Eten, Inc., Center for the Advancement of Process Technology, Inc., Hebert W. Fortson, III, Raymond R. Wuetrz, Joanna Kile, Merv W. Treigle, Jr., John v. Dees III and Steve Ames v. College of the Mainland

• Court: Court of Appeals of Texas
• Decided: October 14, 2010
• Docket: 01-10-00349-CV
• Status: Published

Opinion

Opinion issued October 14, 2010

In The

Court of Appeals

For The

First District of Texas

————————————

NO. 01-10-00349-CV

———————————

Eten, Inc., Center for the Advancement of Process Technology, Inc., Herbert W. Fortson, III, Raymond R. Wuertz, Joanna Kile, Merv W. Treigle, Jr., John V. Dees, III, and Steve Ames, Appellants

V.

College of the Mainland, Appellee

On Appeal from the 122nd District Court

Galveston County, Texas

Trial Court Case No. 09CV1379

MEMORANDUM OPINION

Appellants, ETEN, Inc., Center for the Advancement of Process Technology, Inc., Herbert W. Fortson, III, Raymond R. Wuertz, Joanna Kile, Merv W. Treigle, Jr., John V. Dees, III, and Steve Ames, appeal the trial court’s granting of Appellee College of the Mainland’s application for temporary injunction.  In three points of error, Appellants argue that the trial court abused its discretion in granting the temporary injunction.

We affirm as modified.

                                                                                                                                                                 Background

Plaintiff in the current suit is College of the Mainland, a public college located principally in Galveston County, Texas.  In 2002, College of the Mainland applied for and received several National Science Foundation grants and, as a result, established a department in the college known as Center for the Advancement of Process Technology (the “Center”).  College of the Mainland appointed Joanna Kile as the director of the Center.  She held that position until her contract was not renewed in 2007.

In January 2006, Kile, along with Herbert W. Fortson, III and Merv W. Treigle, Jr. formed a non-profit corporation known as Center for the Advancement of Process Technology, Inc. (“CAPT, Inc.”).  Management of CAPT, Inc. was vested in the board of directors, referred to by the company as its steering committee.  Kile, Fortson, and Triegle were appointed as CAPT, Inc.’s steering committee.  Kile was appointed as its president.  CAPT, Inc. serves as the organizational body for nine alliances around the country that are related to the petrochemical industry.  CAPT, Inc. alleges that these various alliances provided technical expertise for the creation of various educational materials related to process technology.  Process technology relates to the industry of petrochemical technology.  College of the Mainland alleges that it developed these materials through its employees and various contractors.

It is undisputed by the parties that, as a result of the National Science Foundation grants, certain copyrighted materials were created.  What became disputed was who had ownership of those copyrights, College of the Mainland, CAPT, Inc., or both. 

In 2008, College of the Mainland filed suit against CAPT, Inc. (the “First Lawsuit”).  Relatively early in the litigation of the First Lawsuit, the trial court ordered the parties to mediation.  Mediation began in September 2008.  In May 2009, the parties fully executed a settlement agreement.  As a result of this settlement, the First Lawsuit was dismissed with prejudice.

A little more than one month prior to the execution of the settlement agreement, Kile and Triegle, along with John V. Dees, III, created ETEN, Inc.  Fortson was its incorporator.  ETEN was formed as a non-profit corporation. 

Five days after ETEN was formed, CAPT, Inc. entered into a copyright license agreement with ETEN.  Under the terms of the copyright license agreement, CAPT, Inc. represented that it was a joint owner of an undivided interest in certain copyrighted works iterated in an attached exhibit.  CAPT, Inc. then granted to ETEN “a paid up and world-wide non-exclusive, royalty-free licensee to make, use, and sell copies of the Licensed Works, and to make, use, and sell derivative works based on one or more of the Licensed Works for an irrevocable period of fifteen (15) years.”  The consideration for this license was a one-time fee of $10.

The settlement agreement was executed a little more than one month after the copyright license agreement was executed.  Under the terms of the agreement, CAPT, Inc. and College of the Mainland became joint owners with undivided interests in the copyrighted materials except for copyrighted materials developed under the current grant.  The parties agreed that the copyrighted materials developed under the current grant would be owned exclusively by College of the Mainland until the expiration of the grant, at which point those materials would be owned jointly by CAPT, Inc. and College of the Mainland.

