Fluorine On Call Ltd v. Fluorogas Limited

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT August 10, 2004
_______________________
Charles R. Fulbruge III
No. 03-50419 Clerk
_______________________
FLUORINE ON CALL LTD
Plaintiff - Counter Defendant - Appellee - Appellant
v.
FLUOROGAS LIMITED, ET AL.
Defendants
FLUOROGAS LIMITED
Defendant - Counter Claimant - Appellant - Appellee
and
THE BOC GROUP, INC; THE BOC GROUP PLC
Defendants - Appellants - Appellees
v.
FREDERICK J SIEGELE; STEPHEN SIEGELE
Third Party Defendants - Counter Defendants - Appellees
and
APPLIED MATERIALS INC
Third Party Plaintiff - Appellee
--------------------
Appeals from the United States District Court
for the Western District of Texas
--------------------
Before DAVIS, PRADO and PICKERING, Circuit Judges.
EDWARD C. PRADO, Circuit Judge:
This case arises from a “Memorandum of Understanding”
1
between Fluorogas Limited (“Fluorogas”) and Fluorine on Call,
Ltd. (“FOC”). Flourogas is a small English company that develops
and manufactures fluorine generators. It was owned by Graham
Hodgson, who was also its president. FOC is a Texas company that
began with two brothers, Frederick and Stephen Siegele. The
Siegeles sought to enter what they viewed as the potential market
for on-site fluorine generators for use in the semiconductor
industry.
This potential market arises from the need to clean
manufacturing equipment. Some of the equipment used in the
semiconductor manufacturing process involves “chemical vapor
deposition,” also called CVD. The process involves spraying
chemicals onto silicon wafers while those wafers are inside a
chamber. Over time, this chamber becomes contaminated and needs
cleaning. Generally, chambers are cleaned with nitrogen
trifluoride (or NF3) gas, which presents certain environmental
hazards and can be expensive. Because of these problems,
companies have looked for alternatives to NF3. One of these
potential alternatives is fluorine gas (or F2). Yet Fluorine has
its own problems – in particular, it is extremely dangerous and
difficult to handle.
Fluorogas manufactures fluorine generators for other uses.
Using Fluorogas’s technology for the semiconductor manufacturing
process would require, as even the Siegeles have admitted, a
“quantum leap in technology.” Fluorogas discussed the
2
possibility of providing generators for semiconductor
manufacturing with some other companies, but those discussions
did not lead to anything concrete. Nevertheless, one of the
other companies provided Applied Materials (“Applied”) with a
quote for fluorine generators based on Fluorogas’s technology.
After examining the potential market for on-site fluorine
generators as well as potential sources, the Siegeles contacted
Fluorogas. Interested in obtaining a license to Fluorogas’s
technology, the Siegeles began negotiating with Hodgson in the
summer of 2000. Eventually, these negotiations led to a
Memorandum of Understanding (“MOU”), which Hodgson and Frederick
Siegele signed in a country club in the Florida Keys on August
11, 2000. The MOU was a handwritten document drafted by
Frederick Siegele over the course of a weekend. Fluorogas
contends that the parties planned to eventually replace the MOU
with a more formal contract; in September 2000, Frederick Siegele
wrote a letter agreeing with that contention.
The MOU granted FOC “the exclusive worldwide right to
manufacture and supply Fluorine generators based on FG Background
Technology (as defined below) where such generators are to be
used in the Chemical Vapor Deposition (“CVD”) process, excluding
etch applications.” In return, FOC agreed to pay royalties based
on its revenues; if FOC failed to make those royalty payments,
its license would become non-exclusive once Fluorogas provided
notice. Fluorogas also granted FOC some non-exclusive rights to
3
Fluorogas’s technology: “the non-exclusive worldwide right to
manufacture and supply Fluorine generators based on FG Background
Technology where such generators are to be used in the
Semiconductor Industry, including the etch applications.” The
MOU contained no express duration term.
After the parties signed the MOU, FOC purchased a Fluorogas
test generator to sell to Applied. According to Applied, it
could not use this test generator for its business; rather, it
used the generator to assist in determining whether on-site
fluorine generation might be commercially viable.
Sometime thereafter, Applied employees had various
conversations directly with Fluorogas. Although the nature of
the conversations is somewhat disputed, it appears that these
conversations involved, at least, the possibility of Applied
investing in Fluorogas.1 FOC contends that the discussions also
suggested that Applied deal directly with Fluorogas.2 FOC
contended that these conversations violated the MOU and so sued
Fluorogas. In January 2001, FOC dismissed this first suit
without prejudice.
On February 23, 2001, Fluorogas’s lawyers sent FOC a letter,
which forms the basis of much of this case. After first stating
1
Fluorogas and FOC disagree about whether they discussed an
investment during the initial negotiations.
2
Around the same time, Applied discussed purchasing another
generator from FOC, but these discussions went nowhere.
4
that it was not sure that the MOU bound it, Fluorogas stated:
For the avoidance of any possible doubt we must make it
clear that this letter is formal notice of termination
of the relationship sought to be realised under the
Memorandum of Understanding, and accordingly, and to
the extent that the Memorandum of Agreement imposed any
obligation on our client, any and all such obligations
are now at an end.
After receiving this letter, FOC sued Fluorogas again in
Texas state court on March 8, 2001; Fluorogas removed the case,
based on diversity, to the Western District of Texas. FOC later
added Applied as a defendant, bringing claims for tortious
interference with contract and conspiracy against it.
In September 2001, while this case was pending, The BOC
Group plc, a publicly-held British company, purchased all of
Fluorogas’s stock for $4.5 million, plus contingent money
depending on sales of fluorine generators. The BOC Group
(through BOC Edwards, a division of BOC Group’s American
subsidiary) first contacted Fluorogas on March 2, 2001, seven
days after Fluorogas terminated the MOU.3 The purpose of this
contact was to discuss working together to develop fluorine
generators for on-site CVD cleaning. On September 26, 2001, The
BOC Group plc purchased all of Fluorogas’s stock. Fluorogas
3
At various points FOC disputes this, but presents no
evidence that the first contact occurred before the termination
letter. Its only evidence is that someone’s original deposition
testimony had an incorrect date and an argument that the contact
in early March was suspicious. BOC began discussing on-site
fluorine generators with Applied in January 2001, but all the
evidence indicates that Applied suggested that BOC use 3M’s
technology, not Fluorogas’s.
