Lakeway Regional Medical Center, LLC and Surgical Development Partners, LLC// Lake Travis Transitional LTCH, LLC N/K/A Lake Travis Specialty Hospital, LLC v. Lake Travis Transitional LTCH, LLC N/K/A Lake Travis Specialty Hospital, LLC// Lakeway Regional Medical Center, LLC Surgical Development Partners, LLC Brennan, Manna, & Diamond, LLC And Frank T. Sossi

ACCEPTED
03-15-00025-CV
7016623
THIRD COURT OF APPEALS
AUSTIN, TEXAS
9/21/2015 2:13:08 PM
JEFFREY D. KYLE
CLERK
No. 03-15-00025-CV
______________________________________________
FILED IN
3rd COURT OF APPEALS
IN THE COURT OF APPEALS AUSTIN, TEXAS
FOR THE THIRD DISTRICT OF TEXAS 9/21/2015 2:13:08 PM
AUSTIN, TEXAS JEFFREY D. KYLE
______________________________________________Clerk
APPELLANTS, LAKEWAY REGIONAL MEDICAL CENTER, LLC AND
SURGICAL DEVELOPMENT PARTNERS, LLC// CROSS-APPELLANT,
LAKE TRAVIS TRANSITIONAL LTCH, LLC N/K/A LAKE TRAVIS
SPECIALTY HOSPITAL, LLC
v.
APPELLEES, LAKE TRAVIS TRANSITIONAL LTCH, LLC N/K/A LAKE
TRAVIS SPECIALTY HOSPITAL, LLC// CROSS-APPELLEES, LAKEWAY
REGIONAL MEDICAL CENTER, LLC, SURGICAL DEVELOPMENT
PARTNERS, LLC, BRENNAN, MANNA, & DIAMOND, LLC
AND FRANK T. SOSSI
___________________________________________
BRIEF OF CROSS-APPELLANT
LAKE TRAVIS TRANSITIONAL LTCH, LLC N/K/A
LAKE TRAVIS SPECIALTY HOSPITAL, LLC (“LTT”)
___________________________________________
Jane M.N. Webre
S. Abraham Kuczaj, III
Robyn B. Hargrove
SCOTT DOUGLASS
& MCCONNICO LLP
303 Colorado Street, 24th Floor
Austin, TX 78701
(512) 495-6300
(512) 495-6399 Fax
COUNSEL FOR LTT
ORAL ARGUMENT REQUESTED
1226029
IDENTITY OF PARTIES AND COUNSEL
Defendants-Appellants/Cross-Appellees
Lakeway Regional Medical Center, LLC
Surgical Development Partners, LLC
Counsel for Defendants-Appellants/Cross-Appellees
Jeff Cody
Barton Wayne Cox
Norton Rose Fulbright
2200 Ross Avenue, Suite 2800
Dallas, TX 75201-2784
Joy Soloway
Norton Rose Fulbright
1301 McKinney, Suite 5100
Houston, TX 77010-3095
Additional Appellate Counsel for Surgical Development Partners, LLC
Jessica Z. Barger
Raffi Melkonian
Wright &Close, LLP
One Riverway, Suite 2200
Houston, TX 77056
Plaintiff-Cross-Appellant/Appellee
Lake Travis Transitional LTCH, LLC n/k/a Lake Travis Specialty Hospital, LLC
Counsel for Defendant-Cross-Appellant
Jane M.N. Webre
S. Abraham Kuczaj III
Robyn B. Hargrove
Paige A. Amstutz
Steven J. Wingard
Scott Douglass & McConnico LLP
303 Colorado, Suite 2400
Austin, Texas 78701
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Defendants-Appellees
Brennan, Manna & Diamond, LLC
Frank T. Sossi
Counsel for Defendants-Appellees
Robert A. Bragalone
B. Ryan Fellman
Gordon & Rees LLP
2100 Ross Ave., Suite 2800
Dallas, TX 75201
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TABLE OF CONTENTS
IDENTITY OF PARTIES AND COUNSEL ........................................................... ii
INDEX OF AUTHORITIES................................................................................... vii
STATEMENT OF THE CASE ................................................................................ xi
STATEMENT OF JURISDICTION....................................................................... xii
RECORD................................................................................................................. xii
APPENDIX ............................................................................................................ xiii
ISSUES ON CROSS-APPEAL ............................................................................. xiv
OVERVIEW ..............................................................................................................1
STATEMENT OF FACTS ........................................................................................2
A. The Hospital Defendants receive LTT’s confidential
information subject to a confidentiality agreement for the
purpose of evaluating a joint hospital project. ......................................2
B. Defendants use LTT’s confidential information to secure
lucrative hospital mortgage insurance from HUD, then abandon
the LTT project......................................................................................4
SUMMARY OF THE ARGUMENT ........................................................................7
ARGUMENT .............................................................................................................7
A. Standard of review on summary judgment. ..........................................7
B. There are significant material fact issues that preclude summary
judgment on LTT’s claim for misappropriation of trade secrets. .........9
1. LTT submitted evidence that its confidential information
was a trade secret. .....................................................................10
a. Texas law recognizes that trade secret status is
generally a fact question. ................................................10
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b. There is plenty of evidence of LTT’s trade secrets. .......13
2. There is evidence that Defendants acquired LTT’s trade
secrets through breach of a confidential relationship or
through improper means. ..........................................................18
a. Confidential relationship ................................................18
b. Improper means ..............................................................20
3. There is evidence that Defendants disclosed or used
LTT’s trade secrets without authorization. ...............................22
a. Defendants “used” the trade secrets. ..............................22
b. Defendants “disclosed” the trade secrets........................26
4. There is evidence of damages as a result of the
misappropriation. ......................................................................27
a. Loss of market value.......................................................28
b. Reasonable royalty damages ..........................................29
c. Benefits obtained ............................................................30
d. No HUD reliance necessary ...........................................31
C. Summary judgment was improper as to Section 2 of the LOI. ...........32
1. Section 2 of the LOI is a binding agreement. ...........................32
a. The detailed provisions are more than an
agreement to agree. .........................................................32
b. The parties intended for all provisions of the LOI
to be binding. ..................................................................35
c. Section 2 contains all essential terms. ............................36
2. The Hospital Defendants cannot rely on unsatisfied
conditions precedent to avoid complying with Section 2
because their own conduct prevented performance. .................38
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D. The trial court abused its discretion in sustaining objections to
some of LTT’s summary judgment evidence......................................41
1. The court improperly sustained objections that had
become moot. ............................................................................42
2. LTT adequately cited to the entirety of the Project File. ..........45
3. The court erred in sustaining an objection to argument
that the Project File as a whole is a trade secret. ......................46
4. Berry’s testimony about the Project File was proper................48
CONCLUSION AND PRAYER .............................................................................51
CERTIFICATE OF SERVICE ................................................................................53
CERTIFICATE OF COMPLIANCE .......................................................................53
APPENDIX ..............................................................................................................54
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INDEX OF AUTHORITIES
Cases
Bastrop Cent. Appraisal Dist. v. Acme Brick Co.,
428 S.W.3d 911 (Tex. App.—Austin 2014, no pet.).......................................8
Bertolli v. C.E. Sheperd Co.,
752 S.W.2d 648 (Tex. App.—Houston [14th Dist.] 1998, no writ)..............12
Bishop v. Miller,
412 S.W.3d 758 (Tex. App.—Houston [14th Dist.] 2013, no pet.) ...... passim
Bohnsack v. Varco, L.P.,
668 F.3d 262 (5th Cir. 2012) .........................................................................30
Bracey v. City of Killeen,
417 S.W.3d 94 (Tex. App.—Austin 2013, no pet.) .....................................7, 8
CKB & Assocs., Inc. v. Moore McCormack Petroleum, Inc.,
809 S.W.2d 577 (Tex. App.—Dallas 1991, writ denied) ..............................33
Clear Lake City Water Auth. v. Friendswood Dev. Co., Ltd.,
344 S.W.3d 514 (Tex. App.—Houston [14th Dist.] 2011,
pet. denied) ............................................................................................. 39, 41
Cudd Pressure Control, Inc. v. Roles,
328 Fed.Appx. 961 (5th Cir. 2009) ....................................................... passim
Daniels Health Sciences, LLC v. Vascular Health Sciences, LLC,
710 F.3d 579 (5th Cir. 2013) .........................................................................19
DTM Research, LLC v. AT&T Corp.,
245 F.3d 327 (4th Cir. 2001) .........................................................................49
Foreca, S.A. v. GRD Dev. Co.,
758 S.W.2d 744 (Tex. 1988) .........................................................................36
Fuqua v. Fuqua,
750 S.W.2d 238 (Tex. App.—Dallas 1988, writ denied) ..............................38
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Geophysical Micro Computer Applications (Int’l) Ltd. v. Paradigm
Geophysical Ltd.,
No. 05-98-02016, 2001 WL 1270795 (Tex. App.—Dallas
Oct. 24, 2001, pet. denied).............................................................................37
Georgia–Pacific Corp. v. United States Plywood Corp.,
318 F. Supp. 1116 (S.D.N.Y. 1970), mod. and aff’d, 446 F.2d 295
(2d Cir. 1971).................................................................................................30
Gonzales v. Zamora,
791 S.W.2d 258 (Tex. App.—Corpus Christi 1990, no writ) .......................12
H.E. Butt Grocery Co. v. Moody’s Quality Meats, Inc.,
951 S.W.2d 33 (Tex. App.–Corpus Christi 1997, pet. denied) .....................19
Haggar Clothing Co. v. Hernandez,
164 S.W.3d 386 (Tex. 2005) ...........................................................................8
Hinojosa v. Columbia/St. David’s Healthcare Sys., L.P.,
106 S.W.3d 380 (Tex. App.—Austin 2003, no pet.).....................................46
Hyde Corp. v. Huffines,
314 S.W.2d 763 (Tex. 1958) ...........................................................................9
II Deerfield Limited Ltd. P’ship v. Henry Bldg., Inc.,
41 S.W.3d 259 (Tex. App.—San Antonio 2001, pet. denied) ............... 38, 41
In re Bass,
113 S.W.3d 735 (Tex. 2003) .................................................................. 11, 18
In re Cayman Island Firm of Deloitte & Touche,
No. 04-01-00491-cv, 2001 WL 1042233 (Tex. App.—San Antonio
Sept. 12, 2001, no pet.) ..................................................................................49
Investment Retrievers, Inc. v. Fisher,
No. 03-13-00510-CV, 2015 WL 3918503 (Tex. App.—Austin
June 25, 2015, no pet.) ...................................................................................42
Johnson v. Brewer & Pritchard, P.C.,
73 S.W.3d 193 (Tex. 2002) .............................................................................9
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Jones v. Ray Ins. Agency,
59 S.W.3d 739 (Tex. App.—Corpus Christi 2001, pet. denied) ...................42
Karns v. Jalapeno Tree Holdings, LLC,
459 S.W.3d 683 (Tex. App.—El Paso 2015, pet. denied)...................... 34, 35
King Ranch, Inc. v. Chapman,
118 S.W.3d 742 (Tex. 2003) ...........................................................................8
Krainz v. Kodiak Resources, Inc.,
436 S.W.3d 325 (Tex. App.—Austin 2013, pet. denied) ..............................44
Lamont v. Vaquillas Energy Lopeno Ltd., LLP,
421 S.W.3d 198 (Tex. App.—San Antonio 2013, pet. denied) ....... 20, 25, 27
Loy v. Harter,
128 S.W.3d 397 (Tex. App.—Texarkana 2004, pet. denied) ........................44
McCalla v. Baker’s Campground, Inc.,
416 S.W.3d 416 (Tex. 2013) .................................................................. 34, 38
McCulley Fine Arts Gallery, Inc. v. “X” Partners,
860 S.W.2d 473 (Tex. App.—El Paso 1993, no writ)............................ 37, 38
Metallurgical Indus., Inc. v. Fourtek, Inc.,
790 F.2d 1195 (5th Cir. 1986) .......................................................................12
Nguyen v. Citibank N.A.,
403 S.W.3d 927 (Tex. App.—Houston [14th Dist.] 2013, pet. denied) .......51
Oryon Technologies, Inc. v. Marcus,
429 S.W.3d 762 (Tex. App.—Dallas 2014, no pet.) .....................................49
Phillips v. SACHEM, Inc.,
03-13-00346-CV, 2014 WL 7464035 (Tex. App.—Austin
Dec. 31, 2014, no pet.).....................................................................................8
Reid Road Mun. Util. Dist. No. 2 v. Speedy Stop Food Stores, Ltd.,
337 S.W.3d 846 (Tex. 2011) .........................................................................29
Scott v. Ingle Bros. Pac., Inc.,
489 S.W.2d 554 (Tex. 1972) .........................................................................37
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Sharifi v. Steen Automotive, LLC,
370 S.W.3d 126 (Tex. App.—Dallas 2012, no pet.) .............................. 39, 41
Southwestern Energy Prod. Co. v. Berry-Helfand,
411 S.W.3d 581 (Tex. App.–Tyler 2013, pet. granted)......................... passim
Taco Cabana, Int’l v. Two Pesos, Inc.,
932 F.2d 1113 (5th Cir. 1991) ........................................................................12
Tewari De-Ox Systems, Inc. LLP v. Mountain States/Rosen, LLC,
637 F.3d 604 (5th Cir. 2011) .........................................................................12
Tex. Integrated Conveyor Sys., Inc. v. Innovative Concepts, Inc.,
300 S.W.3d 348 (Tex. App.—Dallas 2009, pet. denied) ..........................9, 18
Univ. Computing Co. v. Lykes-Youngstown Corp.,
504 F.2d 518 (5th Cir. 1974) .................................................................. 27, 29
Wellogix, Inc. v. Accenture, LLP,
716 F.3d 867 (5th Cir. 2013) .........................................................................12
West Beach Marina, Ltd. v. Erdeljac,
94 S.W.3d 248 (Tex. App.—Austin 2002, no pet.) .......................................36
Woodhaven Ptnrs, Ltd. v. Shamoun & Norman, LLP,
422 S.W.3d 821 (Tex. App.—Dallas 2014, no pet.) .............................. 41, 50
Statutes
12 U.S.C. § 1715z-7(a) ........................................................................................4, 31
24 C.F.R. § 242.16 ...............................................................................................4, 31
Tex. Gov’t Code § 22.220....................................................................................... xii
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STATEMENT OF THE CASE
Nature of the Case: This case involves claims for breach of contract and
misappropriation of trade secrets between two hospital
projects in Lakeway, Texas. Lake Travis Transitional
LTCH, LLC (“LTT”) sued Lakeway Regional Medical
Center, LLC (“LRMC”) and Surgical Development
Partners, LLC (“SDP”) (together, the “Hospital
Defendants”), as well as certain Lawyer Defendants
involved in the transaction, for improperly taking LTT’s
confidential information obtained pursuant to a binding
Letter of Intent and using it to secure a government-
backed mortgage that allowed them to build a competing
hospital. The Letter of Intent had contemplated that LTT
and Defendants would work together on the LTT project,
and did not permit the use of LTT’s information for any
other purpose. The Letter of Intent is attached at App. 1.
Trial Court: 343rd District Court of Travis County, Texas. Hon.
Steven Yelenosky rendered a pretrial partial summary
judgment. Hon. Lora Livingston presided over the
subsequent jury trial and rendered the final judgment.
Course of Proceedings: Judge Yelenosky rendered partial summary judgment as
to (1) LTT’s claims against all Defendants for
misappropriation of trade secrets; and (2) LTT’s claim
that the Hospital Defendants breached section 2 of the
Letter of Intent. App. 2, 3. Judge Yelenosky also
sustained the Hospital Defendants’ (but not the Lawyer
Defendants’) objections to some of LTT’s summary
judgment evidence. App. 4.
LTT’s remaining claims against the Hospital Defendants
were tried to a jury, which found that the Hospital
Defendants breached the Letter of Intent. App. 5. Judge
Livingston rendered judgment on the jury’s verdict
against the Hospital Defendants for $7.9 million in actual
damages, together with $2 million in attorneys’ fees, pre-
and post- judgment interest, and costs of court. App. 6.
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LTT filed a notice of appeal. 6/18CR6-8. LTT’s cross-
appeal is limited to the rulings on partial summary
judgment that Judge Yelenosky made before trial. App.
2, 3, 4.
STATEMENT OF JURISDICTION
This Court has jurisdiction over this appeal from a final judgment of a
district court pursuant to Texas Government Code § 22.220.
RECORD
The record on appeal includes a 3-volume Clerk’s Record and four 1-volume
supplemental Clerk’s Records, only one of which is labeled “supplemental.”
Citations to the 3-volume Clerk’s Record will be to volume and page: ___CR___.
Citations to the one-volume Clerk’s Records will be to date and page: 5/21CR___,
6/18CR___, 7/17CR___, or 7/21CR___.