CAPT, Inc. also agreed to create a “combined CAPT organization” by joining its operations with College of the Mainland’s Center.  Thereafter, CAPT, Inc. would be “a direct-support, not-for-profit, 501(c)(3) organization housed at the College.”  In order to effectuate this change, CAPT, Inc. agreed to reorganize its board of directors—named under the articles of incorporation as its “steering committee”—to include nine members from process technology alliances, two members appointed by College of the Mainland, two from the academic community outside of College of the Mainland, and “two from the industry as identified by the Steering Committee after consultation with the College President or designee.”  CAPT, Inc. agreed to amend its bylaws and articles of incorporation to conform with the settlement agreement.

The parties also agreed that the chair of CAPT, Inc.’s steering committee and the president of College of the Mainland, or his designee, would “meet on a regular basis to discuss the combined CAPT organization and concerns of the Steering Committee and of the College.”

Finally, the parties agreed that Joanna Kile would not be affiliated with the combined CAPT organization in any manner.

As of the date of the temporary injunction hearing, the combined CAPT organization had not been formed.  Emails were exchanged primarily between Jack Berry, the current director of operations for College of the Mainland’s Center, and Steve Ames, the local representative for CAPT, Inc.  They also met on certain occasions.  College of the Mainland asked that certain things be turned over to them, including CAPT, Inc.’s bank account information, website access, and mailbox key, but CAPT, Inc. refused.

Some time after the settlement agreement was signed, College of the Mainland learned of ETEN’s existence as well as the licensing agreement.  College of the Mainland filed suit on August 5, 2010, against the Defendants, alleging breach of contract, breach of fiduciary duty, tortious interference with existing contract, tortious interference with prospective relations, unfair competition by misappropriation, fraudulent inducement, and violation of the Theft Liability Act.  The trial court held a hearing on College of the Mainland’s application for a temporary injunction on December 17, 2009.  Due to the length of the testimony of the witnesses, the hearing had to be continued on another day, January 27, 2010.  The trial court issued its temporary injunction on April 8, 2010. 

The injunction (1) enjoined the defendants from “directly or indirectly using, selling, copying, distributing or otherwise conveying the process technology products to which College of the Mainland asserts ownership (‘Products at Issue’) including” all of the works listed in CAPT, Inc.’s copyright license agreement with ETEN; (2) enjoined the defendants from “diverting and/or expending any and all current or future revenues generated by the use, sale, copying, distribution, or any other conveyance of the Products at Issue”; (3) ordered the defendants to “transfer any and all current and future revenue generated by the sale of the Products at Issue to the College of the Mainland immediately or within 5 business days of their receipt of such revenues”; and (4) enjoined the defendants from “selling, licensing, or transferring any and all intellectual property rights pertaining to the Products at Issue.” 

Defendants brought this appeal arguing that College of the Mainland failed to establish (1) that it had a probable right to any relief; (2) that the claimed injuries were imminent; and (3) that College of the Mainland failed to show that it owned or developed any of the products that Defendants were enjoined from using.

                                                                                                           Standard of Review & Applicable Law

A temporary injunction is an extraordinary remedy that does not issue unless the party seeking relief pleads and proves three specific elements: (1) a cause of action, (2) a probable right to the relief sought, and (3) a probable, imminent, and irreparable injury in the interim.  Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002).  The sole issue presented to a trial court at a temporary injunction hearing is whether the applicant is entitled to preserve the status quo pending trial on the merits.  Id.; Davis v. Huey, 571 S.W.2d 859, 862 (Tex. 1978).  The status quo is defined as the last, actual, peaceable, non-contested status that preceded the pending controversy.  In re Newton, 146 S.W.3d 648, 651 (Tex. 2004).

