of
Deegear and Deemaxx’s alleged false advertising. Thus, the trial court did not
err by granting Deegear and Deemaxx’s supplemental no-evidence motion for
summary judgment on Kodiak’s unfair competition claim. We overrule Kodiak’s
second issue.
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C. Summary Judgment on Deegear and Deemaxx’s Counterclaim for
Declaratory Judgment
In its third issue, Kodiak argues the trial court erred in granting Deegear
and Deemaxx’s motion for summary judgment on their counterclaim for
declaratory relief because the counterclaim was improperly used to recover
attorney’s fees on disputes already pending before the trial court. Kodiak argues
in its fourth issue that because declaratory relief was improper as matter of law,
the trial court erred in awarding attorney’s fees to Deegear and Deemaxx under
the Declaratory Judgment Act. See Tex. Civ. Prac. & Rem. Code Ann. § 37.009
(West 2015) (“In any proceeding under this chapter, the court may award costs
and reasonable and necessary attorney’s fees as are equitable and just.”).
Kodiak also challenges the attorney’s fees on the ground that Deegear and
Deemaxx failed to segregate their fees.
1. Applicable Law
A counterclaim for declaratory judgment is improper if it is nothing more
than a mere denial of the plaintiff’s claims and the counterclaim fails to have
greater ramifications than the original suit. BHP Petroleum Co. v. Millard, 800
S.W.2d 838, 842 (Tex. 1990) (orig. proceeding). To have “greater ramifications”
than the original suit, the counterclaim should seek some sort of affirmative relief.
HECI Exploration Co. v. Clajon Gas Co., 843 S.W.2d 622, 638–39 (Tex. App.—
Austin 1992, writ denied); see also Tex. R. Civ. P. 96; Warrantech Corp. v.
Steadfast Ins. Co., 210 S.W.3d 760, 770 (Tex. App.—Fort Worth 2006, pet.
25
denied) (“The Declaratory Judgment Act is not available, however, to settle
disputes already pending before a court.”). “To qualify as a claim for affirmative
relief, a defensive pleading must allege that the defendant has a cause of action,
independent of the plaintiff’s claim, on which he could recover benefits,
compensation or relief, even though the plaintiff may abandon his cause of action
or fail to establish it.” Gen. Land Office of Tex. v. OXY U.S.A., Inc., 789 S.W.2d
569, 570 (Tex. 1990) (quoting Weaver v. Jock, 717 S.W.2d 654, 657 (Tex.
App.—Waco 1986, writ ref’d n.r.e.)).
Even though the Declaratory Judgment Act permits a trial court to “award
costs and reasonable and necessary attorney’s fees as are equitable and just,”
Tex. Civ. Prac. & Rem. Code Ann. § 37.009, a party bringing a counterclaim
under the act may only recover its attorney’s fees “if the counterclaim is more
than a mere denial of the plaintiff’s cause of action.” HECI Exploration Co., 843
S.W.2d at 638. The award or denial of attorney’s fees is within the trial court’s
sound discretion. Warrantech Corp., 210 S.W.3d at 769–70 (citing Oake v. Collin
Cnty., 692 S.W.2d 454, 455 (Tex. 1985); Redwine v. AAA Life Ins. Co., 852
S.W.2d 10, 17 (Tex. App.—Dallas 1993, no writ)). However, “a counterclaim
brought under the Declaratory Judgment Act presenting no new controversies
but brought solely to pave an avenue to attorney’s fees is improper.” Id. at 770.
2. Application
In their motion for summary judgment on their declaratory judgment
counterclaim, Deegear and Deemaxx asked the trial court to “declare the rights
26
and duties of the parties as they relate to the contractual release between plaintiff
and defendants” and argued they were entitled to declaratory relief as to “the
construction and validity of the release in the [s]ettlement [a]greement not only as
it applies to Kodiak’s current claims by [sic] potential future claims by Kodiak.”
The trial court granted Deegear and Deemaxx’s motion and entered a declaration
that Kodiak, in the settlement agreement,
fully released Deegear from any claims or causes of action
(including those asserted herein) that could be brought by Kodiak
against Deegear on or after October 5, 2009, whether or not such
claims or causes of action are connected in any way to Deegear’s
relationships with Kodiak [and]
. . . fully released anyone or any entity acting through or on
Deegear’s behalf from any claims or causes of action (including
those asserted herein) that could be brought by Kodiak against such
person or entity on or after October 5, 2009, whether or not such
claims or causes of action are connected in any way to Deegear’s
relationships with Kodiak, and Kodiak has thereby fully release[d]
Deemaxx from such claims.
Deegear and Deemaxx argue that the declaratory relief requested had
greater ramifications than Kodiak’s lawsuit and sought affirmative relief because
the trial court declared that paragraph 2.4 of the settlement agreement released
(1) claims that did not arise from Deegear’s relationships with Kodiak, (2) claims
against nonparties acting through or on Deegear’s behalf, and (3) future claims
that may be asserted after the conclusion of this litigation. But their request for
declaratory relief was nothing more than a restatement of their affirmative
defense and had no greater ramifications than Kodiak’s claims. As discussed
above, Deegear and Deemaxx sought summary judgment on their affirmative
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defense of settlement and release based upon paragraph 2.4 of the settlement
agreement, which stated that Kodiak released Deegear from claims “whether
connected in any way with Deegear’s relationships with Kodiak . . . or not” and
“anyone or any entity acting through or on his behalf.” They also argued that
Kodiak released them from future claims. In substance, Deegear and Deemaxx’s
requested declarations are identical to the basis for their affirmative defense.
See HECI Exploration, 843 S.W.2d at 639. The declaratory judgment
counterclaim does not allege a cause of action independent from Kodiak’s claim
on which Deegear and Deemaxx could recover relief if Kodiak abandoned its
cause of action. See BHP Petroleum, 800 S.W.2d at 842; HECI Exploration, 843
S.W.2d at 639. Deegear and Deemaxx asked for no greater relief in their
declaratory judgment counterclaim than they asked for without the counterclaim.
See HECI Exploration, 843 S.W.2d at 639. Accordingly, we conclude that as a
matter of law, the trial court erred in granting summary judgment on Deegear and
Deemaxx’s declaratory judgment counterclaim and abused its discretion in
awarding them attorney’s fees under the Declaratory Judgment Act. We sustain
Kodiak’s third and fourth issues.
IV.
Conclusion
We overrule Kodiak’s first and second issues. Having sustained Kodiak’s
third and fourth issues, we reverse the trial court’s judgment as to Deegear and
Deemaxx’s declaratory judgment counterclaim and the award of attorney’s fees,
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and we remand this case to the trial court for further proceedings consistent with
this opinion.4 See Tex. R. App. P. 43.2(d). We affirm the remainder of the trial
court’s judgment. See Tex. R. App. P. 43.2(a).
/s/ Anne Gardner
ANNE GARDNER
JUSTICE
PANEL: DAUPHINOT, GARDNER, and WALKER, JJ.
DELIVERED: June 4, 2015
4
When, as here, only one party moves for summary judgment and an
appellate court reverses that summary judgment, the case must be remanded to
the trial court. See Herald-Post Publ’g Co. v. Hill, 891 S.W.2d 638, 640 (Tex.
1994); see also CRA, Inc. v. Bullock, 615 S.W.2d 175, 176 (Tex. 1981) (“A
summary judgment was granted and the adverse party did not also seek a
summary judgment. In this situation where upon appeal it is determined that the
summary judgment was improperly granted, the appeal does not afford a basis
for rendering a judgment for the non-moving party.”).
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