There is a 20-volume Reporter’s Record, a 1-volume supplemental
Reporter’s Record, and a 1-volume Reporter’s Record that is not labeled
“supplemental.” Volume 1 of the 20-volume Reporter’s Record is a Master Index.
Volumes 2 and 3 are pretrial hearings held on 2/4/14 and 7/2/14, respectively.
Volumes 4 through 15 include the jury trial. Volumes 16 and 17 include the
exhibits from the 2/4/14 pretrial hearing. Volumes 18 through 20 include the trial
exhibits. The Supplemental Reporter’s Record includes additional trial exhibits.
The 1-volume Reporter’s Record (filed 1/22/15) is the same 7/2/14 hearing
transcript as Volume 3 of the 20-volume Reporter’s Record.
Citations to the Reporter’s Record will be to volume and page number:
___RR___. Citations to trial exhibits will be to party and exhibit number: PX___,
DX___.
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APPENDIX
The following items are included in the Appendix to this brief:
App. 1: Letter of Intent (PX2; 2CR7623-29)
App. 2: Order on summary judgment as to the Lawyer Defendants
(7/17CR201-02)
App. 3: Order on summary judgement as to the Hospital Defendants
(3CR12266-67)
App. 4: Order on the Hospital Defendants’ objections to LTT’s summary
judgement evidence (3CR12261)
App. 5: Charge of the Court (3CR12997-13009)
App. 6: Judgment (6/18CR3-5)
App. 7: Declaration of Robert Berry, without exhibits (2CR7604-7617)
App. 8: Confidentiality Agreement (2CR7619-21)
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ISSUES ON CROSS-APPEAL
1. Did the trial court err in granting summary judgment as to LTT’s claims for
misappropriation of trade secrets?
2. Did the trial court err in granting summary judgment as to LTT’s claim
against the Hospital Defendants for breach of section 2 of the Letter of Intent?
3. Did the trial court abuse its discretion in excluding some of LTT’s summary
judgment evidence?
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LTT files this Brief of Cross-Appellant addressing the trial court’s orders on
partial summary judgment.
OVERVIEW
This cross-appeal presents a simple, plain-vanilla question: did LTT adduce
sufficient evidence to raise a fact issue and avoid summary judgment on its claims
for misappropriation of trade secrets and breach of section 2 of the LOI? The
summary judgment rulings, particularly regarding the claim for misappropriation
of trade secrets, are wholly based on the evidence and do not turn on legal issues.
And the evidence supporting LTT’s claims is substantial. The summary judgment
record includes evidence that LTT’s confidential information is a trade secret, and
that LTT developed it at substantial cost and takes measures to ensure that it is kept
confidential. The record includes evidence that Defendants were given access to
the confidential information subject to confidentiality agreements for the purpose
of acquiring LTT’s hospital facility, but Defendants instead used the information to
secure a government-backed mortgage to develop their own competing hospital
and then abandoned the LTT project. There is substantial evidence supporting
each element of a claim for misappropriation of trade secrets, more than enough to
raise a fact question and overcome Defendants’ traditional and no-evidence
motions for summary judgment. This Court should give the evidence its due
regard and reverse the summary judgments.
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STATEMENT OF FACTS
A. The Hospital Defendants receive LTT’s confidential information subject to a
confidentiality agreement for the purpose of evaluating a joint hospital
project.
In 2009, LTT was developing Lake Travis Specialty Hospital (“Lake Travis
Hospital”) in the Lakeway area. Lake Travis Hospital would compete directly with
a larger hospital—called Lakeway Regional—that the Hospital Defendants hoped
to develop nearby. During this time, the Hospital Defendants were represented by
Frank Sossi and his law firm, Brennan, Manna & Diamond, LLC (together, the
“Lawyer Defendants”). Sossi also co-founded SDP, served on SDP’s board of
managers, was an officer of SDP, and served as general counsel for SDP while also
serving as an officer and general counsel for LRMC. 2CR7743-52.
In April 2009, Defendants approached LTT about acquiring Lake Travis
Hospital to serve as Lakeway Regional’s initial campus. App. 7 ¶ 2. At the time,
Lake Travis Hospital had a big head start on construction: it was almost 80%
complete, while Lakeway Regional “was still just a lot.” Id. The parties
anticipated Lake Travis Hospital would be completed up to two years before
Lakeway Regional.
When initially approached by Defendants, LTT’s principals were reluctant
to share any information about their plans with a competing hospital less than a
half-mile away. App. 7. ¶2. To facilitate the discussion of a possible acquisition,
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SDP executed a Confidentiality Agreement with LTT on May 11, 2009. App. 8.
The Confidentiality Agreement recited that “SDP has an interest in a potential
development…opportunity as presented by LTT and will have access to certain
Confidential Information regarding these opportunities,” so “SDP and LTT desire
to memorialize their understandings regarding SDP’s disclosure and use of
Confidential Information.” App. 8 at 1. The Confidentiality Agreement defined
“Confidential Information” to mean “all information concerning the Project and
LTT’s business.” App. 8 ¶1. SDP agreed to “use Confidential Information only for
informational purposes to evaluate the participation in the Project….Both parties
agree that…neither it nor its employees, agents, or business or professional
associates will disclose or use any Confidential Information in any manner
whatsoever.” App. 8 ¶2.
After some information was exchanged pursuant to the Confidentiality
Agreement, in September 2009, the parties executed a Letter of Intent (“LOI”).
App. 1; App. 7 ¶¶4-5. Like the Confidentiality Agreement, the LOI confirmed that
the sole purpose for providing LTT’s proprietary information was for Defendants
to evaluate the hospital project. LOI §9.2. Pursuant to the LOI, and subject to its
confidentiality provisions, LTT’s confidential, proprietary and trade secret
information was provided to Defendants through March 2010. App. 7 ¶5.
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B. Defendants use LTT’s confidential information to secure lucrative hospital
mortgage insurance from HUD, then abandon the LTT project.
Unbeknownst to LTT, weeks after executing the Confidentiality Agreement,
Defendants met with officials at HUD in Washington, D.C. to discuss obtaining
Section 242 hospital mortgage insurance for LRMC. Section 242 insurance is only
available for hospitals in areas that are underserved. See 12 U.S.C. § 1715z-7(a);
see also 24 C.F.R. § 242.16 (allowing HUD hospital mortgage insurance only
where competing capacity and services “are clearly not adequate to meet the needs
of the population in the service area.”). This requirement is important to help the
federal government avoid risking taxpayer dollars to improperly influence
competition where, as in the case of LRMC, HUD is asked to insure a $166.9
million mortgage for a for-profit hospital.
In March 2010, Defendants terminated negotiations with LTT, making the
deal—as Defendants described it—”effectively dead.” See 1CR208. Defendants
nevertheless continued to use LTT’s confidential information in order to nail down
the HUD guarantee when, soon after HUD’s preliminary approval of the guaranty
for LRMC was announced, others began to question whether the needs of the
Lakeway area justified a taxpayer-sponsored Section 242 guaranty. On May 8,
2010, the CEO of an unrelated hospital wrote to HUD and informed it that LTT’s
Lake Travis Hospital was nearing completion only a half-mile away from Lakeway
Regional, and that “[t]his area is clearly NOT underserved.” 2CR8015-19
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(emphasis in original). That prompted HUD to contact LRMC’s lender to
determine whether LTT’s Lake Travis Hospital was in fact a competitive facility.
2CR8026. To convince HUD that it was not, and thereby secure the pending
$166.9 million mortgage, the Lawyer Defendants, on behalf of the Hospital
Defendants, emailed HUD on May 10, 2010 (“May 10th Email”). 1 2CR8024-25.
In the May 10th Email, Sossi used the LTT confidential information and
made the following representations to HUD about LTT’s Lake Travis Hospital:
• “[t]he structure is very small and has numerous code issues related to
the construction and design;”
• “any conversion from what was essentially a residential facility to a
true acute care will cost a great deal of money;” and
• “[o]ur issue with the facility was the ability to work out all the design
issues, the need for major retro fits to get it to open, the lack of
physician interest for the facility, the zoning issues to allow the
conversion to acute care status and what to do with the facility when
LRMC opens. … [t]he costs and technical problems of conversion
1
After receiving HUD’s questions about LTT’s Lake Travis Hospital, LRMC’s lender forwarded
them to Sossi and SDP’s CEO Eddie Alexander. 2CR8026. Defendants do not dispute that
Sossi’s May 10th Email to HUD was sent on behalf of LRMC. 2CR6032, 5614, 5254-55. Sossi
also copied SDP CEO Eddie Alexander and LRMC CMO Sam Demaio on the May 10th Email.
2CR8024. Sossi’s simultaneous roles at SDP and LRMC, his inclusion of both LRMC and SDP
principals in the communication, and his admission that other correspondence with HUD was
sent on behalf of both SDP and LRMC, raise a reasonable inference that the May 10th Email was
sent on behalf of SDP as well as LRMC. Id. at 8024; see also 2CR8061-65.
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made the facility inappropriate to help LRMC or to be able to succeed
as a separate facility.”
2CR8024-25.
The next day, HUD responded to the inquiring hospital CEO, repeating what
HUD internally considered “Mr. Sossi’s facts” from the May 10th Email and
stating that HUD did not believe the LTT facility was truly a competitor hospital
because it could not meet “general acute licensing standards without expensive
redesign/reconstruction and will not achieve general acute care zoning because of
site limitations.” 2CR8021-22. Ten days later, HUD agreed to go forward on the
loan insurance and issue the amendments Defendants had requested to their loan
insurance commitment. 2CR8482-83. The next day, the LRMC hospital mortgage
loan closed and funded. 2CR7729.
Defendants’ use of LTT’s confidential information continued. For example,
Sossi sent a letter to HUD about the LTT facility to convince HUD to defend its
decision to insure LRMC’s mortgage. 2CR8108-11. Defendants again represented
to HUD alleged code compliance issues Defendants developed after acquiring
LTT’s confidential information: “the [LTT] facility requires numerous upgrades
and modification to meet Texas licensing standards for providing true acute care
services…” Id. They reiterated the alleged cost of conversion issues Defendants
calculated after acquiring LTT’s information in confidence. Id. They also
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reminded HUD that “[t]he existence of the plans for [the LTT facility] were
discussed in detail with the HUD Client Service team.” Id. As a result, HUD
emailed Sossi, saying “be assured that HUD intends to defend the decision to issue
a loan guarantee for the LRMC project…” 2CR8042.
SUMMARY OF THE ARGUMENT
This court should reverse the partial summary judgment as to LTT’s claims
for misappropriation of trade secrets. There is substantial summary judgment
evidence of LTT’s trade secrets, that Defendants acquired LTT’s trade secrets
pursuant to various confidentiality agreements for the express purposes of
acquiring LTT’s Lake Travis Hospital, that Defendants used that trade secret
information instead for their own benefit to secure the lucrative HUD federal
mortgage insurance and build a competing hospital, and that LTT suffered
damages as a result.
Summary judgment was also improper as to LTT’s claims for breach of
section 2 of the LOI. That provision contains all of the necessary elements of an
enforceable contract and is not an agreement to agree.
ARGUMENT
A. Standard of review on summary judgment.
An order granting summary judgment is reviewed de novo. Bracey v. City
of Killeen, 417 S.W.3d 94, 103 (Tex. App.—Austin 2013, no pet.). Summary
judgment is proper when there are no disputed issues of material fact and the
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movant is entitled to judgment as a matter of law. Id. Because LTT was the non-
movant, this Court must take as true all evidence favorable to LTT, and must
indulge every reasonable inference and resolve every doubt in LTT’s favor.
Bastrop Cent. Appraisal Dist. v. Acme Brick Co., 428 S.W.3d 911, 915 (Tex.
App.—Austin 2014, no pet.).
Defendants moved for both traditional and no-evidence summary judgment.
A no-evidence summary judgment is proper “when (a) there is a complete absence
of evidence of a vital fact, (b) the court is barred by rules of law or evidence from
giving weight to the only evidence offered to prove a vital fact, (c) the evidence
offered to prove a vital fact is no more than a mere scintilla, or (d) the evidence
conclusively establishes the opposite of the vital fact.” Phillips v. SACHEM, Inc.,
03-13-00346-CV, 2014 WL 7464035, at *2 (Tex. App.—Austin Dec. 31, 2014, no
pet.) (quoting King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 750–51 (Tex.
2003)). A no-evidence summary judgment is improper “if the nonmovant brings
forth more than a scintilla of probative evidence to raise a genuine issue of material
fact.” Id. More than a scintilla of evidence exists where the evidence, as a whole,
“rises to a level that would enable reasonable and fair-minded people to differ in
their conclusions.” Haggar Clothing Co. v. Hernandez, 164 S.W.3d 386, 388
(Tex. 2005).
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B. There are significant material fact issues that preclude summary judgment
on LTT’s claim for misappropriation of trade secrets.
The elements of a claim for misappropriation of trade secrets are: (1) the
trade secret existed; (2) the trade secret was acquired through a confidential
relationship or discovered by improper means; (3) the defendant disclosed or used
the trade secret without authorization; and (4) damages. Tex. Integrated Conveyor
Sys., Inc. v. Innovative Concepts, Inc., 300 S.W.3d 348, 366-67 (Tex. App.—
Dallas 2009, pet. denied); see also Hyde Corp. v. Huffines, 314 S.W.2d 763, 769-
70 (Tex. 1958) (“One who discloses or uses another’s trade secrets, without a
privilege to do so, is liable to the other if (a) he discovers the secret by improper
means, or (b) his disclosure or use constitutes a breach of confidence reposed in
him by the other in disclosing the secret to him.”).
The Hospital Defendants and Lawyer Defendants moved for traditional and
no-evidence summary judgment as to LTT’s misappropriation of trade secrets
claim on essentially the same three grounds: (1) they did not disclose LTT’s trade
secrets; (2) they did not misuse LTT’s secrets; and (3) LTT did not sustain injury
from improper use of its trade secrets. 2 2CR5625-31 (LRMC); 2CR6045-52
2
The Hospital Defendants’ motions create an odd wrinkle. They combine LTT’s claim for
misappropriation of trade secrets with its claim for breach of contractual confidentiality
provisions into something the Hospital Defendants refer to as the “Proprietary Information
Claim,” thereby unilaterally conflating separate causes of action into a new hybrid “claim” that
they then attack on summary judgment. 2CR5615, 6033; see Johnson v. Brewer & Pritchard,
P.C., 73 S.W.3d 193, 204 (Tex. 2002) (court cannot grant summary judgment on grounds not
presented in the motion). While not the model of clarity, the Hospital Defendants appear to seek
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(SDP); 2CR5248-49, 54-59 (Lawyer Defendants). The Lawyer Defendants also
alleged that there is no evidence that “any of Plaintiff’s purported trade secrets are
trade secrets” or that they “acquired Plaintiff’s trade secrets.” 2CR5249.
Judge Yelenosky granted summary judgment as to LTT’s claim for
misappropriation of trade secrets. App. 2, 3. That was error, because the summary
judgment evidence—outlined above—raises genuine issues of material fact that
preclude summary judgment.
1. LTT submitted evidence that its confidential information was a trade
secret.
The critical threshold question is whether LTT brought forward some
evidence that its confidential information is a trade secret. There was plenty of
evidence.3
a. Texas law recognizes that trade secret status is generally a fact
question.
“A trade secret is any formula, pattern, device or compilation of information
which is used in one’s business and presents an opportunity to obtain an advantage
no-evidence summary judgment on the hybrid “Proprietary Information Claim” by alleging that
there is “no evidence to support disclosure, use, or causation” in respect to LTT’s “Protected
Information” (which the Hospital Defendants define as “Proprietary Information or trade
secrets.”). 2CR5625-31, 6046-52. The trial court denied summary judgment as to the Hospital
Defendants’ breaches of contractual confidentiality obligations comprising the remainder of the
hybrid “Proprietary Information Claim.” 3CR12252 (Yelenosky letter explaining that
“defendants conflate two distinct claims” regarding confidentiality); App. 3.
3
Judge Yelenosky sustained some of the Hospital Defendants’ objections to LTT’s summary
judgment evidence. App. 4. As is discussed more fully below in section D of the Argument, that
ruling was in error, so the evidence should be fully considered in support of LTT’s summary
judgment response. Even without the disputed evidence, summary judgment was improper.
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over competitors who do not know or use it.” In re Bass, 113 S.W.3d 735, 739
(Tex. 2003). Courts look at the following factors to determine whether
information constitutes a trade secret: “(1) the extent to which the information is
known outside the claimant’s business; (2) the extent to which the information is
known by employees and others involved in the claimant’s business; (3) the extent
of the measures taken by the claimant to guard the secrecy of the information; (4)
the value of the information to the claimant and to its competitors; (5) the amount
of effort or money expended by the claimant in developing the information; and (6)
the ease or difficulty with which the information could be properly acquired or
duplicated by others.” In re Bass, 113 S.W.3d at 739. Recognizing that trade
secrets do not fit neatly into each factor every time, the Court held that the party
claiming a trade secret need not satisfy all six factors. Id. at 740.