5
continues to sell fluorine generators for work unrelated to
semiconductor use and sells fluorine cells to BOC Edwards for BOC
Edwards to develop for semiconductor use. BOC has yet to make a
profit from semiconductor fluorine use, having only placed two
test units with customers. After this acquisition, FOC amended
its complaint to add claims for tortious interference,
conspiracy, and derivative liability against The BOC Group plc
and its American subsidiary, The BOC Group, Inc. (collectively
“BOC”).
On December 16, 2002, following referral to a magistrate
judge, the district court granted summary judgment in Applied’s
favor on all of FOC’s claims against it. The district court also
granted summary judgment in BOC’s favor on the tortious
interference and conspiracy claims.
The remaining claims went to trial, where the jury found for
FOC on its breach of contract and fraud claims against Fluorogas
and also found BOC derivatively liable. The jury awarded
$120,000,000 for “loss of income producing asset” damages,
$170,000 in reliance damages, and $12 million in punitive
damages. The district court entered judgment for these awards,
plus prejudgment interest, costs, and $24,199,037.45 in
attorney’s fees. Thus, the total judgment exceeded $170 million.
Fluorogas and BOC moved for judgment as a matter of law, for a
new trial, and for remittitur. The district court denied these
motions. Fluorogas, BOC, and FOC filed notices of appeal.
6
Fluorogas’s and BOC’s Appeal
Standard of Review
Fluorogas and BOC appeal the district court’s denial of
their motions for judgment as a matter of law, a decision we
review de novo. Arguello v. Conoco, Inc., 330 F.3d 355, 357 (5th
Cir. 2003). In a jury case, a motion for judgment as a matter of
law challenges the sufficiency of the evidence supporting the
verdict. Id. To review the sufficiency, we consider the entire
trial record in the light most favorable to the nonmovant,
drawing reasonable inferences in its favor. Id. “An issue is
properly submitted to the jury where there is a conflict in
substantial evidence – ‘evidence of such quality and weight that
reasonable and fair-minded men in the exercise of impartial
judgment might reach different conclusions.’” Id. at 357-58
(quoting Boeing Co. v. Shipman, 411 F.2d 365, 374-75 (5th Cir.
1969) (en banc), overruled on other grounds, Gautreaux v.
Scurlock Marine, Inc., 107 F.3d 331 (5th Cir. 1997) (en banc)).
Was the MOU Terminable At Will?
Initially, Fluorogas contends that the MOU contained no
duration term and therefore was terminable at will. The district
court concluded that the MOU was terminable at will, but that it
also contained an implied reasonable term. Thus, the district
court instructed the jury that “the court has determined that
although the MOU lacks a definite term of duration, it should,
7
nonetheless, be allowed to proceed for a reasonable amount of
time. You, the jury, must now determine from a preponderance of
the evidence what was a reasonable term of duration for the MOU.”
The jury answered that the MOU contained a 5-year reasonable term
and awarded damages for termination before that term had expired.
We have previously held that contracts with indefinite
length are terminable at will:
Under Texas law, when a contract "contemplate[s]
continuing performance (or successive performances) and
... [is] indefinite in duration," it may be terminated
at the will of either party. Moreover, "this circuit
... does not favor perpetual contracts" and "presumes
that [any such] contract is terminable at will."
Trient Partners I, Ltd. v. Blockuster Entm’t Corp., 83 F.3d 704,
708 (5th Cir. 1996)(citations omitted); see also Clear Lake City
Water Auth. v. Clear Lake Util. Co., 549 S.W.2d 385, 390 (Tex.
1977). Although the contract in Trient specifically stated that
it was indefinite in duration, the case did not suggest that this
rule only applied to contracts with an express indefinite term.
FOC cites no Texas cases to challenge this principle, but instead
attempts to escape its reach.
Thus, while acknowledging this rule, FOC asserts that the
MOU is not terminable at will. Initially, FOC challenges the
conclusion that the MOU lacks a duration term. FOC argues that
the contract is not indefinite because it continued in effect so
long as FOC continued to pay royalties. Conversely, FOC
contends, the MOU terminated when FOC stopped paying those
8
royalties. As support, FOC cites language from a Texas Supreme
Court case, “[w]ords which fix an ascertainable fact or event, by
which the terms of a contract’s duration can be determined, make
the contract definite and certain in that particular.” City of
Big Spring v. Bd. of Control, 404 S.W.2d 810, 815 (Tex. 1966).
In Big Spring, the city contracted to provide water to a nearby
state-run hospital at a certain rate; by its terms the agreement
“continue[d] in full force and effect [a]nd [was] not subject to
being revoked as long as the State of Texas shall in good faith
maintain and operate said hospital.” Id. In light of this
provision, the court concluded that the contract was not
indefinite and thus not terminable at will. Id.
Here, the MOU’s language is not so conditional, providing:
“If FOC fails to make such payment as disclosed in Table One,
FOC’s license upon [Flurogas] providing written notice to FOC,
shall hereafter be non-exclusive.” This provision resembles a
remedy, not a duration term. We have reached similar conclusions
in other cases. For example, using the Iowa version of the
U.C.C.,4 we determined that a provision in an exclusive
distribution contract permitting termination if either party
defaulted did not remove it from the general rule that indefinite
4
The Delta court noted that the relevant U.C.C. provision
“is a codification of the common law rule that unless otherwise
stated, a contract is terminable at will upon reasonable notice.”
Delta Servs. & Equip. Co v. Ryko Mfg. Co., 908 F.2d 7, 10 (5th
Cir. 1990).
9
contracts are terminable at will. Delta Servs. & Equip. Inc. v.
Ryko Mfg. Co., 908 F.2d 7, 9 (5th Cir. 1990).5 The contract in
Trient, too, contained terms providing that the contract
terminated upon various forms of breach or default. Trient, 83
F.3d at 709. Yet Trient’s contract remained terminable at will.
