By Brian Craig, J.D.
Evidence was insufficient to support damages, and a limited partner that provided cement-making technology was not entitled to a permanent injunction.
In a dispute over the breakup of a limited partnership to produce a new cement product, the Texas Supreme Court has held that the both the trial court and the court of appeals improperly awarded $16.5 million in damages. The Texas Supreme Court concluded that a jury award was not supported by the evidence presented at trial. The Supreme Court also held that the court of appeals improperly awarded a permanent injunction. Justice Jane Bland filed a dissenting opinion to express her view that a limited partner lacks standing to personally recover for injuries to the limited partnership (Pike v. Texas EMC Management, LLC, June 19, 2020, Busby, J.).
A limited partnership, Texas EMC Products (the "Partnership"), was created to produce and market a new cement product. Texas EMC Management, LLC was the general partner of the Partnership and Clinton W. "Buddy" Pike, Sr. was hired as the general manager of EMC Management. EMC Cement BV, a Dutch holding company, was a limited partner in the Partnership that supplied the cement-making technology. The Partnership experienced problems and its assets were sold in foreclosure to VHSC Cement.
The partnership, the general partner, and the limited partner that supplied the cement-making technology sued the limited partners responsible for funding, the partnership’s general manager, and the companies that foreclosed on and purchased the partnership’s assets. The jury found that the partnership’s general manager and the companies that purchased the Partnership’s assets misappropriated the limited partner’s trade secrets. The trial court awarded EMC Cement BV $1.5 million for misappropriation of trade secrets, and $7 million from two other partners for breach of the partnership agreement. The trial court also awarded the Partnership $7 million for conspiracy and intentional interference with Pike’s management agreement, and $1 million from Pike for breach of the management agreement. The trial court denied the plaintiffs’ request for injunctive relief. The court of appeals largely affirmed the trial court’s award of money damages but also concluded that the trial court erred in denying request for a permanent injunction. Both sides appealed to the Texas Supreme Court.
Standing. As a threshold question, the Texas Supreme Court concluded that the limited partner that supplied the technology had standing to bring an action for misappropriation of trade secrets and the other related claims. The court held that a partner or other stakeholder in a business organization has constitutional standing to sue for an alleged loss in the value of its interest in the organization. The majority concluded that a challenge to a partner’s ability to recover damages for injury to the value of its partnership interest is not jurisdictional.
Damages for trade secrets misappropriation. The Texas Supreme Court next concluded that both the trial court and the court of appeals erred in awarding $1.5 million for misappropriation of trade secrets. The jury found that VHSC and Pike misappropriated EMC Cement BV’s trade secrets based on two questions submitted to the jury. The jury awarded $1.5 million for each measure. In entering a judgment notwithstanding verdict (JNOV), the trial court found that evidence was insufficient to support one of the two questions before the jury. The court of appeals affirmed the $1.5 million judgment for misappropriation of trade secrets, however, on the ground that the trial court erred in setting aside the jury’s award under the first question presented to the jury.
The Texas Supreme Court held that a court of appeals may not reverse a trial court judgment on a ground not raised. The adversary system of justice generally depends on the parties to frame the issues for decision and assigns to courts the role of neutral arbiter of matters the parties present. Because EMC Cement BV did not assign error or brief a challenge to the trial court’s JNOV disregarding the jury’s award of damages in response to the first jury question, the court of appeals erred in reversing that portion of the trial court’s judgment for misappropriation of trade secrets. Therefore, the Texas Supreme Court reversed the judgment awarding $1.5 million for misappropriation of trade secrets.
Damages for other claims. The Texas Supreme Court also concluded that the other damage awards were not supported by legally sufficient evidence. Generally, when the court sustains a no-evidence issue after a trial on the merits, the court renders judgment on that issue. When there is evidence to support some amount of damages, but not all, rendition is not appropriate. Here, there was no evidence of any damages because the testimony of two experts was conclusory, and the testimony of another witness of purchase price was no evidence of market value. Because there is no evidence of damages, the Texas Supreme Court reversed the portions of the judgment awarding damages and render a take-nothing judgment as to the other claims not involving misappropriation of trade secrets.
Permanent injunction. The Texas Supreme Court further held that the technology-supplying partner was not entitled to a permanent injunction for misappropriation of trade secrets because no inadequate remedy at law exists. A permanent injunction issues only if a party does not have an adequate legal remedy. The trial court correctly observed that EMC Cement BV used evidence of the market value attributable to future income streams to prove what an investor would have paid for the secrets. Accordingly, the Texas Supreme Court affirmed that the trial court’s decision in denying a permanent injunction.
Loan deficiency counterclaim. The Texas Supreme Court also concluded the company that purchased the partnership’s assets and promissory note did not prove it was entitled to judgment as a matter of law on its counterclaim for the Partnership’s failure to pay a deficiency balance on the note. There was more than a scintilla of evidence that the Partnership did not fail to comply with the terms of the promissory note to pay the deficiency balance.
Dissent. Justice Jane Bland wrote a dissenting opinion with respect to the standing issue. Justice Bland argued that a limited partner lacks standing to personally recover for injuries to the limited partnership. A limited partner does not own the limited partnership’s claims. The partnership is an entity unto itself, not an extension of individual partners asserting their individual interests.
This case is No. 17-0557.
Attorneys: Jeffrey S. Levinger (Carrington Coleman Sloman & Blumenthal, LLP) for Texas EMC Management LLC, Texas EMC Products LP, EMC Cement BV.
Companies: Texas EMC Management LLC; Texas EMC Products LP; EMC Cement BV; VHSC Cement LLC; Few Ready Mix Concrete Co
MainStory: TopStory TradeSecrets GCNNews
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