Under Texas law, a compilation of distinct information may be protected as
a trade secret, even if some of the components of that compilation are not,
individually, confidential. See Bishop v. Miller, 412 S.W.3d 758, 767 (Tex.
App.—Houston [14th Dist.] 2013, no pet.) (“[T]he fact that some or all of the
components of the trade secret are well-known does not preclude protection for a
secret combination, compilation, or integration of the individual elements.”)
(quoting Restatement (Third) of Unfair Competition § 39 cmt. f). In addition, the
fact that some aspects of a trade secret may be publicly available does not preclude
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the existence of a trade secret, since a “trade secret can exist in a combination of
characteristics and components[,] each of which, by itself, is in the public domain,
but the unified process, design and operation of which in unique combination[ ]
affords a competitive advantage, is a protected trade secret.” Southwestern Energy
Prod. Co. v. Berry-Helfand, 411 S.W.3d 581, 597 (Tex. App.–Tyler 2013, pet.
granted); Metallurgical Indus., Inc. v. Fourtek, Inc., 790 F.2d 1195, 1202 (5th Cir.
1986). Consequently, courts have found that a wide array of information may
qualify as a trade secret. See, e.g., Taco Cabana, Int’l v. Two Pesos, Inc., 932 F.2d
1113, 1124 (5th Cir. 1991) (architectural drawings); Southwestern Energy, 411
S.W.3d at 597-98 (compilation and analysis of technical information);
Metallurgical Indus., 790 F.2d at 1203 (know how); Gonzales v. Zamora, 791
S.W.2d 258, 265 (Tex. App.—Corpus Christi 1990, no writ) (business methods);
Bertolli v. C.E. Sheperd Co., 752 S.W.2d 648, 654 (Tex. App.—Houston [14th
Dist.] 1998, no writ) (market information); Cudd Pressure Control, Inc. v. Roles,
328 Fed.Appx. 961, 965 (5th Cir. 2009) (financial information).
Given the breadth of information that can be a trade secret, it is not
surprising that the “existence of a trade secret is properly considered a question of
fact to be decided by the judge or jury as fact-finder.” Wellogix, Inc. v. Accenture,
LLP, 716 F.3d 867, 875 (5th Cir. 2013); see also Tewari De-Ox Systems, Inc. LLP
v. Mountain States/Rosen, LLC, 637 F.3d 604, 613 (5th Cir. 2011) (“[W]hether
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certain information constitutes a trade secret ordinarily is best ‘resolved by a fact
finder after full presentation of the evidence from each side.’”).
b. There is plenty of evidence of LTT’s trade secrets.
The summary judgment record includes substantial evidence of the existence
of LTT’s trade secrets. In its response to Defendants’ motions, LTT included
(among other things) the Project File, which is a compilation of all the
documentary evidence reflecting LTT’s trade secrets and proprietary information.4
In addition, the summary judgment record includes a detailed declaration from
LTT’s Chief Executive Officer and Managing Member, Robert Berry, which
establishes that the materials contained in the Project File constitute LTT’s trade
secrets. App. 7 ¶¶5-8. The Berry Declaration demonstrates that the trade secrets
included in that compilation were “provided to Defendants during the course of the
project review,” pursuant to either the Confidentiality Agreement or the LOI with
its additional confidentiality provisions. Id. at ¶¶4-5.
The Berry Declaration identifies the Project File by bates numbers and
explains the categories of documents contained within it as including, among other
things, “a deal subfile; correspondence; contracts; drawings and specifications;
4
The Project File was Exhibit 33 in LTT’s combined summary judgment Appendix, and it
includes subparts 33-A through 33-F. 2CR7598-7600. The Project File is out of order in the
Clerk’s Record. The subparts appear in the Clerk’s Record at: Ex. 33-A (3CR8678-8810); Ex.
33-B (3CR8811-54); Ex. 33-C (3CR8855-9020); Ex. 33-D (3CR9021-9269); Ex. 33-E
(3CR9272-9298, 9708-10320); Ex. 33-F (3CR8581-8669).
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financial information and business plans; and other miscellaneous information
pertaining to the Project.” App. 7 ¶6. Berry further identified the trade secret
information in the Project File compilation as including “architectural plans;
program design and operations; financial information; hospital organization;
mission; staff recruitment and retention; physician support; sources and uses of
funds and other ‘cost based’ information; preliminary financial feasibility and
other information about projected revenues and costs for the initial operation of
Lake Travis Hospital; current state of construction; and preliminary financial
feasibility ratios and other information about projected key operational ratios of
Lake Travis Hospital.” Id., ¶7. Based on those documents, Berry stated that the
compilation “contains information that LTT used in its business that provided LTT
with an advantage over competitors who did not know or use it.” Id. ¶7.
LTT not only filed the Project File and Berry Declaration; its summary
judgment responses also identified specific examples of trade secrets from within
the compilation that were provided to, and misappropriated by, Defendants:
The evidence shows this information was used by Defendants in their
improper disclosures to HUD. For example, and without limitation,
during the project review, LTT provided Defendants with
confidential, proprietary, and trade secret information regarding MEP
specifications (Ex. 33 at LTT008217-8393), architectural
specifications (Id. at LTT008666-9088), architectural drawings (Id. at
LTT008464-8521, LTT008541-8634 & LTT008652-8665), site
inspection (Id. at LTT008032-8033), meetings with staff and
contractors (Id. at LTT007911-7913), response to PSP issues (Id. at
LTT009872-9885), and plat (Id. at LTT009100). Utilizing that
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information, Defendants internally drew conclusions about potential
conversion costs: PSP plan of action (Id. at LTT008033); PSP Report
and Drawings re: necessary changes (Id. at LTT009831-9854); and
estimated costs for conversion (Id. at LTT009800-9806). Defendants
then used that information in their improper May 10, 2010 use and
disclosure to HUD regarding their view of conversion costs.
Defendants also utilized the information identified above to internally
draw conclusions about code compliance in their PSP Report and
Drawings re: necessary changes (Id. at LTT009831-9854), and then
used that information in their improper May 10, 2010 use and
disclosure to HUD regarding their view of alleged code compliance
issues (Ex. 12). Each of the documents above is contained in the
Project File (Ex. 33) and is identified by Bates number for ease of
reference.
See, e.g., 3CR11919-20.
As part of the confidential project review, LTT also provided its trade
secrets to Defendants in other ways, during on-site inspections and meetings. App.
7 ¶5; 3CR8836-37 (e-mail correspondence regarding site inspections); 3CR8714-
16 (e-mail correspondence reflecting meetings with staff and contractors).
The Berry Declaration confirms that LTT’s trade secrets were not generally
known or readily available to the public. App. 7 ¶8. They were valuable to LTT,
which spent a great deal of time, energy, and money developing the information.
Id. at ¶11. For example, Berry and LTT’s other principal, Keith McDonald, spent
12,000 hours over six years and more than $2,650,000 in the development of LTT.
Id. Berry explained that LTT’s trade secrets developed as part of that process
“would be extremely difficult to duplicate, if possible at all.” Id.
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 LTT also took steps to protect the confidential nature of its trade secrets.
App. 7 at ¶¶8 & 10. Internally, LTT limited employee access to the information.
Id. at ¶10. Regarding outside parties, it was LTT’s practice to require those
seeking access to LTT’s trade secrets to agree to keep the information confidential.
Id. at ¶8. The Defendants agreed through the Confidentiality Agreement and the
LOI to maintain the confidentiality of LTT’s trade secrets and other information
provided during the project review. 5 2CR7619-21; LOI §9. In addition, LTT
secured confidentiality agreements from the other parties involved in the financing,
development, and construction of LTT’s facility, including LTT’s landlord,
architect, and general contractor. App. 7 ¶8; 2CR7653-54, 7656-59. The parties
understood that the information exchanged during the review process was to be
kept confidential. For example, a representative of LTT’s landlord, William Hurd,
e-mailed to SDP’s president Eddie Alexander, SDP’s Ed Bivins, LTT’s Berry and
LTT’s contractor, stating: “This information is for the project review, please keep
it confidential along with all of the information generated during this review
process.” 2CR7631; see also App. 7 ¶ 8. Because Defendants had notice that
5
The Lawyer Defendants were bound, as agents of the Hospital Defendants, to maintain the
confidentiality of LTT’s trade secrets. Under the Confidentiality Agreement, each party agreed
that, except for “evaluat[ing] participation in the Project,” neither that party “nor its employees,
agents, or business or professional associates will disclose or use any Confidential Information in
any manner whatsoever.” App. 8 ¶2. Similarly, the LOI imposed confidentiality obligations on
“any director, officer, employee, member, shareholder, or agent of LRMC or SDP engaged in the
evaluation of the Project.” LOI ¶9.1. At the relevant times, Sossi was an owner, member, and
agent of SDP as well as an officer and agent of LRMC. 2CR7743-47.
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LTT’s information was provided in confidence, they are liable for any disclosure
or use after such notice. See Restatement (First) of Torts §§ 757 & 758 (1939).
Defendants recognized that all the parties involved in the contemplated
transaction were under a duty of confidence. For example, Sossi sent an e-mail to
ensure Healthcare REIT (LTT’s landlord) knew that information exchanged during
the project review was confidential:
Based on our Letter of Intent with your Tenant, including the payment
of over $50,000 to your tenant, we are greatly concerned that the
Section 6 (Standstill and Non-Circumvention) and Section 9
(Confidentiality) provisions of that Letter of Intent, both of which
survive any termination of that Letter of Intent, require your Tenant to
have positive obligations to SDP and LRMC regarding any
information exchanged related to that Letter of Intent. Those
obligations specifically require that the Parties act in good faith and
that any knowledge gained in the discussions not be used by the
Parties for their own benefit. Further we believe that based on the
nature of the discussions and negotiations these provisions also
include any third party who was included in these discussions as
agreed to by the Parties.
2CR8016 (emphasis added).
Berry was personally involved in securing the Confidentiality Agreement
and LOI, as well as LTT’s confidentiality agreements with third parties, and stated
that even after Defendants terminated the transaction, LTT continued to require
third parties to agree to keep LTT’s information confidential. App. 7 ¶8. Berry
did not recall any instance in which LTT disclosed its trade secrets to a third party
without an agreement to keep the information confidential. Id.
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 A plaintiff does not need to satisfy all six Bass factors to establish the
existence of a trade secret; rather, trade secret status is “ascertained through a
comparative evaluation of all the relevant factors,” and that “other circumstances
could be relevant to the analysis.” In re Bass, 113 S.W.3d at 739-40. Here, LTT
provided evidence supporting all six of the Bass factors. Viewing this evidence
and indulging all reasonable inferences in LTT’s favor, there is, at the very least, a
genuine issue of material fact as to whether LTT’s misappropriated information
constitutes trade secrets. The trial court erred by ruling otherwise.
2. There is evidence that Defendants acquired LTT’s trade secrets
through breach of a confidential relationship or through improper
means.
a. Confidential relationship
A misappropriation claim requires breach of a confidential relationship or
that the trade secret was discovered by improper means. Tex. Integrated, 300
S.W.3d at 366-67. In respect to breach of a confidential relationship, both SDP
and LRMC were parties to the LOI, and the Lawyer Defendants fell within the
definition of “Representative” of a “Party.” LOI at 1, §9.1. As such, each
Defendant was subject to the nondisclosure and confidentiality obligations of that
agreement as well as the earlier Confidentiality Agreement. App. 8 §2.
In addition, it is well-settled that “[t]rade secret information disclosed
pursuant to negotiations for the sale of a business are disclosed under a duty of
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confidence imposed as a matter of law.” H.E. Butt Grocery Co. v. Moody’s
Quality Meats, Inc., 951 S.W.2d 33, 36 (Tex. App.–Corpus Christi 1997, pet.
denied) (“HEB”); see also Daniels Health Sciences, LLC v. Vascular Health
Sciences, LLC, 710 F.3d 579, 584 (5th Cir. 2013) (under Texas law, “[a]n express
agreement [is] not necessary where the actions of the parties, the nature of their
arrangement, the ‘whole picture’ of their relationship established the existence of a
confidential relationship”) (citing HEB). The examples quoted by the Court in
Hyde Corp. are instructive here:
A has a trade secret which he wishes to sell with or without his
business. B is a prospective purchaser. In the course of negotiations, A
discloses the secret to B solely for the purpose of enabling him to
appraise its value. Or, A requests a loan from B, a banker, for the
purpose of aiding the manufacture of a product by A’s secret process.
In order to assure B about the soundness of the loan, A discloses the
secret to him in confidence. In both cases B is under a duty not to
disclose the secret or use it adversely to A.
314 S.W.2d at 770 (quoting Restatement of Torts, § 757, cmt. (b)).
Here, the evidence shows that Defendants received LTT’s trade secrets in
confidence in the course of negotiations for the acquisition of LTT’s primary asset
(the Lake Travis Hospital facility), and the “whole picture” of the parties’
relationship establishes the existence of a confidential relationship between each of
the Defendants and LTT as a matter of law. App. 7 ¶¶ 2-10, 12. Defendants
recognized as much before this suit was ever filed. 2CR8016 (Sossi e-mail stating
that LOI provisions applied to LTT, LRMC, SDP, and “any third party who was
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included in these discussions as agreed to by the Parties.”) Thus, while the LOI
and Confidentiality Agreement are each sufficient to establish a confidential
relationship between all of the parties, even without those agreements, the context
of the parties’ negotiations is sufficient, at a minimum, to create material fact issue
as to the confidential relationship between each of the parties.
b. Improper means
In respect to acquiring a trade secret through improper means, courts
recognize that “[a] complete catalogue of improper means is not possible. … [i]n
general they are means which fall below the generally accepted standards of
commercial morality and reasonable conduct.” Lamont v. Vaquillas Energy
Lopeno Ltd., LLP, 421 S.W.3d 198, 213 (Tex. App.—San Antonio 2013, pet.
denied). “Improper means” includes, but is not limited to “theft, fraud,
unauthorized interception of communications, inducement of or knowing
participation in a breach of confidence, and other means either wrongful in
themselves or wrongful under the circumstances of the case.” Wellogix, Inc., 716
F.3d at 876.
Under Texas law, “the question is not ‘How could [Defendants] have
secured the knowledge?’ but ‘How did [they]?’” Lamont, 421 S.W.3d at 213.
There is more than sufficient summary judgment evidence to raise a fact question
as to whether Defendants improperly acquired the trade secret information from
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LTT in addition to breaching their obligations of confidence. See App. 7 ¶¶4-5 and
3CR11919-20 and evidence cited therein.
That fact question is not resolved by Sossi’s contention that he acquired LTT
information through communications with LTT’s landlord, Healthcare REIT, when
he provided legal advice to Healthcare REIT in respect to LTT. 6 At most, this
evidence raises a fact question whether the Lawyer Defendants breached their duty
of confidence by disclosing to the Hospital Defendants and HUD information
provided confidentially by or on behalf of LTT during the course of the Lawyer
Defendants’ representation of Healthcare REIT. In fact, the trial court noted that
“[t]he existence of the confidential, attorney-client relationship between REIT and
Mr. Sossi” meant that the Defendants “must prove the information was available
from another, non-confidential source” to establish it was in the public domain and
thus no longer proprietary. 3CR12252.
In short, the evidence is sufficient to show a genuine issue of material fact as
to whether Defendants acquired LTT’s trade secrets through a confidential
relationship or improper means, and the trial court erred to the extent it granted
summary judgment on this ground.
6
Notably, no Defendant tied the limited information Sossi claims he obtained through that
confidential attorney-client relationship to any trade secret information identified in LTT’s
summary judgment responses. Compare 2CR5238-39 to 3CR11912-20 and evidence cited
therein.
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3. There is evidence that Defendants disclosed or used LTT’s trade
secrets without authorization.
Under Texas law, “one who discloses or uses another’s trade secrets, without
a privilege to do so, is liable to the other if … his disclosure or use constitutes a
breach of confidence reposed in him by the other in disclosing the secret to him.”
Hyde Corp., 314 S.W.2d at 770. Either disclosure or use is sufficient to impose
liability. Id. Both apply here.
a. Defendants “used” the trade secrets.
As a general matter, “any exploitation of [a] trade secret that is likely to
result in injury to the trade secret owner or enrichment to the defendant is a ‘use.’”