Id. There, the court held that the default and breach provisions
“are not the kind of determinable events that transform a
contract of indefinite duration into one of definite duration,”
in part because they simply state a fundamental principle of
contract law: a material breach may terminate a contract. Id.6
Additionally, despite FOC’s attempts to universalize Big
Spring, we have held that its holding is limited; the case
involves specific problems of government entities providing
governmental functions. Trient, 83 F.3d at 710. Big Spring
“simply carves out an exception to the general rule of law
5
The Delta court distinguished Besco, Inc. v. Alpha Portland
Cement Co., 619 F.2d 447 (5th Cir. 1980), where a contract
expressly indicated that the right to terminate would be based
solely on a failure to sell a certain amount of product or the
unavailability of materials. Delta, 908 F.2d at 9.
6
FOC’s citation to Rolling Lands Investments, L.C. v.
Northwest Airport Management, L.P., 111 S.W.3d 187 (Tex. App. –
Texarkana 2003, pet. denied), does not change this result. In
Rolling Lands, an agreement for access rights to an airport ended
when, among other things, the airport closed or its operations
stopped. Id. at 197. This is distinguishable from the situation
here, where one party could unilaterally terminate (or, rather,
turn an exclusive right into an non-exclusive one) by not paying
royalties.
10
governing indefinite duration contracts in Texas.” Id. at 711.
FOC also analogizes the license to habendum clauses in oil
and gas leases. Because habendum clauses, which define a mineral
estate’s duration, last indefinitely until a condition is
reached, “a typical Texas lease that lasts ‘as long as oil or gas
is produced’ automatically terminates if actual production
permanently ceases during the secondary term.” Anadarko
Petroleum Corp. v. Thompson, 94 S.W.3d 550, 554 (Tex. 2002). But
habendum clauses exist in a distinguishable context and serve a
different purpose: “[a] Texas mineral lease grants a fee simple
determinable to the lessee. Consequently, the lessee's mineral
estate may continue indefinitely, as long as the lessee uses the
land for its intended purpose.” Id. (citations omitted). FOC’s
exclusive license differs significantly from a fee simple in a
mineral estate, and FOC has not cited any case outside the oil-
and-gas context where habendum clause principles have been
applied or where analogies to habendum clauses have been drawn.
We, too, decline to draw such an analogy.
Finally, FOC cites University Computing Co. v. Leader Corp.,
371 F. Supp. 86 (N.D. Tex. 1974). In Leader, the parties entered
into a settlement agreement that contained various obligations of
definite duration. The agreement also provided, in three
different places, that one party (Leader) could use the other
party’s software “for an indefinite period of time.” Id. at 87.
11
The court determined that, despite its indefinite duration, the
contract was not terminable at will. Id. at 89. Unlike other
cases where the contract imposed substantial obligations on the
parties, “Leader’s non-exclusive right to the use of the Results’
systems does not impose any obligations on UCC for an indefinite
period of time.” Id. at 88 (emphasis in original). The court
also noted that the parties clearly “did not intend to create an
agreement terminable at the will of either party.” Id. This
case is distinguishable from Leader in terms of context and
obligations. In Leader, the former defendant in a lawsuit was
attempting to cancel a settlement agreement made two days before
trial. Id. But more importantly, unlike in Leader, the
exclusive license imposed significant obligations on Fluorogas.
Thus, FOC’s arguments that the MOU should fall outside of
the general rule are unconvincing. The MOU is an indefinite
length contract, and therefore terminable at will. FOC contends
that it would generally be unfair for a licensor to be able to
terminate at any time for any reason. For that reason, courts
often read a reasonable term into otherwise terminable indefinite
contracts.
Should a reasonable term be implied?
The Texas Supreme Court has recognized that, in certain
circumstances, a reasonable time should be read into an otherwise
terminable-at-will contract:
12
We are not unmindful of the fact that in dealing with
exclusive franchise or distributorship agreements,
which are indefinite in duration and which contemplate
the expenditure of substantial sums of money or other
investments by one of the parties preparatory to or in
accordance with his performance under the contract, the
courts often imply a term of reasonable duration during
which time the agreement is not terminable at will.
Clear Lake, 549 S.W.2d at 391 (citations omitted). The
specifics of such an implied term remain somewhat unclear. For
example, the Clear Lake passage describes implying a reasonable
term as something that courts “often” do, not as a requirement.7
And the court in Clear Lake did not have to decide whether to
imply this term into the particular contract. Id. Similarly, in
Trient, we did not determine whether a reasonable duration should
be read in (or what that duration should be) because it concluded
that any reasonable term had already passed. Trient, 83 F.3d at
711.
Fluorogas argues that FOC has not established one of the
requirements for implying a reasonable term because it failed to
present evidence that it had spent substantial sums of money.
Clear Lake and Trient both indicate that a contract’s
7
Texas courts have carved out one clear exception to
implying a reasonable duration term. This exception notes that
government entities cannot enter contracts that limit their
governmental powers. The contract in Clear Lake served that
purpose; therefore the court would not read a reasonable term
into it. Clear Lake, 549 S.W.2d at 392. See also City of Corpus
Christi v. Taylor, 126 S.W.3d 712, 722-23 (Tex. App. – Corpus
Christi 2004, no pet. h.) (applying Clear Lake to a similar
contract).
13
contemplation of a party’s substantial expenditure is a
prerequisite for reading in a reasonable duration contract term.
Trient, 83 F.3d at 704; Clear Lake, 549 S.W.2d at 391. Fluorogas
argues that the district court improperly deprived it of a jury
finding on this issue by instructing the jury that this contract
fit within the exception, rather than asking the jury whether FOC
had expended a substantial sum of money.
Fluorogas specifically argues that FOC did not lease any
office space, built no manufacturing facilities, made no royalty
payments, hired no employees, and paid no salaries before the
termination. In fact, Fluorogas argues, FOC made a profit during
the six months the MOU was in effect: it paid $130,000 for the
Fluorogas generator, which it sold to Applied for $222,000. In
response, FOC cites testimony by Frederick Siegele that he spent
$200,000 in expenses8 and argues that it “invested six months of
time exclusively working under the MOU.” FOC also contends that
it “used its goodwill to introduce Fluorogas’s technology to
Applied.” These expenditures of other investments, namely time
and goodwill, justify the imposition of a reasonable term. In
sum, the district court did not err in concluding that the MOU
8
According to Fluorogas, this amount includes the amount
FOC paid to Fluorogas for the generator it sold at a profit (and
therefore was essentially reimbursed for this amount) and
reimbursement for Hodgson’s trip to Florida, which FOC had agreed
to pay before entering the MOU. Fluorogas also contends that the
$200,000 includes tax on the profit it made off the generator.