Wellogix, Inc., 716 F.3d at 877 (emphasis added). “‘Use’ can include ‘activities
other than the actual selling of the product.’” Id. “Any misappropriation of trade
secrets, followed by an exercise of control and domination, is considered a
commercial use.” Cudd Pressure Control, 328 Fed.Appx. at 965. This can include
“an act that ‘lower[s] the market value’ of a trade secret.” Wellogix, 716 F.3d at
877. Unauthorized use “need not extend to every aspect or feature of the trade
secret; use of any substantial portion of the secret is sufficient to subject the actor
to liability.’” Bishop v. Miller, 412 S.W.3d at 774. “Use of a modified … version
of the trade secret will not avoid liability if the version is substantially derived
from the protected information.” Restatement (Third) of Unfair Competition § 40
cmt. c (1995). Even if a final product “differs significantly from that of the
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plaintiff, substantial use of the trade secret in the course of the defendant’s research
can be sufficient to constitute an appropriation.” Id.; accord Bishop v. Miller, 412.
S.W.3d at 774.
In Cudd Pressure Control, the Fifth Circuit reversed summary judgment
based on “use” analogous to this case. 328 Fed.Appx. at 965-66. The plaintiffs’
former employee, Roles, used some of the plaintiff’s financial information to
create a business plan circulated to investors for his new company, Great White.
Id. at 966. That financial information was false as it related to Great White. Id.
Roles also showed investors plaintiff’s profit and loss statement “to validate [that]
what I was telling them was true.” Id. Reversing the district court’s summary
judgment based on an alleged lack of “use,” the Fifth Circuit held that Roles
“exercised control over [plaintiff’s] confidential information to convince investors
to finance Great White.… He therefore sought to profit from using the confidential
information, and so ‘used’ it.” Id. Accordingly, the Fifth Circuit held there was a
question of material fact as to “use.” Id.
Defendants similarly exercised domination and control over LTT’s trade
secrets in order to disparage LTT’s Lake Travis Hospital as a competitor and
convince HUD to insure LRMC’s $166.9 million hospital mortgage. By doing so,
Defendants obtained financing for their hospital (thus enriching themselves) while
also diminishing the value of LTT’s trade secrets. Just as in Cudd, Defendants’
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actions create a question of material fact as to “use.” Id. (“Use encompasses using
a trade secret to procure financing.”).
As is discussed more fully above in the statement of facts, during the project
review, LTT provided Defendants with confidential, proprietary, and trade secret
information it used to build and develop its hospital. App. 7 ¶¶6-7. This
information, provided as documents or through site inspections and meetings,
included mechanical and electrical specifications, architectural specifications,
architectural drawings, responses to Defendants’ architect PSP, and plats. See,
e.g., 3CR11919-20 and evidence cited therein. The information was not publicly
available, was created for the development of LTT’s hospital at considerable
expense, and gave LTT a competitive advantage over those who did not know or
use it. App. 7. This information, individually and in combination with each other,
were trade secrets of LTT. See Southwestern Energy, 411 S.W.3d at 597.
After being provided LTT’s trade secrets in confidence for the limited
purpose of evaluating the feasibility of acquiring the LTT facility (LOI §§6, 9),
Defendants used that information to draw conclusions about alleged conversion
costs associated with the LTT facility. The summary judgment evidence shows
that the review process resulted in a lengthy report from the Hospital Defendants’
architect detailing alleged civil, architectural, mechanical, electrical, and other
“noncompliance” issues and recommending various changes. 3CR8593-8616.
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This resulted in a detailed response from LTT’s architect, 3CR8637-47, as well a
conference call among the Lawyer Defendants, the Hospital Defendants, PSP, and
LTT’s architect addressing the issues. 3CR8648-52. Defendants then used the
information from LTT to determine the pricing of their proposed modifications.
To convince HUD that LTT was not a competitive facility, and thereby fund
LRMC’s $166.9 mortgage, Defendants used LTT’s trade secrets in the May 10th
Email and subsequent correspondence with HUD. 2CR8024-25. LTT did not
consent to Defendants’ use of LTT’s trade secrets for that purpose. App. 7 ¶¶15-
16. Defendants used the trade secrets to obtain significant economic benefits for
themselves, and LTT was injured as a result. At a minimum, this evidence raises a
fact question as to “use” of the trade secrets. See Cudd Pressure Control, 328
Fed.Appx. at 966; see also Wellogix, 716 F.3d at 877 (“any exploitation of [a]
trade secret that is likely to result in injury to the trade secret owner or enrichment
to the defendant is a ‘use,’” including “an act that ‘lower[s] the market value’ of a
trade secret”); see also Lamont, 421 S.W.3d at 215 (despite defendants’ testimony
that they did not use trade secrets, the circumstantial evidence of the defendants’
access to the information and conduct immediately afterward supported the jury’s
finding of misappropriation); see also Bishop v. Miller, 412 S.W.3d at 773
(attempts to use misappropriated information to attract investors constitutes
impermissible “use”).
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b. Defendants “disclosed” the trade secrets.
Disclosure means making something known or public. See BLACK’S LAW
DICTIONARY 562 (10th ed. 2014). The trial court justified its summary judgment
ruling by stating “[a]ll of the alleged secrets, in LTT’s own presentation, are at
least one step removed from any disclosure.” 3CR12252. The summary judgment
evidence raises a fact question as to Defendants’ disclosure of LTT’s trade secrets.
Sossi testified that he “shepherded” the LRMC application through HUD
and handled “any and all communications related to the HUD loan and LRMC.”
2CR7776-77. As part of “shepherding” the application, the Lawyer Defendants
participated in a number of in-person meetings and telephone calls with HUD. Id.
at 7777-80, 7813, 7815. Sossi admitted that he discussed LTT in sufficient detail
to allow HUD to determine whether LTT would be a significant competitor to
LRMC’s proposed hospital:
The existence of the plans for the [LTT factility] were discussed in
detail with the HUD Client Service Team and [they concluded] the
facility as planned would not appear to meet the general acute care
needs for the Lakeway Community.
2CR8110. Sossi’s unequivocal admission raises a question of fact as to disclosure.
Sossi also asserted that he and the other Defendants “expect HUD to defend
the decision to issue the Guarantee,” and that HUD’s due diligence process was
“proper.” Id. Sossi’s May 10th Email was written in response to some of HUD’s
due diligence. Given the substance of the May 10th Email, HUD’s parroted
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response in reliance on it, and the fact that HUD never communicated with LTT
prior to making that response, it is reasonable to infer that SDP’s verification of
“Mr. Sossi’s facts” included LTT’s confidential trade secrets. See Lamont, 421
S.W.3d at 215 (circumstantial evidence of defendants’ access to the information
and conduct immediately afterward supported finding of misappropriation). The
evidence also shows that LTT never authorized Defendants’ disclosures. App. 7
¶16. Judge Yelenosky erred to the extent he found no evidence of Defendants’
unauthorized disclosures.
4. There is evidence of damages as a result of the misappropriation.
In respect to damages, “the established rule is that the plaintiff is not
required to prove lost profits; rather it need only prove misappropriation of its
valuable trade secret and prove that it was put to some commercial use.” Univ.
Computing Co. v. Lykes-Youngstown Corp., 504 F.2d 518, 540 (5th Cir. 1974). As
discussed above, there is evidence of Defendants’ misappropriation and
commercial use of LTT’s valuable trade secrets. Once that showing is made,
“[d]amages in trade secret cases can take a variety of forms.” Southwestern
Energy, 411 S.W.3d at 608 (citing Univ. Computing, 504 F.2d at 535). For
example, even if a plaintiff cannot prove that it suffered a specific injury caused by
the defendant’s use (which is not the case here), the court may instead award
damages based on the defendant’s actual profits gained by using the trade secret.
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Id. at 609. In addition, “a lack of profit from [defendant’s] misappropriation will
not exempt the wrongdoer from liability in the amount of the trade secret’s value
when it was misappropriated.” Id. Rather, the court may award a reasonable
royalty, based on what the parties would have agreed to for the use of the trade
secret at the time of the misappropriation if both had been reasonably trying to
reach an agreement. Id.
a. Loss of market value
There is evidence that LTT suffered losses in market value to both itself and
to its trade secrets as a result of Defendants’ misappropriation. Berry, CEO and
Managing Member of LTT, was familiar with and had personal knowledge of LTT
as an entity, its value, and the loss of market value suffered by LTT as a result of
Defendants’ misappropriations at issue. App. 7 ¶15. Based on that knowledge,
Berry stated that a conservative price a willing buyer would pay a willing seller in
respect to LTT before Defendants’ misconduct would have been $13,794,834.
App. 7 ¶19. As a result of Defendants’ misconduct, LTT lost nearly all of its value
as an enterprise. Id.
In addition, Berry was familiar with the trade secret information LTT
provided to Defendants, and stated the price a willing buyer would pay a willing
seller for LTT’s trade secrets at the time of the misappropriation was at least $7.9
million. Id. This market value was based on Berry’s familiarity with the
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discussions between LTT and the Defendants, the value LTT placed on its trade
secrets and its reluctance to disclose them to competitors, his review of
communications from HUD raising questions about competition in the Lakeway
area, and evidence suggesting uncertainty about whether Defendants could get
other sources of funding. App. 7 ¶¶ 19, 11. As a result of Defendants’ conduct,
LTT’s trade secrets lost nearly all of their market value. Id. This unchallenged
evidence of trade secret damages is sufficient to create a question of material fact
as to damages. See Reid Road Mun. Util. Dist. No. 2 v. Speedy Stop Food Stores,
Ltd., 337 S.W.3d 846, 853 (Tex. 2011) (officer of a company may testify as to the
value of a company and its assets).
b. Reasonable royalty damages
The evidence of the market value also provides evidence of the amount of
reasonable royalty damages. In measuring reasonable royalty damages, courts
consider, among others, the following factors: the resulting and foreseeable
changes in the parties’ competitive posture; prices paid by licensees in the past; the
total value of the secret to the plaintiff, including the plaintiff’s development cost
and the importance of the secret to the plaintiff’s business; the nature and extent of
the use the defendant intended for the secret; and whatever other unique factors in
the particular case might have been affected by the parties’ agreement, such as the
ready availability of alternatives. Univ. Computing, 504 F.2d at 539; Southwestern
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Energy, 411 S.W.3d at 610 (citing Georgia–Pacific Corp. v. United States
Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970), mod. and aff’d, 446
F.2d 295 (2d Cir. 1971), and the “fifteen factors considered in other leading cases
in determining a reasonable royalty”).
Berry considered many of these factors when determining the value of
LTT’s trade secrets at the time of misappropriation to be “at the least the
consideration of $7.9 million contemplated by the LOI.” App. 7 ¶15; see
Bohnsack v. Varco, L.P., 668 F.3d 262, 275-76 & 280 (5th Cir. 2012) (reversing
$600,000 benefit-of-the-bargain fraud award but upholding $600,000 reasonable
royalty award for misappropriation since “terms negotiated between [the parties]
are sufficient evidence to prove the value” of the confidential information to a
reasonably prudent investor).
c. Benefits obtained
Finally, Defendants profited handsomely from their misappropriation. They
used the misappropriations in the May 10th Email to convince HUD to disregard
LTT as a competitor and quickly fund the $166.9 million loan. See 2CR8017.
Benefits obtained by the Defendants are recoverable as damages for LTT’s
misappropriation claim. Southwestern Energy, 411 S.W.3d at 609.
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d. No HUD reliance necessary
It is not necessary that LTT prove that HUD relied on the information in
order to recover for trade secret misappropriation. Even if there was not sufficient
evidence of HUD’s reliance (and there was), the evidence raises questions of fact
as to reasonable royalty damages, which are not dependent on proof that HUD
relied on Defendants’ improper disclosure of LTT’s trade secrets. Instead,
royalties are based on the value of the trade secret information at the time it was
misappropriated. Southwestern Energy, 411 S.W.3d at 609.
Moreover, the summary judgment evidence easily raises a question of fact
on the issue of HUD’s reliance, as the trial court itself recognized: “LTT has met
its summary judgment burden of providing circumstantial evidence that
defendants’ communications with HUD resulted in receipt of the loan guarantee
and some evidence that the loan guarantee resulted in damages to LTT.”
3CR12252. By law, HUD may only insure mortgages for “urgently needed
hospitals.” 12 U.S.C. § 1715z-7(a). It therefore can only insure mortgages for
hospitals in underserved areas, 24 C.F.R. § 242.16, and information about
potentially competing hospitals such as LTT was therefore material to whether
HUD had the legal authority to insure the LRMC loan. Defendants’ HUD expert
observed that it would be “negligent” for HUD not to consider the information
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about LTT in authorizing the loan, and HUD “would have been crucified for not
doing due diligence; taxpayers would demand full review.” 2CR8169-73.
In sum, there is sufficient evidence to raise a genuine issue of material fact
as to each challenged element of LTT’s claim for misappropriation of trade secrets.
The trial court erred in granting summary judgment.
C. Summary judgment was improper as to Section 2 of the LOI.
LTT alleged that the Hospital Defendants breached Section 2 of the LOI,
which includes various provisions regarding the terms of the Project. LOI §2.7
Judge Yelenosky granted summary judgment as to LTT’s Section 2 claims. App. 3
¶1. That was error. Section 2 is a binding provision, it includes all the terms
necessary for its enforcement, and any alleged failure of conditions precedent to its
enforcement was caused by the Hospital Defendants’ own conduct.
1. Section 2 of the LOI is a binding agreement.
a. The detailed provisions are more than an agreement to agree.
LTT pled that the Hospital Defendants breached various terms of the LOI,
including specifically Section 2. Section 2 of the LOI outlines the parties’
agreement on the key terms for the proposed lease assignment (“Project”) between
LTT and LRMC. It includes detailed provisions regarding LRMC’s assumption of
LTT’s lease, including the nature and intended legal effect of the assignment,
terms of payment, and the reimbursement of costs. LOI §2. The LOI provides that
7
The LOI is attached at App. 1.
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the Section 2 terms are subject to the satisfaction of specific conditions, such as
approval of LRMC’s Board, the approval of HCN (LTT’s landlord), and the
mutual development of definitive documents “that fully reflect the intention of the
parties expressed in this Letter of Intent.” LOI §3. And the LOI obligates the
parties to “use their respective best efforts to satisfy each of the foregoing
conditions as soon as reasonably practicable....” LOI §3. In other words, Section
2 contains a comprehensive list of terms that were triggered by satisfaction of the
five conditions precedent set out in Section 3 of the LOI. 8
The Hospital Defendants moved for summary judgment that Section 2 of the
LOI was not enforceable because it was merely an “agreement to agree.”9
2CR5618. This argument fails under Texas law and the plain language of the LOI.
A recent opinion by the Supreme Court of Texas makes clear that an
agreement is not an unenforceable “agreement to agree” simply because it
8
Despite their argument that Section 2 was never intended to be enforceable, the Hospital
Defendants also moved for summary judgment that “[c]onsummation of Section 2 of the LOI
was based upon five conditions precedent” but “two of the five conditions were never satisfied.”
2CR5622. If the parties intended for Section 2 to be “consummated” upon satisfaction of certain
enumerated conditions, they necessarily also intended for Section 2 to be a binding contractual
provision once those conditions were met.
9
Judge Yelenosky rejected the Hospital Defendants’ argument that the “best efforts” provision
in Section 3 of the LOI was too vague, and thus rendered Section 2 of the LOI unenforceable.
3CR12250 (“I will grant the motions with respect to LTT’s breach of Section 2 of the LOI, but
not with respect to the “best efforts” provision in Section 3.”); App. 3 (Order). Best efforts
clauses, such as the clause here, that “set some kind of goal or guideline against which best
efforts may be measured” are enforceable. CKB & Assocs., Inc. v. Moore McCormack
Petroleum, Inc., 809 S.W.2d 577, 581 (Tex. App.—Dallas 1991, writ denied). The Hospital
Defendants have acknowledged that the confidentiality and noncircumvision provisions of the
LOI are binding. See 2CR8016.
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contemplates future contracts. McCalla v. Baker’s Campground, Inc., 416 S.W.3d
416 (Tex. 2013). The McCalla Court held that an “agreement that includes all of
the terms necessary for the contract’s enforcement is an enforceable contract as a
matter of law, even if some of its terms seem to imply that the parties contemplate
forming an additional contract in the future.” 416 S.W.3d at 416. The Court
repeated the well-settled principal that “[a]greements to enter into future contracts
are enforceable if they contain all material terms.” Id. at 418. While the contract
in that case stated that the parties agreed “to execute any documents that [were]
reasonable and necessary to carry out the terms and provisions of this Agreement,”
the Court noted that the agreement also “stated that it ‘shall be binding upon … the
parties ….” Id. at 417 (ellipsis in original). The Court noted: “[i]f a court was
trying to enforce the settlement agreement, it could find all the terms necessary for
its enforcement,” and thus held that the agreement was binding. Id. at 418.
McCalla was recently applied in the context of a letter of intent for a
complicated commercial transaction. See Karns v. Jalapeno Tree Holdings, LLC,
459 S.W.3d 683, 691 (Tex. App.—El Paso 2015, pet. denied). The court of
appeals held that if an LOI “contains all essential terms as contemplated by the
parties and the only remaining issue is formalization of the agreement or
negotiation of ancillary terms, then the LOI may be an enforceable contract if the
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parties intended to be bound.” Id. at 692 (emphasis added). The provisions of the
LOI easily meet this standard.
b. The parties intended for all provisions of the LOI to be binding.
The LOI plainly reflects the parties’ intent to be bound. The introductory
paragraph states, without exception, that it is a “Binding Letter of Intent.” LOI at
1. And although Section 2 contains an “outline of terms” for the Project, its
language makes clear that the detailed terms outlined therein were fully negotiated
and agreed,10 and it does not state that its terms may later be altered in future
negotiations. LOI §2. Section 3 contains conditions precedent to the terms in
Section 2, again demonstrating that the parties intended for Section 2’s terms to
become binding upon satisfaction of those conditions. LOI §3. The fact that one
of the conditions was the “mutual development of definitive documents that fully
reflect the intention of the Parties expressed in this Letter of Intent” further
demonstrates the finality of the parties’ substantive agreement on the key Project
terms, as does the parties’ agreement to use their “respective best efforts” to satisfy
the conditions to consummation of Section 2. Id.
10
See, e.g., Section 2.1 (“LRMC will assume the Lease . . . and become the tenant. . .LRMC
shall ensure that all such liabilities in favor of any third parties are released . . .”); Section 2.2
(“LRMC will refund at closing of the assignment of the Lease all deposits made by the Principals
. . .[and] shall assume all liabilities and contractual obligations of the Principals . . .”); and
Section 2.3 (“. . . LRMC will make a single lump sum cash payment at closing to the Principals,
or their designated assignee, equal to $1.5 million.”) (emphasis added).
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In addition, Section 10 states that “if any Party to this Letter of Intent
breaches any provision of this Letter of Intent” irreparable harm shall be presumed.
And Section 10.6 states:
The persons executing this Letter of Intent personally represent and
warrant that they have been duly authorized to do so by their
respective Party and that, upon full execution hereof, this Letter of
Intent shall be a binding obligation of said Party.
LOI §10.6 (emphasis added).
In sum, through the provisions of the LOI itself, the parties recognized and
intended all provisions of the “Binding Letter of Intent,” including section 2, to be
binding and enforceable, not simply an “agreement to agree.” At a minimum,
these provisions create a question of fact as to whether the parties intended for
Section 2 to be binding, making summary judgment on that issue improper. See,
e.g., Foreca, S.A. v. GRD Dev. Co., 758 S.W.2d 744, 746 (Tex. 1988) (holding that
the question of whether a letter agreement that was “subject to legal
documentation” was intended to be binding was a question of fact properly
presented to the jury).
c. Section 2 contains all essential terms.
To be enforceable, an agreement “must contain sufficient terms to determine
the parties’ obligations but is not required to resolve all disputed issues.” West
Beach Marina, Ltd. v. Erdeljac, 94 S.W.3d 248, 259 (Tex. App.—Austin 2002, no
pet.). The parties may agree upon certain contractual terms and leave other matters
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for later negotiations. See Scott v. Ingle Bros. Pac., Inc., 489 S.W.2d 554, 555
(Tex. 1972). “It is only when an essential term of a contract is left open for future
negotiations that there is no binding contract . . .” Geophysical Micro Computer
Applications (Int’l) Ltd. v. Paradigm Geophysical Ltd., No. 05-98-02016, 2001
WL 1270795, at *3 (Tex. App.—Dallas Oct. 24, 2001, pet. denied) (not designated
for publication) (citing McCulley Fine Arts Gallery, Inc. v. “X” Partners, 860
S.W.2d 473, 477 (Tex. App.—El Paso 1993, no writ)).
Section 2 of the LOI contains all essential terms for its enforcement. Section
2.1 states that LRMC “will assume the existing Lease,” relieve the Principals of all
liability under the Lease, and indemnify the Principals and their affiliates of any
liabilities after the assignment of the Lease. Section 2.2 states that LRMC “will
refund at closing of the assignment of the Lease all deposits made by the Principals
and their respective affiliates and reimburse to the Principals and their respective
affiliates all reasonable and documented costs that have been advanced by them to
develop the Facility.” Section 2.2 then further defines such costs to include,
among other things, reimbursement of compensation of certain employees and
other development-related expenses. Section 2.3 provides that, in exchange for
assignment of the Lease, LRMC “will make a single lump sum cash payment at
closing to the Principals or their designated assignee, equal to $1.5 million.”
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In short, Section 2 defines the specific obligations that must occur and
explains when they must occur. “If a court was trying to enforce the [agreement],
it could find all the terms necessary for its enforcement,” and, just as in McCalla,
the LOI contains the material terms for Section 2 to be enforceable. 11 416 S.W.3d
at 418. Section 2 of the LOI is thus a binding and enforceable provision, subject
only to satisfaction of the conditions precedent in Section 3. As discussed below,
the Hospital Defendants prevented these conditions from occurring, so they
became legally responsible for failing to comply with Section 2.
2. The Hospital Defendants cannot rely on unsatisfied conditions
precedent to avoid complying with Section 2 because their own
conduct prevented performance.
It is an “elementary” rule of contract law that “one who prevents or makes
impossible the performance of a condition precedent on which his liability under a
contract is made to depend cannot avail himself of its nonperformance.” II
Deerfield Limited Ltd. P’ship v. Henry Bldg., Inc., 41 S.W.3d 259, 265 (Tex.
App.—San Antonio 2001, pet. denied). One court of appeals recently looked at a
set of conditions precedent that the defendant claimed the plaintiff had not
satisfied. Sharifi v. Steen Automotive, LLC, 370 S.W.3d 126, 146 (Tex. App.—
11
The Hospital Defendants’ argument below that the LOI does not contain specific amounts for
compensation, severance, and reimbursement does nothing to prevent the enforceability of those
obligations. First, such details relate to the form and not the substance of the transaction; they
are not essential terms. See McCulley, 860 S.W.2d at 477. Second, under Texas law, such
provisions are enforceable even without specific figures. See Fuqua v. Fuqua, 750 S.W.2d 238,
245 (Tex. App.—Dallas 1988, writ denied) (holding that an agreement to pay rent at a
“reasonable rate” is not too indefinite to be enforced).
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Dallas 2012, no pet.). Three conditions in particular involved the defendant’s
payment of debts to a third party. Id. The court held the defendant could not rely
on the non-occurrence of the conditions, which was due to the defendant’s “choice
not to perform.” Id.
Similarly, in another case plaintiffs had an agreement with a water authority
where plaintiffs would receive seventy percent reimbursement of certain costs if
the voters passed a required bond measure. Clear Lake City Water Auth. v.
Friendswood Dev. Co., Ltd., 344 S.W.3d 514, 517 (Tex. App.—Houston [14th
Dist.] 2011, pet. denied). The defendants failed to include the measure on the
ballot, thereby prevented the occurrence of the condition precedent, and argued
that “nonoccurrence of this condition…is not excused if the [defendant] can
establish that the voters would not have approved the 2004 bond measure had it
been included on the ballot.” Id. The court rejected that argument and held that
“the Authority cannot rely on a projected failure of voter approval, which it
prevented or made impossible…to escape its liability to purchase the Developers’
facilities.” Id.
Here, the Hospital Defendants moved for summary judgment that “two of
the five conditions” in the LOI were not satisfied. 12 2CR5622. First, they claimed
that “the approval of HCN as landlord under the Lease to the assignment thereof”
12
The Hospital Defendants did not allege that the parties’ failure to develop definitive
agreements was an unsatisfied condition.
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was never satisfied. 2CR5623. “Lease” is defined as the lease for the LTT
hospital facility. LOI at 1. Section 2 requires LRMC to “assume the existing
Lease” between LTT and the landlord. LOI § 2.1 Section 3 requires LRMC to
make best efforts to secure approval from “the landlord under the Lease to the
assignment thereof.” Sossi’s uncontroverted testimony, however, shows that
Defendants never sought approval for assignment of the “existing Lease” as
required by the LOI:
Q. Did you negotiate with HCN as landlord under the lease on behalf
of LRMC to the assignment of Exhibit 1?
A. Yes. But for an amended and restated lease.
Q. As a lawyer, Mr. Sossi, do you understand the difference between
the assignment of an existing document and the renegotiation and
execution of a new document?
A. If a specific document is identified, yes.
*****
Q. Did you negotiate with HCN as landlord under the lease on behalf
of LRMC to the assignment of Exhibit 1 without modification?
A. No, not without modification.
2CR7771-72; see also 7766-71.
In other words, the evidence shows that Defendants made no effort, much
less a best effort, to get approval from the Landlord for the assignment of the
existing Lease. The Hospital Defendants did not satisfy this condition, and cannot
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rely on its nonoccurrence to avoid liability for breach. See II Deerfield, 41 S.W.3d
at 265; Clear Lake, 344 S.W.3d at 517; Sharifi, 370 S.W.3d at 146.
The Hospital Defendants alleged that one other condition was not satisfied,
that of “full and formal approval by the Board of Managers of LRMC…”
2CR5624. LRMC’s corporate representative Eddie Alexander admitted that
LRMC’s Board never took a vote on approval of the project. 2CR7721. Just as in
City of Clear Lake Water Authority, the Hospital Defendants cannot rely on the
lack of a vote they failed to take to avoid compliance with Section 2 of the LOI.
344 S.W.3d at 517 (holding defendant “cannot rely on a projected failure of voter
approval, which it prevented or made impossible…to escape its liability”).
The evidence creates at least a question of fact on whether the Hospital
Defendants prevented the two conditions precedent from occurring. These were
the only conditions precedent that the Hospital Defendants relied on in moving for
summary judgment. Judge Yelenosky erred in granting the Hospital Defendants’
motions and dismissing LTT’s claims for breach of Section 2 of the LOI.
D. The trial court abused its discretion in sustaining objections to some of
LTT’s summary judgment evidence.
This Court reviews rulings on summary judgment evidence for abuse of
discretion. Woodhaven Ptnrs, Ltd. v. Shamoun & Norman, LLP, 422 S.W.3d 821,
829 (Tex. App.—Dallas 2014, no pet.). Judge Yelenosky abused his discretion by
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excluding portions of LTT’s summary judgment evidence. App. 4. 13 The excluded
evidence relates to LTT’s ownership of the proprietary and trade secret information
(Exhibits 1, 33), and to Defendants’ misuse of that information in their
communications with HUD (Exhibits 23-29). Because the evidence was not
objectionable, this Court should consider it in ruling on summary judgments.
1. The court improperly sustained objections that had become moot.
As a threshold procedural matter, the court erred in excluding portions of the
Project File (Exhibit 33), as well as Exhibits 23-29, because LTT’s Amended MSJ
Responses mooted some of the Hospital Defendants’ objections. 14
LTT responded to the Hospital Defendants’ motions for summary judgment
(“Original MSJ Responses”) and filed an Appendix and Supplemental Appendix
(“Appendix”) of supporting evidence.15 3CR9542-9626 (SDP), 9627-9706
13
The trial court ruled on the Hospital Defendants’ objections to LTT’s summary judgment
evidence, but it did not rule on the Lawyer Defendants’ objections. App. 4 (order addressed to
the Hospital Defendants’ objections only). There are thus no rulings for LTT to appeal because
the court did not exclude any evidence in connection with the Lawyer Defendants’ summary
judgment motions. See Investment Retrievers, Inc. v. Fisher, No. 03-13-00510-CV, 2015 WL
3918503, at *4 (Tex. App.—Austin June 25, 2015, no pet.) (mem. op.) (“[A] trial court’s ruling
on an objection to summary-judgment evidence is not implicit in its ruling on the motion for
summary judgment.”). Further, the Lawyer Defendants waived their objections to procedural
defects in LTT’s evidence by failing to obtain a ruling. Jones v. Ray Ins. Agency, 59 S.W.3d
739, 753 (Tex. App.—Corpus Christi 2001, pet. denied). Regardless, the Lawyer Defendants’
objections to the evidence fail for the same reasons as the Hospital Defendants’ Objections.
14
Regarding Exhibit 23—the May 10th Email—the Hospital Defendants also filed that exhibit,
so it is properly in the summary judgment record irrespective of any objection to it in LTT’s
summary judgment appendix. Compare 2CR5716-19 (LRMC Ex. 8) and 8267-70 (LTT Ex. 23).
15
The Appendix is out of order in the Clerk’s Record and appears in several non-sequential
chunks: 2CR7598-8555, 3CR8580-9541, 3CR9707-11421, 3CR11882-98. Exhibits 23-29
appear at 2CR8265-8480.
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(LRMC). The Appendix identified all of the evidence on which LTT relied in
responding, including a detailed index of the categories of information in
Exhibit 33, the Project File, and it stated that the “summary judgment evidence in
this Appendix is hereby incorporated” into the responses. 2CR7598.
The Hospital Defendants filed objections to LTT’s summary judgment
evidence (3CR11486-524), arguing that LTT should have specifically cited to each
page of the Project File, so the court should not consider any pages in the Project
File “other than the 189 pages specifically referred to and identified in the”
Original MSJ Responses. 3CR11487 (Objection 2). The Hospital Defendants also
objected to Exhibits 23-29 because LTT had not specifically cited to those Exhibits
in its Original MSJ Responses. Id. at 11489 (Objection 5).
LTT later filed amended responses to the Hospital Defendants’ motions for
summary judgment (“Amended MSJ Responses”). 3CR11790-881 (SDP),
3CR11899-982 (LRMC). In the Amended MSJ Responses, LTT added specific
citations to hundreds of additional pages—totaling over 775 pages—in the Project
File. See, e.g., 3CR11919-20 (identifying specific materials within the Exhibit 33
Project File by bates number). LTT also added specific citations to Exhibits 23-29.
See, e.g., 3CR11906 n.26, 11918 n.63, 11919 n.66. The Hospital Defendants did
not file amended objections, even after LTT pointed out that the Amended MSJ
Responses had mooted objections to the lack of page citations in the Original MSJ
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Responses. 3CR12017, 12022. Nevertheless, the court sustained the Hospital
Defendants’ Objections 2 and 5, which were based solely on a lack of citation to
the evidence in the Original MSJ Responses. App. 4.
The impact of the trial court’s ruling on this point is unclear. Given that the
stated objections were only to pages and exhibits not cited by LTT, the ruling
sustaining the objections cannot actually exclude any evidence because LTT cited
to all the challenged evidence in its Amended MSJ Responses. However, if the
ruling is construed to exclude any portions of these exhibits, then the trial court’s
ruling was plainly in error.
First, LTT’s Amended MSJ Responses mooted the Hospital Defendants’
objections to the lack of sufficient citation in the Original MSJ Responses. The
trial court erred in sustaining objections that were based on a superseded pleading.
See, e.g., Loy v. Harter, 128 S.W.3d 397, 407 (Tex. App.—Texarkana 2004, pet.
denied) (holding the court erred in granting summary judgment based on pleading
that had been superseded); Krainz v. Kodiak Resources, Inc., 436 S.W.3d 325, 328
(Tex. App.—Austin 2013, pet. denied) (“When amended petitions are filed timely,
trial courts must base their decision on the amended pleading, not any superseded
petition.”). Second, LTT’s specific and detailed citations to the evidence in the
Amended MSJ Responses cured the Hospital Defendants’ objections.
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2. LTT adequately cited to the entirety of the Project File.
The court independently erred in sustaining the Hospital Defendants’
objection to “uncited references” within the Project File because LTT’s citations
were sufficient.
The Project File is a compilation of all documents that reflected LTT’s trade
secret and proprietary information at issue in the case. The Index to the Appendix
identified by bates number the categories of documents included within the Project
File, and LTT’s Amended MSJ Responses gave specific references, by bates
number, to about 775 individual pages within the Project File. LTT identified and
described the nature of the Project File as a whole and explained the basis for its
inclusion as summary judgment evidence. See, e.g., 3CR11922. LTT also
provided detailed testimony on the contents of the Project File in the Berry
Declaration. App. 7. The citations and descriptions in the Appendix, the Berry
Declaration, and the body of the Amended MSJ Responses sufficiently directed the
court to the evidence on which LTT relied.
Texas law does not require that each page of a documentary exhibit be
individually cited in a summary judgment response. “A non-movant need not set
out the exact evidence on which it relies or explain with specificity how this
evidence supports the issues it raises; summary judgment is not a trial by affidavit
or deposition. Evidence need only be referenced or attached in order for a court to
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consider it.” Hinojosa v. Columbia/St. David’s Healthcare Sys., L.P., 106 S.W.3d
380, 387-88 (Tex. App.—Austin 2003, no pet.) (emphasis added)(citations
omitted).