FOC does not challenge any of these characterizations of the
alleged $200,000.
14
contemplated that FOC would expend a substantial sum of money in
fulfilling its obligations and that, thus, a reasonable term
should be implied into the MOU.9
Did FOC establish the elements of its fraud claim?
Fluorogas further argues that the district court should have
granted its motion for judgment as a matter of law because FOC
failed to present evidence of each element of its fraud claims.
Under Texas law, a fraud claim includes the following
elements:
(1) a material representation was made; (2) it was
false when made; (3) the speaker either knew it was
false, or made it without knowledge of its truth; (4)
the speaker made it with the intent that it should be
acted upon; (5) the party acted in reliance; and (6)
the party was injured as a result.
Coffel v. Stryker Corp., 284 F.3d 625, 631 (5th Cir. 2002)
(citing Formosa Plastics Corp. USA v. Presidio Eng'rs &
Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998)). To show fraud
based on a promise of future performance, a plaintiff must also
show that the person making the promise had no intention of
performing at the time he made the promise. Id. Failure to
perform a contract, however, is not evidence of fraud. Formosa
Plastics, 960 S.W.2d at 48.
FOC’s fraud allegations are not very specific. FOC contends
that Fluorogas made the following fraudulent representations:
9
Neither party challenges the jury’s finding that five years
was a reasonable term for the MOU.
15
(1) Fluorogas failured to inform FOC of its
interpretation of the contract: “Hodgson never informed
FOC that he believed he could cancel the MOU at any
time, although that is exactly what he intended to do
as early as December of 2000;”
(2) While negotiating and signing the MOU, Hodgson
represented that he intended to give FOC access to
Fluorogas’ licensed technology, while never intending
to do so;
(3) Hodgson said that his dealings were aboveboard;
(4) Hodgson “repeatedly confirmed Fluorogas’s
commitment to the MOU” while having secret meetings
with Applied; and
(5) While discussing the settlement of the first
lawsuit, Hodgson never told FOC that he would terminate
the MOU.
FOC further alleges that it relied on these representations,
specifically by:
(A) entering into the MOU;
(B) hiring Robert Jackson as its vice president;
(C) incurring expenses;
(D) showing Fluoroga’s technology to their business
contacts; and
(E) dropping the first lawsuit.
In support of these allegations, Stephen Siegele testified
that he never would have taken any of the above actions had he
known that “Fluorogas believed that it was not bound by the MOU,
believed it could cancel at any time, never intended to give FOC
access to the background technology or intended to act in a way
that was inconsistent with its representations to FOC.”
Many of FOC’s allegations of fraud are problematic. For
example, FOC complains about Hodgson’s failure to tell it about
secret meetings with Applied, but failure to disclose can only be
16
fraud if there is a duty to disclose. Trustees of NW Laundry &
Dry Cleaners Health & Welfare Trust v. Burzynski, 27 F.3d 153,
157 (5th Cir. 1994). FOC’s claim based on failure to disclose is
deficient because FOC has not pleaded or argued any exception
that would have given Fluorogas a duty to disclose.
In addition, FOC has no injury that can be attributed to the
alleged fraudulent representations. FOC never paid Robert
Jackson a salary, and it dismissed its first lawsuit without
prejudice. As for the claim that Fluorogas never intended to
provide access when it entered into the contract, no connection
exists between this particular aspect of the MOU and any of FOC’s
purported reliance or damages: FOC’s damages were based solely on
the value of the exclusive right.
Thus, the only fraud claim that remains is the fraudulent
inducement claim – that Fluorogas entered the MOU never intending
to comply with it. And for this, FOC only presents evidence that
Hodgson testified that he believed he could terminate at any time
and that by December 2000, he intended to terminate. Even viewed
in FOC’s favor, this is not evidence that Hodgson entered the
contract without intending to perform. Therefore, the district
court erred in denying Fluorogas’s and BOC’s motion for judgment
as a matter of law on FOC’s fraud claim. Because the punitive
damages were based on this fraud claim, the award of punitive
17
damages cannot stand.10
Did FOC establish its lost-asset damages?
The jury awarded FOC $170,000 in reliance damages and $120
million in “loss of income-producing asset” damages.11 Fluorogas
challenges the calculation of the lost asset damages, arguing
that FOC did not prove them with reasonable certainty.
General standard – lost asset
FOC based its lost asset theory on a Second Circuit case,
Schonfeld v. Hilliard, 218 F.3d 164 (2d Cir. 2000).12 In
Schonfeld, the Second Circuit determined that the plaintiff could
recover, as consequential damages, the value of the asset (in
that case, broadcast contracts) it lost because of the
defendant’s breach. The lost value measure of damages is the
“market value of the asset at the time of breach – not the lost
profits that the asset could have produced in the future.” Id.
10
Under Texas law, punitive damages are not available for
breach of contract. Bellefonte Underwriters Ins. Co. v. Brown,
704 S.W.2d 742, 745 (Tex. 1986).
11
FOC dropped its request for lost profit damages.
12
Neither side has cited any Texas cases in which this
damage theory was used. FOC indicates that Aboud v.
Schlichtmeier, 6 S.W.3d 742 (Tex. App. – Corpus Christi 1999, no
pet.) contained a similar analysis of “lost opportunities.”
However, the points of error in Aboud indicate that it concerned
lost profits, although one of the experts phrased this as the
present value of the lost business opportunities. Moreover, we
have referred to Aboud as a case in which a Texas court permitted
a plaintiff to recover lost profits. Burkhart Grob Luft und
Raumfahrt GmbH & Co. KG v. E-Sys., Inc., 257 F.3d 461, 467 (5th
Cir. 2001).
18
at 176. This amount is connected to “a buyer’s projections of
what income he could derive from the asset in the future.” Id.
In describing the measure, the Second Circuit quoted Dobbs Law of
Remedies: “Market value damages are ‘based on future profits as
estimated by potential buyers who form the ‘market’ and ‘reflect
the buyer’s discount for the fact that the profits would be
postponed and . . . uncertain.’” Id. (quoting DAN B. DOBBS, DOBBS
LAW OF REMEDIES § 3.3(7) (1993)). The court noted “[t]he same kind
of market-value proof is sometimes required to prove general
damages to prove ‘hybrid’ damages for the loss of an income-
producing asset. But the two remain analytically distinct.” Id.
at 176-77.