Here, the Project File, although by its nature a large exhibit, was well
organized and supported by detailed testimony explaining why its contents
supported LTT’s claims. Further, all the documents in the Project File collectively
comprised LTT’s documentary evidence of its trade secret and proprietary
information. This was not a situation where an entire deposition is generically
referenced in a response without any citation to the relevant portions. All the
documents in the Project File were relevant, they were relevant as a whole, and the
Amended MSJ Responses explained in detail why this was the case.
Judge Yelenosky’s conclusion—that only those pages in the Project File that
were specifically cited by bates number were admissible—puts an unreasonable
and unsupported obligation on the party responding to summary judgment. For
example, must all the pages in a lengthy contract be individually discussed in order
for the contract, as a whole, to be admissible? Of course not. LTT adequately
cited to the entire Project File, and the trial court’s ruling was in error.
3. The court erred in sustaining an objection to argument that the Project
File as a whole is a trade secret.
The Hospital Defendants objected to any “suggestion that Exhibit 33 [the
Project File] constitutes a trade secret.” 3CR11486 at Objection No. 1. They
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argued that the Project File was a compilation of separate documents and objected
“to any argument, suggestion, or purported evidence that the so-called Project File
is itself a combination or compilation trade secret that is at issue in this case.” Id.
at 11487. In other words, rather than objecting to the admissibility of Exhibit 33
itself, the Hospital Defendants objected to any argument that the Project File, as a
whole, was a trade secret.16
The court sustained Objection No. 1 as follows: “Sustained to Exh. 33,
except for those Bates numbered documents actually referenced in Plaintiff’s
response.” App. 4. This ruling makes no sense in light of the objection presented
to the Court, which had nothing to do with whether LTT had cited to individual
pages. Further, the Hospital Defendants did not seek exclusion of any pages of the
Project File, but rather sought to exclude any argument that the entirety of the
Project File was a trade secret. The objection on its face is invalid—it was not an
evidentiary objection but instead challenged the merits of Plaintiff’s claim. The
question of whether the information contained in the Project File was really a trade
secret, or a collection of trade secrets, was an appropriate issue for debate in the
summary judgment briefing on the merits; it was not a proper basis for excluding
any portion of Exhibit 33.
16
As is discussed in section B.1 of the Argument, the summary judgment evidence raises at least
a fact question as to whether the Project File, taken as a whole, is a trade secret.
47
1245899
4. Berry’s testimony about the Project File was proper.
The court sustained the Hospital Defendants’ objection to the following two
statements in the Berry Declaration: (1) LTT “owned the confidential, proprietary
and trade secret information contained in the Project File,” and (2) LTT’s
principals “had an ownership interest in the information as well, and were
authorized to disclose it pursuant to the LOI on behalf of” LTT. 3CR11488
(Objection No. 4); App. 4 (Order); App. 7 (Berry Declaration). The Hospital
Defendants objected that these statements were conclusory because “Mr. Berry
does not . . . actually provide any facts regarding Plaintiff’s purported acquisition,
development, or ownership of [the information].” 3CR11488. It was error to
sustain that objection, for two reasons: (1) it was based on an inaccurate
assumption about how to prove ownership of a trade secret; and (2) Berry’s
statements about ownership were based on his personal knowledge and supported
by detailed facts regarding the information at issue.
First, proving ownership of a trade secret is different from proving fee
simple title ownership of real or personal property:
While trade secrets are considered property for various analyses, the
inherent nature of a trade secret limits the usefulness of an analogy to
property in determining the elements of a trade-secret
misappropriation claim. The conceptual difficulty arises from any
assumption that knowledge can be owned as property . . . While the
information forming the basis of a trade secret can be transferred, as
with personal property, its continuing secrecy provides the value, and
any general disclosure destroys the value. As a consequence, one
48
1245899
“owns” a trade secret when one knows of it, as long as it remains a
secret. Thus, one who possesses non-disclosed knowledge may
demand remedies . . . against those who ‘misappropriate’ the
knowledge.
DTM Research, LLC v. AT&T Corp., 245 F.3d 327, 332 (4th Cir. 2001) (emphasis
added); see also In re Cayman Island Firm of Deloitte & Touche, No. 04-01-
00491-cv, 2001 WL 1042233, at *2-3 (Tex. App.—San Antonio Sept. 12, 2001, no
pet.) (relying on DTM Research and holding that party who possessed confidential
information could claim trade secret privilege irrespective of chain-of-title
ownership rights); cf. Oryon Technologies, Inc. v. Marcus, 429 S.W.3d 762, 764
(Tex. App.—Dallas 2014, no pet.) (citing DTM Research and noting that a central
feature of a trade secret is the right to exclude others from the information).
A party may therefore prove ownership of a trade secret in multiple ways,
such as by proving that it created or developed the trade secret, Bishop v. Miller,
412 S.W.3d at 771, or by proving that it possessed the non-disclosed information,
and that the information remained a secret, DTM, 245 F.3d at 332. The Berry
Declaration does both.
For example, Berry details the time, effort, and expense that went into LTT’s
development of the trade secrets. App. 7 ¶11. He also specifies, by detailed
descriptive categories, the confidential information that LTT possessed and used in
its business. Id. ¶7. He testifies that the documents reflecting this information
were contained in the Project File, which he references and authenticates. App. 7
49
1245899
¶¶5-7. Berry also explains that LTT took steps to preserve the secrecy of this
information, both internally and externally, by limiting employee access to the
information and requiring third parties to enter confidentiality agreements before
accessing the information. App. 7 ¶¶7–10.
Berry also describes the basis for his personal knowledge: he was the
Managing Member and CEO of LTT, as well as one of its two owners. App. 7
¶¶5-6. He states that he served in this position “[a]t all relevant times, including
from the beginning of 2009 up to the present day.” ¶13. He indicates that he is
familiar with all the information in the Project File, which he describes in detail.
¶7. He testifies that he has reviewed that information, and that “[m]uch of the
information in the Project File is or reflects confidential and proprietary
information that provided LTT with a competitive advantage . . .” ¶7. Berry does
not simply state that he, as a principal, owned the trade secrets. Instead, Berry
explains that his ownership interest and his authority to disclose the information
derive from his role as a Managing Member and CEO of LTT. ¶13.
Berry’s testimony regarding the basis for his personal knowledge is more
than sufficient under Texas law. See Woodhaven, 422 S.W.3d at 842-43 (affiant
demonstrated a sufficient basis for his personal knowledge via testimony about his
position within a law firm, and his references to attached supporting documents);
Nguyen v. Citibank N.A., 403 S.W.3d 927, 931 (Tex. App.—Houston [14th Dist.]
50
1245899
2013, pet. denied) (affidavit testimony on Citibank’s ownership of an account was
admissible and non-conclusory when based on affiant’s personal knowledge as
custodian of records and her review of the records).
When read in context with the rest of Berry’s fourteen-page declaration,
there is nothing conclusory about the two excluded statements. Berry’s statements
regarding ownership of the confidential information in the Project File are
admissible and should be considered by this Court in ruling on the merits of
summary judgment. Given Berry’s detailed testimony on these matters, his
Declaration as a whole establishes LTT’s ownership even if this Court affirms the
trial court’s exclusion of the two challenged sentences.
CONCLUSION AND PRAYER
As noted at the start of this brief, this cross-appeal presents simple, plain-
vanilla issues of summary judgment review and the existence of fact questions.
LTT’s summary judgment evidence is more than sufficient to raise a fact question
as to its claims for misappropriation of trade secrets and breach of Section 2 of the
LOI. LTT therefore respectfully prays that this Court reverse the orders granting
partial summary judgment as to those claims (App. 2, 3), as well as the order
sustaining certain of the Hospital Defendants’ objections to LTT’s summary
judgment evidence (App. 4), and remand those claims to the trial court.
51
1245899
Respectfully submitted,
SCOTT DOUGLASS
& MCCONNICO LLP
303 Colorado Street, 24th Floor
Austin, TX 78701
(512) 495-6300
(512) 495-6399 Fax
By: /s/ Jane Webre_________
Jane M.N. Webre
State Bar No. 21050060
jwebre@scottdoug.com
S. Abraham Kuczaj, III
State Bar No. 24046249
akuczaj@scottdoug.com
Robyn B. Hargrove
State Bar No. 24031859
rhargrove@scottdoug.com
COUNSEL FOR LTT
52
1245899
CERTIFICATE OF SERVICE
I certify that the foregoing pleading was served on the following counsel of
record via the CM/ECF electronic noticing system and e-mail, on September 21,
2015.
Jeff Cody
Barton Wayne Cox
NORTON ROSE FULBRIGHT
2200 Ross Avenue, Suite 2800
Dallas, TX 75201-2784
Joy Soloway
NORTON ROSE FULBRIGHT
1301 McKinney, Suite 5100
Houston, TX 77010-3095
Robert A. Bragalone
B. Ryan Fellman
GORDON & REES, LLP
2100 Ross Avenue, Suite 2800
Dallas, TX 75201
Jessica Z. Barger
Raffi Melkonian
Wright & Close, LLP
One Riverway, Suite 2200
Houston, TX 77056
/s/ Jane Webre______
Jane Webre
CERTIFICATE OF COMPLIANCE
I certify that the foregoing instrument was prepared using Microsoft Word
2010, and that, according to its word-count function, the sections of the foregoing
pleading covered by TRAP 9.4(i)(1) contain 12,736 words.
______/s/ Jane Webre________
Jane Webre
53
1245899
APPENDIX
The following items are included in the Appendix to this brief:
App. 1: Letter of Intent (PX2; 2CR7623-29)
App. 2: Order on summary judgment as to the Lawyer Defendants
(7/17CR201-02)
App. 3: Order on summary judgement as to the Hospital Defendants
(3CR12266-67)
App. 4: Order on the Hospital Defendants’ objections to LTT’s summary
judgement evidence (3CR12261)
App. 5: Charge of the Court (3CR12997-13009)
App. 6: Judgment (6/18CR3-5)
App. 7: Declaration of Robert Berry, without exhibits (2CR7604-7617)
App. 8: Confidentiality Agreement (2CR7619-21)
54
1245899
APP. 1
SU RGICAl OEVEUJPMHH flARHIERS
G. Edward Alexander John T. Prater
Direct Number: 615-550-2600 ext 12 Direct Number: 615-550-2600 ext 13
Cell Ph(me Number: 615-289-9896 Cell Phone Number: 6!5-714-1898
Direct Telefax Number· 615-550-2601 Direct Telefax Number: 6 l 5-550 -260 I
E-Mail: E-Mail:
ealexander@surgicaldcveloprnenlpartners.co jprater@surgica!developmentpartners.com
m
VIA E-MAIL - September 15, 2009
Mr. Robert F. Berry
Mr. R Keith McDonald
I 3706 Research Blvd., Ste l 02
Austin, TX 78750
rfberryok@yahoo.com
RE: Letter of Intent for the Acquisition of the Lakeway Hospital Lease
Dear Robeti and Keith:
Thank you for the opportunity to re-affirm our interest in the acquisition of the lease
(the "Lease") for the hospital facility currently under construction in Lakeway, Texas (the
"Facility") as the initial campus for Lakeway Regional Medical Center, LLC ("LRMC") and to
serve as a key satellite facility for LRMC after the main campus for LRMC is developed (the
"Project"). Stirgical Development Partners, LLC, ("SDP") is pleased to submit this Letter of
Intent, as the agent for LRMC, to each of you (collectively, the "Principals") (each a "Party"
and collectively the "Parties") for the Parties to work in good faith with each other to plan,
form, develop, fw1d, acquire, open and operate the Project. The objective of this Binding Letter
of Intent is to indicate SDP's interest in the Project and to establish the ground rules for the
ongoing exchange of infonnation between the Parties to facilitate the development of the
Project and the exchange of information required for such a process to succeed. To clarify this
relationship and to best protect the interests of all of the Parties, the Parties hereto agree as
follows:
t. Discussions and Negotiation of the Project. Upon the execution of this Letter of Intent
the Parties will enter into discussions and negotiations for a period of forty-five (45) days,
may be by the of both
and
LTT v LRMC/SDP
exhibitsticker.com
No. D-1-GN-12-000983
20 l 5~eaboay{/ ~Suit~ I Or). ff"ank!in 'Tl·./ 3 7067
1
Telephone. (615)550-2600 Fae (6! 5} 550-2601
PX0002
l Exhibit
I 2
I Berry LTT002154
I 818113
Confidential
Lake Travis Specialty Hospital
Binding Leiter of Intent
September 15, 2009
2 7
as with any third as agreed to by tbe for the development and implementation
of the Project
2. The Pronosed Outline of the Terms of the Prolcct. As we have discussed the outline of
the terms for the Project are as follows:
2.1. _ Acquisition of the Lease. LRMC wi!J assume the existing Lease between Lake Travis
Transitional LTCH, LLC (or its assignee controlled by the Principals) and HCN Interra
Lake Travis LTACH, LLC ("'HCN") and become the tenant under the Lease. The
Principals and each and every one of their respective affiliates will be relieved of all
liability related to the Lease and the Facility upon the assignment of the Lease to
LRMC, including, without limitation, the release of any guaranties relating to the Lease
by the Principals or any of their respective affiliates, and LRMC shall ensure that all
such liabilities in favor of any third parties are released in connection with the
assignment of the Lease and shall indemnify and hold the Principals and their
respective affiliates harmless from any and all such liabilities from and after the
assignment of the Lease.
2.2. Reimbursement of Deposits and Costs; Assumption of Obligations. LRMC will
refi..md at closing of the assignment of the Lease all deposits made by the Principals and
their respective affiliates and reimburse to the Principals and their respective affiliates
all reasonable and documented costs that have been advanced by them to develop the
Facility, including, without limitation, compensation and benefits paid to employees of
the Principals and/or their respective affiliates responsible for the planning and
construction of the Facility, all expenses incurred in connection with the planning and
construction of the Facility, and interest expense associated with indebtedness incurred
in connection with the facility. In addition to the foregoing, LRMC sha!I assume all
liabilities and contractual obligations of the Principals and their respective affiliates
incurred with respect to the Facility (whether relating to its development or its ongoing
operations following its commencement of operations). In particular and without
limiting the foregoing, LRMC shall either offer employment at their current
compensation levels to, or shall reimburse Principals and their respective affiliates, as
appiicable, for severance equai in the aggregate to six months' of such current
compensation for, each of the following personnel relating to the Facility: Chief
Operating Officer, Vice President of Facilities Management, Vice President of
Ancillary and Support Services, Clinical Specialist (Infection Control Nurse}, Vice
President of Medical Affairs, and Director of Facilities Management.
2.3. Lump Sum Payment. In exchange for the assignment of the Lease to LRMC, LRMC
will make a single lump sum cash payment at closing to the Principals, or their
designated assignee, equal to $1.5 million.
LTT002155
Confidential
Lake Travis Speciaf~v Hospital
Binding Letter of lfltent
September 15, 2009
3 7
3. Required Approvals for the Project. The above indicated terms in ``~.:::
subject to the conditions: (i) full and formal approval by the Board of
of LRMC; (ii) the approval of HCN as landlord under the Lease to the assignment thereof;
(iii) a reasonable due diligence process related to the foasibility of the Facility to serve as a
campus for a general acute care hospital as configured or reasonably modified; (iv) the
ability of LRMC to obtain appropriate funding to allow for this expansion of the operational
plans for LRMC; and (v) the mutual development of definitive documents that fully reflect
the intention of the Pruties expressed in this Letter of Intent. The Parties agree to use their
respective best to satisfy each of the foregoing conditions as soon as reasonably
practicable, subject to the other terms of this Letter ofintent.
4. Eamest Monev. In consideration of the Principals' willingness to enter into this Letter of
Intent and disclose Proprietary Information relating to the Lease and the Facility to SOP and
LRMC, SOP shall cause LRMC to deposit as earnest money the amount of $50,000 with an
escrow agent mutually acceptable to the Paiiies on or before the fifth day following
execution of this Letter of Intent. In the event this Letter of Intent is terminated by or on
behalf of LRMC for any reason, or in the event definitive agreements for the transactions
contemplated herein arc not executed by the paities during the Negotiation Period (unless
the failure to execute one or more definitive agreements lies with or is attributable to the
unreasonable deiay of Principals or the Principals' unwillingness to agree to terms
materially consistent with this Letter of Intent), the earnest money, including all interest
thereon, shall be forfeited to Principals. If Principals terminate this Letter of Intent, or if
definitive agreements for the transactions contemplated herein are not executed by the
parties due to the unreasonable delay of Principals or the Principals' unwillingness to agree
to terms materially consistent with this Letter of Intent, the earnest money, including all
interest thereon, shall be returned lo LRMC.