Schonfeld itself examined the difference. In Schonfeld,
the Second Circuit first concluded that the plaintiff’s lost
profit damages were too speculative to recover. Id. at 173. But
the court noted that “[t]he market value of an income-producing
asset is inherently less speculative than lost profits because it
is determined at a single point in time. It represents what a
buyer is willing to pay for the chance to earn the speculative
profits.” Id. at 177. The Schonfeld court discussed several
methods for determining the market value in the absence of a
standardized market or exchange: “experts may give their opinion
of the asset’s value; and evidence of sales of comparable assets
may be introduced.” Id. at 178. Still, the court noted, “it is
19
well-established that a recent sale price for the subject asset,
negotiated by parties at arm’s length, is the ‘best evidence’ of
its market value.” Id at 178. Eventually, the court concluded
that evidence of the price that a buyer had been willing to pay
for the contracts, along with expert testimony, could provide
sufficient evidence of the contracts’ market value. Id. at 183.
In short, under Schonfeld, the market value is determined by
considering what a hypothetical buyer would pay for the chance to
earn future profits. And the best evidence of this value is an
actual sale of the asset.
FOC relied on expert testimony to calculate the value of
its lost asset – the exclusive license. FOC’s expert, Walter
Bratic, provided a damage estimate of $130 million. Bratic
reached this amount by using two different lost-profit models
based on various projections, including some from BOC. Bratic
used an 11-year reasonable contract period for these
calculations,13 and then discounted that stream of future profits
to present value.
Yet Bratic did not analyze what a buyer would have paid for
the chance to make these profits, as Shonfeld requires.
Schonfeld, 218 F.3d at 177. In fact, Bractic testified:
Q: You’ve done no analysis whatsoever of what a
willing buyer would be willing to pay for the MOU on
13
The jury concluded that the reasonable term was five
years, not eleven.
20
February 23rd 2001; is that correct?
A: Well -no. I haven’t done an analysis of what a
willing buyer, willing seller would have paid for the
MOU on the date it was canceled.
Thus, Bratic did not do any of the calculations that
distinguish a lost asset damage model from a straightforward
lost-profits one. Instead, he calculated the value based solely
on expected future profits. Because of this, the record contains
no evidence of the market value of the exclusive license.
Although FOC argues that “magic words” should not be
required, the issue here is not one of magic words, but of the
expert’s method. The only evidence of damages – Bractic’s
testimony – reflects a speculative lost-profit analysis and fails
to show any evidence of the fundamental aspect of its own damage
theory. For that reason, we reverse the $120 million award of
lost asset damages.14
BOC’s Derivative Liability
The jury found two bases for derivative liability against
the BOC entities. First, it determined that Fluorogas acted as
the alter ego of The BOC Group plc, its parent corporation.
Second, it found that Fluorogas, The BOC Group plc, and The BOC
Group, Inc. were operating as a single business enterprise.
Based on these findings, the district court entered a judgment
holding Flurogas, The BOC Group plc, and The BOC Group, Inc.
14
Fluorogas and BOC did not challenge the award of $170,000
in reliance damages.
21
jointly and severally liable for the entire amount of damages.
As noted, FOC proceeded under two distinct theories of
derivative liability under Texas law – alter ego (against BOC
Group plc) and single business enterprise (against BOC Group plc
and The BOC Group, Inc.). Under the alter ego theory, “where a
corporation is organized and operated as a mere tool or business
conduit of another corporation,” the first corporation’s wrongful
acts are properly attributed to the controlling corporation.
Menetti v. Chavers, 974 S.W.2d 168, 173 (Tex. App. – San Antonio
1998, no pet.). The single business enterprise theory imposes
derivative liability in a slightly different context: “when
corporations are not operated as separate entities but rather
integrate their resources to achieve a common business purpose,
each constituent corporation may be held liable for debts
incurred in pursuit of that business purpose.” Paramount
Petroleum Corp. v. Taylor Rental Ctr., 712 S.W.2d 534, 536 (Tex.
App. – Houston [14th Dist.] 1986, writ ref’d n.r.e.).
Both theories, therefore, presume that the corporations are
unified at the time of the wrongful act.15 It is illogical, for
15
See United States v. Wallace, 961 F. Supp. 969, 979 (N.D.
Tex. 1996) (“Under general corporate law principles, the relevant
inquiry into the control issue focuses on the relationship
between the parent and the subsidiary at the time the acts
complained of took place.”) (citing Craig v. Johns-Manville
Corp., 1987 WL 10191,(E.D.Penn. Mar. 31, 1988; W. FLETCHER,
CYCLOPEDIA OF THE LAW OF PRIVATE CORPORATIONS, Sec. 43.10, at 490; Wm.
Passalacqua Builders v. Resnick Developers, 933 F.2d 131, 138
(2nd Cir. 1991); Radaszewski By Radaszewski v. Telecom Corp., 981
22
example, to hold a parent liable for controlling another
corporation’s debts when it had no control at the time the debts
were incurred. So, “[i]n alter ego cases, the unfairness
consists, not in fraud, but in the fact that the dominant
shareholder or parent entity, because it controls the subservient
company, is the party responsible for creating the subservient's
debts.” Riquelme Valdes v. Leisure Res. Group, Inc., 810 F.2d
1345, 1353 (5th Cir. 1987).16 Thus, BOC argues that it could not
be liable under either theory because it had no relationship with
Fluorogas at the time Fluorogas terminated the MOU. FOC does not
seriously challenge this principle and only cites cases involving
fraudulent transfers to avoid a debt, not alter ego or single
business enterprise.17
Instead, BOC argues that Fluorogas has, since February 23,
2001, continuously breached its obligations under the MOU.
Because this breach continued after BOC’s acquisition of
F.2d 305, 306 (8th Cir. 1992)).
16
Riquelme Valdes was decided under earlier Texas law, which
did not require any showing of fraud to pierce the corporate
veil. The Texas legislature amended earlier law by passing
Article 2.21 of the Texas Business Corporation Act, which added
an actual fraud requirement. TEX. BUS. CORP. ACT art. 2.21(A)(2)
(Vernon 2003). The addition of the fraud requirement, however,
does not alter the fundamental reasoning behind alter ego
derivative liability – that the dominant corporation is actually
creating the debts.