5. Term. This Letter of Intent will remain open for acceptance until September 17, 2009.
After acceptance this LeHer of Intent may be tenninated by either Party, for any reason,
with written notice to the other Party, subject to the provisions described above relating to
the entitlement to the earnest money, and below related to the sharing of information gained
in the negotiation and development process.
6. Standstill and Non-Circumvention Provisions. Each of the Parties recognizes and
acknowledges that in connection with such meetings and the exchange of information to
discuss the Project, all Parties will need to act in good faith and not use any knowledge
gained in the Project discussion process for their own benefit and exclusive of the rights or
interests of the other Party. In order to accomplish that goal, the Parties agree: (i) that
Principals will not enter into negotiations with any third party for the assignment of the
Lease while this Letter of Intent is in force; (ii) LRMC wil! not enter into negotiations with
any third party for the use of any site, other then the intended LRMC main campus site, as
an alternative or satellite facility while this Letter of Intent is in force; and (iii) not to share
any information with third parties gained in the negotiation and development process for the
LTT002156
Confidential
Lake Travis Specialty llospital
Binding Letter of fotent
September 15, 2009
4
Project or to independently use any proprietary information of the other Party in any
or regarding this Project with after the of
this Letter of Intent. The parties agree that standstill to the
continued work Principals on their plans for the operation of the Facility, the continued
recruitment of potential investors by Principals lo be equity holders in the
project, or other operational matters relating to the Facility during the term of this Letter of
Intent, but no such discussions shal I preclude the Principals from entering into the definitive
agreements contemplated in this Letter of Intent or from consummating the
contemplated herein.
7. Fees and Expenses. Each party will bear its own expenses associated with the
development of the overall strategy and the interaction of the Parties in developing the
definitive terms for the agreements contemplated by this Letter of Intent
8. Relationshi11 Between the Parties. None of the provisions of this Letter of Intent are
intended to create, nor shall be deemed or construed to create, any relationship between the
Parties and any of the Parties' vendors or agents and any of the Parties, other than that of
independent cntitii:s contracting with each other hereunder solely for the purpose of
providing the services described in this Letter of Intent as independent contractors, and
otherwise maintaining and carrying out the provisions of this Letter of Intent None of the
Parties nor any of their respective agents or employees shall be construed to be the agent,
employer, employee, p;:lrtner, joint venturer, or the representative of the other parties hereto,
for any purpose of any kind or nature whatsoever. Both Parties agree to hold the other
harmless from third-party liability resulting from acts of any Party.
9. Confidcntialitv. The Parties desire to assure the mutual confidential status of any
information which may be disclosed to or from any Party in the evaluation of this Project
and the indicated approach to the Project:
9.1. Proprietary Information. Except as provided in Subsection 9 .7 ., below, all
information disclosed by any Party or its Representatives at any time to any other
Party or its Representatives in connection with the Project in any manner shall be
deemed "Proprieiary Information." The term "Representative(s)" means, in the case
ofLRl\.1C or SDP, any director, officer, employee, member, shareholder, or agent of
LRMC or SDP engaged in the evaluation of the Project, and in the case of
Principals, Robert F. Berry and R. Keith McOonald.
9.2. Permissible Use. Each Party that receives Proprietary Information (referred to as the
"Receiving Party") shall use the Proprietary Information received from any other
Party (referred to as the "Disclosing Party") solely to evaluate the feasibility of the
Projcd or similar transactions between the Parties. No other rights are implied or
granted under this Letter of Intent.
LTT002157
Confidential
Lake Travis Specialty llmpitaf
Binding Letter of Intent
September 15, 2009
5 7
9.3. information received not be reproduced in any form
except for internal use of the Receiving and only for
the express purpose of evaluating the Project.
9 .4. The Receiving Party shail use reasonable efforts to protect the
Proprietary Information received with the same degree of care used to protect its
own Proprietary Information from unauthorized use or disclosure, except that such
Proprietary Information may be used or disclosed to the Receiving Party's
Representatives as may be reasonably required to evaluate the Project.
9.5. All Proprietary Information, unless otherwise
m wnrmg, shall remain the property of the Disclosing and promptly upon
of either Pa1iy shall be returned to the (including all whole
or partial copies thereof and any written notes made regarding the Proprietary
Information).
9.6. No rights or obligations other than those expressly recited
herein arc to be implied. No license is granted to tJ1e Receiving Party or otherwise
implied. by estoppel or otherwise, with respect to any property or right of Disclosing
Party, presently existing or acquired in the future, or for any use of or interest in the
Proprietary fnformation except such use expressly contemplated by this Letter of
Intent.
9.7. Exclusions. It is understood that the term "Proptietary Information" does not
include Information which:
(a.) is now or herealier in the public domain through no fault of the Receiving Party;
(b.) prior to disclosure hercllndcr, is properly within the t'ightful possession of the
Receiving Party;
(c.) is lawfully received from a third party with no restriction on further disclosure; or
(d.) is obligated to be produced under applicable law or order of a court of competent
jurisdiction, unless made the subject of a confidentiality agreement or protective
order.
10. Miscellaneous.
10.1. Remedies. Based on the subject matter of this Letter of Intent and the mutual
obligations and duties indicated herein and harm shall be
presumed, if any Party to this Letter of Intent breaches any provision of this Letter of
Intent. The Parties agree, that in the case of the breach of any of the non-circumvention
LTT002158
Confidential
Lake Travis Specia!(p Hospital
Binding Letter of flltent
September 15, 2009
?ll.g'!.§!![7
or confidentiality provisions of this Letter Intent, the Party will have
the right to that any court of competen! jurisdiction shall immediately enjoin the
Party in breach in addition lo that Party entitled to all other rights and
which the Party may have al lmv or in equity.
l 0.2. Cornpeikd Disclosur~. ln the event a Party, any of its Representatives, or
anyone to \·Vhorn any Party transmits the Proprietary Information, becomes legally
compelled to disclose any of the Proprietary Information, prior to such disclosure such
Party will provide the owner of the Proprietary Information with advance written notice
and a copy of the documents and information relevant to such legal action, so the
owner of the Proprietary Information may seek a protective order or other appropriate
remedy to protect its interests in the Proprietary Information, and the compelled Party
shal1 furnish only that portion of the requested Proprietary Information that the
compelled Party is advised by a written opinion of counsel is legally required.
l 0.3. There are no other understandings, agreements, or
representations, express or implied, between the Parties, not herein specified until such
time as definitive agreemen!s for proposals and letters of understanding can be
developed ;,iml agreed to by the Parties for any individual Project. This Letter of Intent
may not be amended except in a writing executed by all Parties.
I 0.4. This Letter of Intent may not be assigned without the express
written consent of all of the other Parties.
10.5. Governing_ Law. This Letter of Intent and all transactions contemplated by this
Letter of Intent shall be governed by the laws of the State of Texas,
l 0.6. This Letter of Intent may be executed in any number of copies and
by the different Pa11ies hereto on separate counterparts. Each counterpart shall be
deemed an original, but all counterpa11s together shall constitute one and the same
instrnmcnt fhe persons executing this Letter of Intent personally represent and warrant
that have been duly authorized to do so by their respective Party and that, upon foll
execution hcrcoi~ this Letter of intent shaii be a binding obligation of said Party.
10.7. lennination. Termination of this Letter of Intent shall not relieve any of the
Parties from !he obligations imposed by and above, with respect to
Standstill, Non-Circumvention and/or Proprietary Information exchanged between the
Parties, or as it relates to the terms, conditions, plans or discussions regarding the
Project
1J. - If Principals are in agreement with the objectives indicated in Section 2
and the conditions indicated in of this Letter of fntent and the te1ms and
conditions contained here[n, please sign the RETURN COPY of this Letter of Intent and
LTT002159
Confidential
Lake Travis Specialty llospilal
Binding Letter of Intent
September I 5, 2009
!age 7 of 7 -``- . ,__ .. ·-···--·····--····-····· ···················.·--··..-·-···•w··
return it to SDP. The terms of this Proposal are until 5:00 PM, Central
l 7, 2009 and may be as indicated above.
We look forward to our future meetings and the success of the Project which we can
accomplish through om mutual efforts
Sincerely,
SURGICAL DEVELOPMENT PARTNERS, LLC
G. Edward Alexander, President and CEO
'
Accepted this day of September, 2009 and effective September_;_, 2009.
1/'l-
~/ /4
·--~/
Robert F Berry
LTT002160
Confidential
APP. 2
DC BK14204 PG1425
Jul 16 2814 16:49:89 214-461-4853 -> Paul Arnold Page 884
Notice sent: final interlocutory ~··
Filed in }he District Court
Disp Parties: bf- 3 l bf. ..5 of Travis County, Texas
Disp code: CVD !@ 'f bt{ 0
JUL 17 2014 s(J,
Redact pgs:.---:-------=-=--
Judge_~__y__ Clerk S WG CAUSE NO. D-1-GN-12-000983 At 0,-'0'- AM
Amalia Rodriguez-Mendoza, c~
LAKE TRAVIS TRANSITIONAL 1/fCJI, § IN TH.}.: DISTRICT COURT
LLC n/1 All.TNERS, L.LC, §
BRENNAN, MANNA & DIAMOND, §
LLC, BRENNAN, MANNA & §
DIAMOND, l'.L. AND FH.ANK T. §
SOSSI §
§
Defendants. § TRAVIS COUNTY, TEXAS
ORDER
CAME: ON TO BE HEARD, this 19th day of June, 2014, DefendMts Brennan, Manna
& J)iamond,. LLC and Prank T. Sossi's Amended 11-cTclitional and No-Evidence Motion .few
Summary Judgment ("Motion"), and the Court, after reviewing the Motion, any written
responses and replies thereto, and having heard oral argument from counsel for the parties,
hereby AJ)JUJJGES, D.ECRimS, AND OROintS AS FOLLOWS:
(A) The Motion is GlUNTE.I> in respect to the misappropriation of trade secrets claim and
negligent misrepresentation claim alleged by Plaintiff Lake Travis Transitional L'TCH,
LLC n/k/a Lake Truvis Specialty Hospital, LLC against Defendants Brennan, Manna &
ORDF.It l'I\.GI~ l Of 4
201
DC
Jul lG 2B14 lG:49:21 214-4G1-4B53 -~
BK14204 PG1426
Paul Arnold Page BBS
Diamond, LLC and Frank T. Sossi, and those two claims are l)lSMISSl~J) WITH
PRJ!:,JUDICE:.
(IJ) In all other respects, the Motion is I>·~Nlli~.D.
f'"'- ~
SIGNE]) this _.L.b__ day orjv._ , 2014.
AGREED AS TO FORM:
S. Abraham Kuczaj, U ·
Attorney for Plaintiff L . e Travis
Transitional LTCH, LLC n/kJa
Lake Travis Specialty Hospital LLC
rc) _f~z-----,
____t~;``~:!.. .£.~.--.``~'\,~-:::::::::;.
B. Ryan Fellman
Attorney for Defendants Bre!lllan,
Manna & Diamond, LLC and
Frank T. Sossi
OROF.Tc
202
APP. 3
12266
12267
APP. 4
12261
APP. 5
12997
12998
12999
13000
13001
13002
13003
13004
13005
13006
13007
13008
13009
APP. 6
DC BK14294 PG476
Filed in The District Court
of Travis County, Texas
OCT 17 2014 RT
At 1:?Jc; 4 M.
CAUSE NO. D-1-GN-12-000983 Amalia Rodriguez-Mendoza, Cieri<.
LAKE TRAVIS TRANSITIONAL LTCH, § IN THE DISTRICT COURT OF
LLC n/k/a LAKE TRAVIS SPECIALTY §
HOSPITAL, LLC, §
§
v. § TRAVIS COUNTY, TEXAS
§
LAKEWAY REGIONAL MEDICAL §
CENTER, LLC, SURGICAL §
DEVELOPMENT PARTNERS, LLC, §
BRENNAN, MANNA & DIAMOND, LLC, §
AND FRANK T. SOSSI, § 345th JUDICIAL DISTRICT
JUDGMENT
On August I I. 2014. this cause came on to be heard. Plaintiff Lake Travis
Transitional LTCH, LLC n/k/a Lake Travis Specialty Hospital, LLC ("Plaintiff' or "LTT"),
appeared in person and by attorney of record and announced ready for trial. Defendant
Lakeway Regional Medical Center, LLC ("LRMC") and Defendant Surgical Development
Partners, LLC ("SDP") (collectively, "Defendants" and each a "Defendant"), appeared in
person and by their attorney of record and announced ready for trial. A jury having been
previously demanded, a jury was duly empanelled and the case proceeded to trial.
The jury heard the witnesses and the presentation of evidence. At the conclusion
of the evidence, the Court submitted the questions of fact in the case to the jury. The
charge of the court and the verdict of the jury are incorporated by reference herein for all
purposes. On August 28. 2014, the jury returned a verdict to the Court. Because it
appears to the Court that the verdict of the jury was for Plaintiff LTT and against
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Defendants SDP and LRMC, judgment should be rendered on the verdict in favor of the
Plaintiff LTT and against the Defendants SDP and LRMC.
IT IS THEREFORE ORDERED, ADJUDGED, AND DECREED that Plaintiff
L TT, in respect to its breach of contract claim, have and recover actual, past damages
from Defendants SOP and LRMC. jointly and severally, in the amount of $7,900,000.00,
as well as prejudgment interest on that amount at an annual rate of five percent (5.0% ).
As of October 13. 2014. prejudgment interest on that amount, calculated as simple
interest based on the date this case was filed on April 3, 2012, totals $998,863.01, which
amount shall increase by $1,082. 19 per day until the date this judgment is signed.
The Court finds that the parties have stipulated that the amount of reasonable
attorney fees incurred by Plaintiff LTT in the prosecution of its breach of contract claim
against Defendants SOP and LRMC is $2,000,000.00. IT IS THEREFORE ORDERED,
ADJUDGED, AND DECREED that Plaintiff L TT have and recover from Defendants
SDP and LRMC, jointly and severally, reasonable attorneys' fees incurred in the
prosecution of LTT' s breach of contract claim in the sum of $2,000,000.00 pursuant to
Chapter 38 of the Texas Civil Practice and Remedies Code.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that all costs of
court incurred by Plaintiff LTT in this matter are adjudged against and shall be recovered,
jointly and severally, from Defendants SDP and LRMC.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Plaintiff LTT
have judgment against Defendants SDP and LRMC, and that the total amount of
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DC BK14294 PG478
•
judgment for Plaintiff LTT against Defendants SOP and LRMC, jointly and severally,
shall be as follows: actual damages in the sum of $7,900,000.00; plus prejudgment
interest on that sum as set forth above; plus attorneys' fees in the stipulated amount of
$2,000,000.00; plus costs of court; plus post-judgment interest on the sum total of each of
the foregoing, at an annual rate of five percent (5.0% ), compounded annually, from the
date this judgment is rendered until paid.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that all writs and
processes for the enforcement and collection of this judgment or the costs of court shall
tssue as necessary.
IT IS THEREFORE ORDERED, ADJUDGED, AND DECREED by the Court
that the relief specified above is hereby granted and, as to all parties and issues in this
case, all relief not specifically granted herein is expressly denied. This judgment is final,
disposes of all claims and parties. and is appealable.
SIGNED on October _ _il ~-.-
'
,:``-/ - .
'
HONORABLE'LdRA .-- INGSTON
'
PRESIDINGJUDGE
3
5
APP. 7
CAUSE NO. D-1-GN-12-000983
LAKE TRAVIS TRANSITIONAL LTCH, § IN THE DISTRICT COURT OF
LLC n/k/a LAKE TRAVIS SPECIALTY §
HOSPITAL, LLC, §
§
Plaintiff, §
§
v. § TRAVIS COUNTY, TEXAS
§
LAKEWAYREGIONALMEDICAL §
CENTER, LLC, SURGICAL §
DEVELOPMENT PARTNERS, LLC, §
BRENNAN, MANNA & DIAMOND, §
LLC, BRENNAN, MANNA & §
DIAMOND, P.L., AND FRANK T. §
soss~ §
§
Defendants. § 345th JUDICIAL DISTRICT
DECLARATION OF ROBERT BERRY
1. My name is Robert Berry. I am over twenty-one years of age, have never
been convicted of a felony or misdemeanor involving moral turpitude, and I am otherwise
competent and qualified to make this declaration. I am Chief Executive Officer and
Managing Member of Plaintiff Lake Travis Transitional L TCH, LLC n/k/a Lake Travis
Specialty Hospital, LLC, ("Plaintiff' or "LTT") in the above-styled litigation. This
declaration is filed pursuant to Texas Civil Practice & Remedies Code § 132.001 in
support of Plaintiff's Responses in Opposition to Defendant Lakeway Regional Medical
Center, LLC's Amended Traditional and No-Evidence Motion for Summary Judgment and
Brief in Support; Defendant Surgical Development Partners, LLC's Amended Traditional
and No-Evidence Motion for Summary Judgment and Brief in Support; and Defendant
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Brennan, Manna & Diamond, LLC, Brennan, Manna & Diamond, P.L., and Frank T. Sossi's
Amended Traditional and No Evidence Motion for Summary Judgment. In this Affidavit, I
refer to Defendants Lakeway Regional Medical Center, LLC, Surgical Development
Partners, LLC, Brennan, Manna & Diamond, LLC, Brennan, Manna & Diamond, P.L.,
and Frank T. Sossi collectively as "Defendants." I have personal knowledge of the facts
asserted herein, which are true and correct.
2. On or about April29, 2009, Surgical Development Partners, LLC ("SDP")
and Lakeway Regional Medical Center, LLC ("LRMC") approached LTT about
acquiring the Lake Travis Hospital facility to serve as the initial general acute care
campus for LRMC' s hospital. At the time, L TT had a significant head start on
construction, and was reluctant to share any of its confidential information with the
developers of a competing general acute care facility. LTT was just months away from
being over 80% complete, while LRMC was still just a lot. In order to allow the parties
to discuss the possible acquisition of LTT's facility, SDP and LTT executed a
Confidentiality Agreement dated May 11, 2009. A true and correct copy of the
Confidentiality Agreement is attached as Tab A.
3. In late May 2009, LTT informed LRMC and SDP that it wished to publicly
announce LTT's plans to operate as a general acute care facility. LRMC and SDP asked
LTT to not make the announcement and to give LRMC and SDP more time to complete
their due diligence related to their potential acquisition of LTT' s facility.
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4. On September 15, 2009, LTT and LRMC and SDP executed a Letter of
Intent ("LOI"). The LOI obligated LRMC and SDP to keep confidential the information
received in the course of evaluating the acquisition of the LTT facility (the "Project"). A
true and correct copy of the LOI is attached as Tab B. Eddie Alexander, SDP's CEO,
directed me to provide all due diligence information relating to the Project to him. LTT
intended SDP to be a party to the LOI and to be bound by the terms of the LOI. When
negotiating the terms of the Confidentiality Agreement and LOI, Defendants represented
that they would keep all information provided in connection with the Lake Travis facility
confidential and not use it for any purpose, other than to evaluate the Project. Both LTT
and its Principals relied upon that promise to enter the agreements and provided its
confidential, proprietary and/or trade secret information to Defendants including, but not
limited to the information discussed below.
5. LTT's confidential, proprietary, and trade secret information was provided
to Defendants during the course of their project review. Some of the information was
provided after SDP executed the Confidentiality Agreement. The majority of the
information was provided after the LOI was executed. Some of the information was
conveyed to Defendants verbally, through meetings, telephone calls, tours of the site, etc.
To the extent the information is contained in written documents, it has been compiled
into a "Project File" and produced to each of the defendants in this matter. The Bates
range of the Project File is LTT 007875-LTT 009907. LTT owned the confidential,
proprietary and trade secret information contained in the Project File. As the sole owners
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of LTT, Keith McDonald and I had an ownership interest in the information as well, and
were authorized to disclose it pursuant to the LOI on behalf ofLTT.
6. In my role as Managing Member and CEO of LTT, I am familiar with and
have personal knowledge of LTT's confidential, proprietary, and trade secret
information, including the documents contained in the "Project File," which include: a
deal subfile; correspondence; contracts; drawings and specifications; financial
information and business plans; and other miscellaneous information pertaining to the
Project.
7. I have reviewed each of the documents in the Project File. The Project File
contains information that LTT used in its business that provided LTT with an advantage
over competitors who did not know or use it. Much of the information in the Project File
is or reflects confidential and proprietary information that provided LTT with a
competitive advantage, and LTT considered this information a trade secret. The trade
secret information in the Project File includes, but is not limited to: architectural plans;
program design and operations; financial information; hospital organization; mission;
staff recruitment and retention; physician support; sources and uses of funds and other
"cost based" information; preliminary fmancial feasibility and other information about
projected revenues and costs for the initial operation of Lake Travis Hospital; current
state of construction; and preliminary fmancial feasibility ratios and other information
about projected key operational ratios of Lake Travis Hospital. Other information in the
Project File contains some information that may, by itself, be in the public domain;
4
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however, when used in unique combination with other information in the Project File, it
provides LTT with a competitive advantage as well. In addition, the Project File contains
certain confidential modified architectural plans that were not, at the time they were
provided to defendants, on file with the City of Lakeway or with any other public entity.
The trade secrets contained in, reflected in, and comprising ·the Project File were
provided to Defendants during the course of negotiating with SDP and LRMC the
acquisition of LTT's facility as LRMC's initial general acute care campus. In addition,
LTT provided some of this information to Defendants verbally during the project review.
8. LTT owned the trade secrets contained in the Project File and used them in
its business. These trade secrets in the Project File were not generally known or readily
available to the public. LTT took reasonable steps to preserve the confidential and secret
nature of its trade secrets. For example, it was LTT' s practice to require parties seeking
LTT' s confidential information and trade secrets to agree to keep the information
confidential. LTT secured agreements to keep L TT' s information confidential from,
among others: its landlord, HCN Interra; the joint venturers who formed the LTT's
landlord, HealthCare REIT and Interra; the facilities' architect, MEDesign Architecture;
and the contractor who built the facility, Drymalla- Beckford Construction Co., LLC.
LTT also secured confidentiality agreements from SDP and LRMC. I was personally
involved in securing each of these agreements to keep LTT' s information confidential. It
was my understanding and belief that each of the parties would keep information
developed during SDP's and LRMC's review process confidential. For example,
5
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attached at Tab C is a true and correct copy of an email from Bill Hurd at HCN Interra to
Eddie Alexander and Ed Bivins at SDP, Bob Becktell at Drymalla - Beckford
Construction Co., LLC, and others involved in the discussions relating to the Project,
informing everyone that "This information is for the project review, please keep it
confidential along with all of the information generated during this review process." No
party to the email contested Bill Hurd's understanding that all the information generated
during the review process was to be kept confidential.
9. After SDP and LRMC terminated the transaction in late March 2010, LTT
continued to require interested parties to agree to keep LTT's information confidential.
I cannot recall any instance in which LTT' s trade secrets were disclosed, voluntarily or
otherwise, to a third party unless the third party had committed either orally or in writing
to keep the information confidential.
10. Because the trade secret comprised ofthe body of knowledge illustrated by
the Project File is reflected in its unique combination, it is not discoverable by inspection.
The same is true for the vast majority of its constituent parts. LTT took measures to limit
access to this information, both externally by requiring recipients to agree to keep the
information confidential, and internally by limiting employee access to the information.
11. The trade secrets contained in the Project File are valuable to LTT.
LTT spent a great deal of time, energy, and money developing the information. The
Principals of LTT personally expended more than 12,000 man hours over 6 years in the
development of LTT and more than $2,650,000 in personal funds, including over
6
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$1,031,000 in development staff salaries. The information would be extremely difficult
to duplicate, if it is possible at all.
12. The hospital facility was LTT's primary asset. The transaction
contemplated by the LOI, which included reimbursement for certain development costs
and other expenses, was for all practical purposes the sale of LTT's business. It is my
understanding that LTT, LRMC, and SDP each had an economic interest in the deal
being negotiated to acquire the LTT facility.
13. At all relevant times, including from the beginning of 2009 up to the
present day, I have been the Chief Executive Officer of LTT as well as its Managing
Member. As an officer in a management position at LTT, I am familiar with and have
personal knowledge of the value of LTT and its assets. For the same reason, I am
familiar with and have personal knowledge of the lost net income from third parties that
LTT would have, with reasonably certainty, been able to earn but for defendants'
wrongful conduct. In reliance on the misrepresentations made by SDP and the other
defendants, LTT forewent the opportunity to earn this net income from third parties and
was, instead, induced to delay its completion and beginning of operations as the first
acute care facility in Lakeway, Texas.
14. In my role as a managing officer ofLTT, I compiled a detailed pro forma
that projected LTT's net income. The pro forma is based on objective, detailed facts and
data, taking into account the experience of LTT' s management, as well as the historical
performance of other hospital facilities operated and/or administered by LTT' s
7
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management. Among other things, the objective facts and figures utilized Federal rates
for Medicare reimbursement, adjusted to the region's labor specific rate and utilizing case
mix index developed through the analysis of numerous physician interviews and profiles
compiled to provide an objective projection of the both the case mix index and projected
occupancy rate with reasonable certainty The pro forma utilized historic payment rates
for Medicaid, and current per diem rates negotiated by commercial carriers in the market.
With respect to outpatient revenue, the pro forma utilized projections as quoted from the
companies contracting to provide those services, which included, for example, imaging
and emergency care. Expenses were projected based on third party surveys, vendor
quotes, contracts, and other objective data. This pro forma was created long before this
lawsuit was filed, and was used by LTT in its business. In fact, before this lawsuit was
filed, the pro forma was supplied, in confidence, to LTT' s landlord, who vetted the pro
forma as part of its own business dealings with LTT. Utilizing the objective facts and
data that went into the detailed pro forma, and based on my familiarity with and personal
knowledge of these objective facts and data and the development of LTT, as LTT's
managing officer, LTT suffered, with reasonable certainty, approximately $34.5 million
in damages relating to lost net income from business opportunities with third parties in
reliance on SDP and the other defendants' misrepresentations.
15. In addition, in reliance on the misrepresentations made by SDP and the
other defendants, LTT provided its valuable trade secret Proprietary Information to SDP
and the other defendants. As a managing officer of LTT, I am familiar with and have
8
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personal knowledge of the trade secret information that was provided in reliance on the
misrepresentations at issue, and the fair market value of that information at the time of
the misappropriation by SDP and the other defendants is approximately $7.9 million.
To determine the market value of LTT's confidential, proprietary and trade secret
information, I considered the price that a willing buyer would pay to a willing seller for
the information, and then reduced that amount by the reduction in the value of the
information resulting from LTT's reliance on SDP and the other defendants'
misrepresentations. Based on my personal knowledge of and familiarity with the
negotiations and discussions between LTT, on the one hand, and SDP and the other
defendants, on the other hand, which is additionally supported by my review of the
publicly filed documents in this matter, including communications from HUD to
defendants raising questions and concerns about competition in the Lakeway area and
evidence suggesting uncertainty about whether defendants could get other sources of
funding, and further based on my personal knowledge and familiarity with the value and
importance LTT placed on its trade secrets and its reluctance to disclose them to a nearby
competitor, at the time of the misappropriation, the fair market value of LTT' s
confidential, proprietary, and trade secret information would conservatively be at least
the consideration of $7.9 million contemplated by the LOI, if not more. As a result of
LTT' s reliance on the misrepresentations, taking into account, among other things, the
resulting changes· in the parties' competitive posture and the negative impact that has had
on LTT's ability to attract investors, the value of LTT's confidential, proprietary, and
9
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trade secret information declined in fair market value to nearly zero, making the loss in
market value of this information at least $7.9 million. This reduction in fair market value
is conservative given that, as a result of SDP and the defendants' wrongful conduct, a
number of investors decided to not participate in LTT's project because of concerns
about LTT's competitive posture with LRMC.
16. I have reviewed the May 10, 2010 email that Frank Sossi sent to HUD
regarding LTT. The information that was the subject of Mr. Sossi's email was LTT's
confidential, proprietary, and trade secret information described above, specifically,
information regarding LTT's current state of construction, zoning, parking, code
compliance, operations, staffing, financing, and physician support. This information was
not publicly available, was provided to Defendants during the confidential project review
process, and was not available through any other source. I did not authorize Defendants
to use or disclose the information underlying Defendants' May 10, 2010 email to HUD,
nor did I authorize Defendants to use or disclose LTT' s confidential, proprietary or trade
secret information in any of Defendants' subsequent communications with HUD. At no
time did I, Keith McDonald, or anyone acting behalf ofLTT consent to Defendants' use
or disclosure .of LTT's confidential, proprietary and trade secret information except for
the limited purpose contained in the LOI.
17. My understanding is that Defendants claim here that LTT' s architectural
plans were not trade secrets because they were on file with the City of Lakeway. This
claim is inaccurate because L TT' s trade secret information includes certain modified
10
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architectural plans that were not, at the time they were provided to Defendants, on file
with the City of Lakeway or with any other public entity. I am aware that Defendants
contend that the old, pre-modification architectural plans, two short and general newspaper
articles, and a powerpoint presentation with general information that was partially presented
at a meeting in Lakeway were publicly available. This information does not form the basis
of LTT's claims, other than to the extent it may relate to aspects of LTT's unique
compilation trade secrets. I am not aware of any confidential, proprietary and trade secret
information that forms the basis of LTT' s claims being publicly available before the
misappropriation by SDP and the other Defendants.
18. I am aware of no court order to produce LTT' s proprietary information before
the misappropriation by SDP and the other Defendants took place. At no time has any
Defendant informed me or anyone with LTT that there was a court order that would require
the disclosure of LTT' s Proprietary Information.
19. As an officer of LTT, I have personal knowledge of and am familiar with
LTT as an entity, its value, and the loss of market value suffered by LTT as a result of
Defendants' conduct. Based on my personal knowledge of LTT, including its assets and
liabilities, the status of construction, and physician support, and taking into account the
detailed pro forma discussed above and all of the research and analysis that went into it, a
conservative valuation of LTT before Defendants' misconduct would have been
$13,794,834. I calculated this number by looking at the post-provider number period,
first year of financial performance statements as opined by Tom Glass. Based on my
personal knowledge of LTT, I agree with this number. I then took total of monthly
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EBIDTA for that year and used a fair market multiplier of 3 to identify an initial fair
market value, Once I determined that initial fair market value, discounted the major
moveable equipment that L TT retained by 60 percent and combined the residiual value
with the initial fair market value for a total of $13,794,834. Based on my personal
knowledge and familiarity with LTT, this conservatively reflects the price a willing buyer
would pay a willing seller for L TT before Defendants' misconduct. As a result of
Defendants' misconduct, L TT lost nearly all its fair market value. L TT seeks to recover,
as one of its damage models, the loss in $13,794,834 in fair market value caused by
Defendants.
20. In the course of discovery after this case was filed, LTT learned that
Defendants made numerous misrepresentations to L TT in the course of the transactions at
issue that L TT relied on and that caused L TT harm. Those misrepresentations included,
among other things, that Defendants were moving forward with closing on the Lake
Travis facility; that they was seeking the necessary HUD approvals for the acquisition of
the Lake Travis facility; that they would acquire the Lake Travis facility even in the
absence of the HUD guaranty; that they were making best efforts to satisfy the conditions
under the LOI; that they were negotiating, in good faith, with Health Care REIT for an
assignment of the Lease. These misrepresentations all caused LTT, in reliance on the
misrepresentations, to forego publicly announcing its plan to open the Lake Travis
facility as a general acute care hospital. L TT also relied on the misrepresentations about
Defendants provide its confidential, proprietary information and trade secrets, to allow
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construction to be delayed during the due diligence process and to later extend the due
diligence period. As a result, after Defendants terminated the LOI shortly after securing
the HUD guaranty, LTT's construction had been on hold for approximately six months.
21. Once Defendants terminated the LOI in late March 2010, LTT specifically
requested that Defendants return all of the "Proprietary Information" provided to it
pursuant to the LOI. Despite LTT' s demands, Defendants refused to do so. LTT
ultimately filed a lawsuit in Oklahoma to secure return of the Proprietary Information.
On May 10, 2010 Defendants represented that they had returned or destroyed all of
LTT' s Proprietary Information. In reliance on Defendants representations, the lawsuit
was voluntarily dismissed without prejudice.
22. In late May 2010, when HUD closed on the guaranty in favor of LRMC
and to the exclusion of LTT, questions first arose about what may have happened during
the HUD application process. In late May, a CEO of another hospital forwarded an email
to me in which HUD expressed opinions about L TT' s operations, zoning, licensing, and
viability. Prior to that email, no one from HUD had ever communicated with LTT. The
statements in HUD's email appeared to be conclusions that were incorrectly drawn from
specific information that had been confidentially provided to Defendants during the
project review. At that point, LTT's counsel sent a request to HUD under the Freedom of
Information Act ("FOIA") to determine what information HUD had considered when
evaluating whether Lakeway was underserved for the purpose of LRMC's loan
application. By December 2010, HUD continued to refuse to provide any documents in
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response· to the request. At that point. L1T was forced to file a federal lawsuit to seek
compliance with FOIA. After lengthy litigation, Judge Sam Sparks ordered HUD to
produce the responsive documents.
Further Declarant sayeth not.''
My name is Robert Berry, my date of birth is ~r:;J lt:f.../