17
At trial and on appeal, FOC only proceeded under alter ego
and single business enterprise theories. It did not plead or
prove fraudulent transfer.
23
Fluorogas, FOC contends, BOC is derivatively liable under both
theories. FOC argues that Fluorogas and BOC has continued to
deny it access to the technology and that Fluorogas and BOC had a
duty to refrain from directly marketing or selling fluorine
generators for CVD processes to potential customers. FOC further
maintains that Fluorogas and BOC violated this duty by “embarking
on a campaign to market and sell that technology directly to the
semiconductor industry.” In so doing, FOC characterizes the
February 23, 2001 letter, which it elsewhere calls a breach, as
nothing more than a “repudiation.”
Regardless of the general validity of the continuing
violation theory, it is important to note two things about this
case. First, the jury was asked whether “Fluorogas failed to
comply with the MOU by terminating or attempting to terminate the
MOU on February 23, 2001, before the expiration of the reasonable
term.” (Emphasis added.) This question, and one about harm “from
Fluorogas’s failure to comply with the MOU by terminating or
attempting to terminate the MOU,” were the only jury questions
about breach of contract. Thus, the jury did not consider any
breach after February 23, 2001, much less any breach based on a
post-acquisition marketing campaign. Second, the district court
instructed the jury to calculate damages as of February 23, 2001.
Despite this, FOC contends that it did not have to accept
the repudiation and may still demand continued performance. As
support, FOC cites cases about anticipatory breach and
24
repudiation, such as Murray v. Crest Construction, Inc., 900
S.W.2d 342, 344 (Tex. 1995). In Murray, the court stated “[w]e
have long recognized the rule of anticipatory breach: the
repudiation of a contract before the time of performance has
arrived amounts to a tender of breach of the entire contract and
allows the injured party to immediately pursue an action for
damages.” Id. at 344. As suggested by that passage, the
repudiation in Murray was anticipatory, occurring before any
performance was due: “Crest repudiated the Beaumont settlement
agreement by informing Murray that it would not perform on the
promissory note when its performance became due.” Id. This is
not the case here; FOC had obtained the exclusive license and
then Fluorogas terminated the license. Although the duration of
the contract had not run, there was nothing anticipatory about
this termination, even if it was a breach.
Even so, FOC has sued for total breach of contract damages,
and has not sued based on any theory of anticipatory breach or
continuing breach. FOC’s citation to Brighton Homes, Inc. v.
McAdams, 737 S.W.2d 340 (Tex. App. – Houston [14th Dist.] 1987,
writ ref’d n.r.e.), only emphasizes this problem. FOC cites
Brighton Homes for the idea that a plaintiff’s damage amount
cannot be restricted to the amount caused by the very first
breach when later instances of breach also cause property damage.
Brighton Homes was a Deceptive Trade Practices Act suit involving
25
failure to build a house in a workmanlike manner. Id. at 341.
The builder challenged the amount of damages, arguing that only
damage incurred the very first moment of breach was recoverable.
Id. at 342-43. The court disagreed. Id. at 343. The builder’s
failure to repair was continuing, and the purchaser could recover
for all the damage this failure caused until the time of trial,
not just the first instance of damage the purchaser noticed,
because “[w]here there is a continuing cause of damage, measuring
the damage immediately after the initial injury would be unduly
restrictive and would not compensate plaintiffs fully for their
injury.” Id. at 343. Here, in contrast, FOC sued for the total
value of its lost asset as of February 23, 2001. All the damage
from the future use of its asset is measured at that time; there
is no need for a continuing measure of damages.
A similar problem arises in FOC’s analogy to rent cases.
FOC cites Austin Hill Country Realty, Inc. v. Palisades Plaza,
Inc., 948 S.W.2d 293, 300 (Tex. 1997) for the proposition that a
landlord may, in the face of a tenant’s repudiation, maintain the
lease and sue for rent as it comes due. Austin Hill Country
Realty confirms that this is one of a landlord’s four options for
dealing with a tenant’s failure to pay rent. Id. But again,
FOC’s actions are distinguishable; it did not bring a separate
suit each time performance came due. It brought one suit for
26
breach less than three weeks after the termination letter.18 Its
derivative claims based on alter ego or single business
enterprise, then, are not saved by an attempt to call Fluorogas’s
conduct a continuing breach.
Thus, BOC cannot be held derivatively liable for the claims
under either an alter ego or single business enterprise theory
because the claims all arose before BOC acquired Fluorogas. We
reverse the judgment against the two BOC entities.
Cross Appeal Issues
The district court granted summary judgment on the tortious
interference and conspiracy claims against BOC, Inc. and all of
FOC’s claims against Applied.19 In granting summary judgment,
the district court accepted the magistrate judge’s report and
recommendation. In accepting this recommendation, the district
court emphasized that “[a]fter pointing out discrepancies between
what FOC contended its evidence said and what it actually said,
the Magistrate determined that the evidence showed that Applied
18
One of the cases that FOC cites, Hampton v. Minton, 785
S.W.2d 854, 858 (Tex. App. – Austin 1990, writ denied), notes
that “the rule requiring the non-breaching party to ‘accept,’ by
words or conduct, the breaching party's repudiation has not
received favorable treatment by recent authorities and, in any
event, has generally been applied in the context of an
anticipatory repudiation.”
19
BOC plc did not move for summary judgment because it was
contesting personal jurisdiction. FOC argues that it did not
pursue its claims against BOC plc at trial because the district
court, in a pretrial conference, stated that FOC’s claims against
BOC were limited to derivative liability.
27
did not tortiously interfere with the MOU.” FOC appeals both
summary judgment rulings.
The district court’s grant of summary judgment is reviewed
de novo, using the same standards as the district court. Union
Pac. Res. Group, Inc. v. Rhône-Poulenc, Inc, 247 F.3d 574, 583
(5th Cir. 2001). A movant is entitled to summary judgment when
“the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of law.”
FED. R. CIV. P. 56(c). In reviewing a motion for summary
judgment, a court must make all inferences in favor of the
nonmoving party. Union Pac. Res. Group, 247 F.3d at 583. Yet,
“[g]uesswork and speculation simply cannot serve as a basis for
sending a case to a jury.” Brown v. CSC Logic, Inc., 82 F.3d
651, 658 (5th Cir. 1996). Likewise, we have emphasized that
“unsubstantiated assertions are not competent summary judgment
evidence.” Forsyth v. Barr, 19 F.3d 1527, 1533 (5th Cir. 1994).
Tortious Interference with Contract
The elements of a tortious interference with contract claim
are:
(1) the existence of a contract subject to interferen
ce;
(2) a willful and intentional act of interference;
(3) such act was a proximate cause of damage; and
(4) actual damage or loss occurred.
28
Thrift v. Hubbard, 44 F.3d 348, 356 (5th Cir. 1995) (citing
Browning-Ferris, Inc. v. Reyna, 865 S.W.2d 925, 926 (Tex. 1993)).
To show tortious interference, a plaintiff is not required to
prove that the defendant acted with intent to injure.
Southwestern Bell Tel. Co. v. John Carlo Tex., Inc., 843 S.W.2d
470, 472 (Tex. 1992). The plaintiff must, however, establish
that the defendant’s interference with the contract was
intentional. Id.
Tortious Interference Claim against BOC
When ruling on the summary judgment motion, the magistrate
judge concluded that FOC failed to present any evidence that BOC
contacted Fluorogas before the termination on February 23, 2001.
Logically then, BOC could not have proximately caused FOC any
damage. Although implying that BOC’s timing was suspicious, FOC
still does not argue that BOC contacted Fluorogas before February
23, 2001.20 FOC’s tortious interference claims against BOC are
solely based on its theory that Fluorogas’s termination was only
an anticipatory breach, which FOC refused to accept.21 For the
20
FOC’s Cross Appeal issue 3 contends that the court erred
in granting summary judgment on its claim against BOC “despite
overwhelming evidence that BOC unlawfully induced Fluorogas to
breach the MOU after February 23, 2001...” (Emphasis added.)
21
FOC also relies heavily on two unpublished cases, Int’l
Minerals & Res. S.A. v. Bomar Res., Inc., 5 Fed. Appx. 5, 2001 WL
1976691 (2d Cir. 2001) and Int’l Minerals & Res. S.A. v. Am. Gen.
Res., Inc., No. No. 87 CIV. 3988 HB, 1999 WL 672907 (S.D.N.Y.
1999). Both cases involve English contract law and anticipatory
breach: a party entered into a contract to sell a boat, but
29
reasons stated in the derivative liability section, this argument
lacks merit. The district court properly granted summary
judgment on this claim.
Tortious Interference Claims against Applied
In its motion for summary judgment, Applied argued that it
did not proximately cause FOC’s damages. In determining that FOC
failed to present evidence to show a fact question on this claim,
the magistrate judge analyzed FOC’s evidence, finding that “many
documents cited by Plaintiff do not say what Plaintiff says they
say.” The magistrate judge concluded that, at most, the evidence
showed Applied had spoken to Fluorogas and that it had not
informed FOC of this meeting. The magistrate also concluded that
the evidence only showed that this meeting concerned Applied’s
possible investment in Fluorogas, and that no discussions about
breaching or terminating the MOU occurred.
Much of FOC’s argument is based solely on suspicion, not on
evidence. For example, FOC cites an October 17, 2000 letter
Fluorogas sent to Applied that stated “[s]ince your intended end
use for the fluorine is CVD chamber cleaning, we have concluded
that we are unable to directly supply Applied Materials. To do
so would breach our exclusive agreement with Flourine-on-Call.”
before the time when the sale was to occur, the seller agreed to
sell it to someone else. The district court concluded that the
original repudiation, which occurred before the time of
performance, was not a breach. Int’l Minerals & Res., No. 87
CIV. 3988 HB, 1999 WL 672907 at *3.
30
This letter, according to FOC, is evidence that “[i]ndeed
Fluorogas attempted to create the appearance that it was going to
resist Applied’s interference and instead honor the contract ..
.. Hodgson’s letter and the [first] FOC lawsuit served only to
drive Applied underground, so that thereafter it was more
circumspect in pursuing – and more skillful in hiding – its acts
of interference.” Similarly, FOC describes, without citation,
proposal requests as evidence of its theory that “Applied
pretended to renew its interest in working with FOC.” These
unsubstantiated assertions cannot constitute summary judgment
evidence.
Nevertheless, some of FOC’s assertions go beyond mere
suspicion. For example, FOC presented the handwritten notes of
an Applied executive, Jeet Harika, from an internal Applied
meeting on September 5, 2000. These notes included the comment
“? get off FOC agreement.” In response, Applied directs us to
Harika’s deposition testimony, which indicates that this was his
own internal note, not the subject of discussion at the meeting.
Additionally, FOC provided an email that Hodgson drafted in
October 2000, but did not send, about Applied trying to drive a
wedge between FOC and Fluorogas. Finally, FOC presented a
February 6, 2001 email from Harika to Hodgson, reading “I would
like to talk about a few items with you. Can you please let me
know best [sic] time to get in touch with you.” While both the
note and the email have innocent explanations as well, which
31
explanation to accept is a question that should be decided by the
jury. So, too, while Applied cites evidence that would strongly
argue against tortious interference, this evidence cannot resolve
the issue on summary judgment.22
Conspiracy Claims against BOC and Applied
Finally, FOC challenges the district court’s conclusion that
it failed to present a fact question concerning its conspiracy
claims against BOC and Applied. The elements of a conspiracy
claim under Texas law are “(1) two or more persons; (2) an object
to be accomplished; (3) a meeting of minds on the object or
course of action; (4) one or more unlawful, overt acts; and (5)
damages as the proximate result.” Massey v. Armco Steel Co., 652
S.W.2d 932, 934 (Tex. 1983).
FOC essentially concedes that it can present no actual
evidence of a pre-February 23, 2001 conspiracy. Instead, FOC
22
Applied also offers an alternative basis for affirming the
summary judgment motion by arguing that, based on expert
testimony (and Siegele’s testimony), the language “for use in the
Chemical Vapor Deposition (‘CVD’) process, excluding etch
applications,” excluded post-process cleaning. Applied contends
that it only sought the generators for this excluded post-process
cleaning. As FOC correctly contends, its claims are based more
than on interfering with the exclusive rights, but also includes
the denial of access to technology and the termination of the
entire relationship with FOC. The definition of “CVD process” is
not relevant to those aspects of the claims.
Similarly, we reject Applied’s contention that FOC’s claims
are presently barred by election of remedies. A party may plead
inconsistent theories arising from independent wrongs. See
Thornton, Summers, Biechlin, Dunham & Brown, Inc. v. Cook Paint &
Varnish, 82 F.3d 114, 117 (5th Cir. 1996).
32
argues that despite the BOC executive’s testimony – that Applied
originally asked BOC to partner with 3M, that Applied never
mentioned Fluorogas’s name, that when touring the Applied
facility the company’s name on the generator was covered, and
that BOC discovered Fluorogas by performing internet searches23 –
summary judgment was inappropriate on the claims that BOC was
involved with a conspiracy. With this, FOC argues that the BOC
executive’s credibility alone creates a fact question for the
jury. Without evidence, however, FOC does not have enough for
its claims against BOC to survive summary judgment.24 See
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986)
(nonmovant cannot merely cast doubt on movant’s statements but
must rather produce its own evidence to defeat summary judgment).
Therefore, the district court did not err in granting summary
judgment on this claim. Because summary judgment was proper on
the conspiracy claim against BOC, summary judgment was also
proper on the conspiracy claim against Applied.
Attorney’s Fees
The district court awarded FOC $24 million in attorney’s
23
On February 27, 2001, an internal email with a link to
Fluorogas’s web site was circulated within BOC.
24
FOC also argues that the magistrate ignored facts that the
executive changed his story about the date of a meeting with
Applied where Fluorogas’ name had not been raised (neither date
was before the termination of the MOU) and that BOC contacted
Fluorogas on March 2 with a confidentiality agreement. Neither
of these facts should defeat summary judgment.
33
fees for its breach of contract claim. This amount consisted of
$1,740,770.17 for time actually spent by its lawyers;
$22,458,267.28 under a contingency fee arrangement; $50,000 for
post-verdict work, and $65,000 for appeal. We review the
attorney’s fees award for an abuse of discretion. Strong v.
BellSouth Telecomms., Inc., 137 F.3d 844, 850 (5th Cir. 1988).
We review any fact finding underlying this award for clear error.
Id.
Under Texas law, a party who recovers damages for a breach
of contract claim may recover reasonable attorney’s fees. TEX.
CIV. PRAC. & REM. CODE § 38.001(8) (Vernon 1997); Green Int’l Co. v.
Solis, 951 S.W.2d 384, 390 (Tex. 1997). If a party has recovered
on such a claim, an award of reasonable fees is mandatory.
Mathis v. Exxon Corp., 302 F.3d 448, 462 (5th Cir. 2002). The
amount of reasonable fees, however, is discretionary. Id. The
Texas Civil Practice and Remedies Code provides a rebuttable
presumption that usual and customary fees are reasonable. TEX.
CIV. PRAC. & REM. CODE § 38.003(Vernon 1997). In a proceeding
before the court, the judge may take judicial notice of
reasonable and customary fees, along with the case file. TEX.
CIV. PRAC. & REM. CODE § 38.004 (Vernon 1997).
The Texas Supreme Court has outlined eight relevant factors
for courts to consider when determining the reasonableness of an
attorney’s fee award:
34
(1) the time and labor required, the novelty and
difficulty of the questions involved, and the skill
required to perform the legal service properly;
(2) the likelihood ... that the acceptance of the
particular employment will preclude other employment by
the lawyer;
(3) the fee customarily charged in the locality for
similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by
the circumstances;
(6) the nature and length of the professional
relationship with the client;
(7) the experience, reputation, and ability of the
lawyer or lawyers performing the services; and
(8) whether the fee is fixed or contingent on results
obtained or uncertainty of collection before the legal
services have been rendered.
Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 818
(Tex. 1997). Although a contingent contract is relevant to this
determination, a contingent fee contract is not alone enough to
support an award of fees. Id. at 818-19. Yet affirming an award
based on a contract is not unheard of. In Mathis, we affirmed
the award of a 40% contingency fee, citing two Texas cases,
Laredo Indep. Sch. Dist. v. Trevino, 25 S.W.3d 263 (Tex. App. –
San Antonio 2000, pet. denied) and European Crossroads’ Shopping
Ctr., Ltd. v. Criswell, 910 S.W.2d 45, 58-59 (Tex. App. – Dallas
1995, no writ) (decided before Arthur Andersen ).
In this case, FOC’s lawyers had a “blended” fee agreement
under which they worked at a reduced hourly rate but also had a
contingency agreement. This agreement resulted in a total hourly
fee of $1,643,157.45 (at the reduced rate) and a contingency fee
of $22,438,513. These amounts appear in the district court’s
35
order.
Using the regular hourly rate of FOC’s lawyers, BOC and
Fluorogas calculate the actual lodestar amount of fees at $3.3
million, although they also contend that this is an
overstatement. Under this calculation, the $24 million
represented an eight-fold enhancement of the lodestar amount.
The district court abused its discretion in awarding such a vast
amount of fees, particularly since it originally did so before
providing BOC and Fluorogas with an opportunity to respond.
Furthermore, in light of our reversal of the lost-asset damages,
the results obtained by FOC’s lawyers have changed.25 We
therefore remand the attorney’s fee award to the district court
for reconsideration.
Conclusion
For the reasons discussed in this opinion, we REVERSE the
judgment in favor of FOC on the fraud claims and render judgment
in favor of Fluorogas on those claims; REVERSE the award of
punitive damages; REVERSE the judgment in favor of FOC against
The BOC Group, Inc and The BOC Group PLC on the contract claims
and RENDER judgment in favor of The BOC Group, Inc and The BOC
Group PLC on those claims; REVERSE the grant of summary judgment
in favor of Applied on the tortious interference with contract
25
Given FOC’s limited recovery following this appeal, we
fail to see how any enhancement beyond the lodestar amount would
be justified in this case.
36
claim and REMAND that claim to the district court; and REVERSE
and REMAND the award of attorney’s fees. We AFFIRM the district
court’s judgment in all other respects.
REVERSED and RENDERED in part; REVERSED and REMANDED in part;
AFFIRMED in part.
37