On appeal, the scope of review is limited to the validity of the temporary injunction order.  See Walling v. Metcalfe, 863 S.W.2d 56, 58 (Tex. 1993).  We do not review the merits of the underlying case.  Davis, 571 S.W.2d at 861.  Instead, we determine whether there has been an abuse of discretion by the trial court in granting or denying the relief.  Id. at 862.  In making this determination, we may not substitute our judgment for that of the trial court unless its decision was so arbitrary that it exceeded the bounds of reasonableness.  See Butnaru, 84 S.W.3d at 204.  A trial court abuses its discretion in granting or denying a temporary injunction when it misapplies the law to the established facts.  See State v. Sw. Bell Tel. Co., 526 S.W.2d 526, 528 (Tex. 1975).  Given the abuse-of-discretion standard, we review the evidence submitted to the trial court in the light most favorable to the court’s ruling, draw all legitimate inferences from the evidence, and defer to the trial court’s resolution of conflicting evidence.  See Davis, 571 S.W.2d at 862; CRC-Evans Pipeline, Int’l, Inc. v. Myers, 927 S.W.2d 259, 262 (Tex. App.—Houston [1st Dist.] 1996, no pet.).

                                                                                                                                         Probable Right to Relief

Defendants argue that the trial court abused its discretion in granting the application for the temporary injunction by claiming that College of the Mainland failed to establish that it had a probable right to recovery.  To show a probable right of recovery, an applicant need not establish that it will finally prevail in the litigation, but it must, at the very least, present some evidence that, under the applicable rules of law, tends to support its cause of action.  Camp v. Shannon, 348 S.W.2d 517, 519 (Tex. 1961); see IAC, Ltd. v. Bell Helicopter Textron, Inc., 160 S.W.3d 191, 197 (Tex. App.—Fort Worth 2005, no pet.). 

In its breach of contract claim, College of the Mainland alleged that CAPT, Inc. breached the settlement agreement by “1) failing and refusing to take material steps towards combining its operations with [College of the Mainland]; 2) failing to amend its bylaws and articles of incorporation to conform to the Settlement Agreement; and 3) creating an affiliation between itself and Defendant Kile by attempting to license [College of the Mainland]’s products to ETEN, Inc.”  The essential elements of a breach of contract claim are: (1) the existence of a valid contract; (2) performance or tendered performance by the plaintiff; (3) breach of contract by the defendant; and (4) damages sustained as a result of the breach. Williams v. Unifund CCR Partners Assignee of Citibank, 264 S.W.3d 231, 235–36 (Tex. App.—Houston [1st Dist.] 2008, no pet.).

In its fraud in the inducement claim, College of the Mainland alleged that Fortson and Wuertz fraudulently induced it into entering into the settlement agreement with CAPT, Inc.  Specifically, College of the Mainland argues that its fraudulent inducement claim is based on the representation in the settlement agreement that Kile would not be affiliated with the combined CAPT organization in any manner.  To prevail on a fraud claim, a plaintiff must prove that (1) the defendant made a material representation that was false; (2) it knew the representation was false or made it recklessly as a positive assertion without any knowledge of its truth; (3) it intended to induce the plaintiff to act upon the representation; and (4) the plaintiff actually and justifiably relied upon the representation and thereby suffered injury.  Coastal Bank SSB v. Chase Bank of Tex., N.A., 135 S.W.3d 840, 843 (Tex. App.—Houston [1st Dist.] 2004, no pet.).

In the settlement agreement, both parties specifically represented to each other that Joanna Kile would not be affiliated with the combined CAPT organization in any manner—an organization that would be formed by joining CAPT, Inc.’s operations with College of the Mainland’s Center.  Seven months after protracted negotiations on settlement of the First Lawsuit and barely more than one month before the final draft of the settlement agreement was executed, two of the founders of CAPT, Inc.—including Joanne Kile—formed a new company: ETEN.  Days later, CAPT, Inc. granted to ETEN “a paid up and world-wide non-exclusive, royalty-free licensee to make, use, and sell copies of the Licensed Works, and to make, use, and sell derivative works based on one or more of the Licensed Works for an irrevocable period of fifteen (15) years.”  The consideration for this license was a one-time fee of $10.  It would not be an abuse of discretion for the trial court to determine that this is some evidence of an association with Joanna Kile in violation of the terms of the settlement agreement, thus constituting some evidence to support a claim for fraudulent inducement to enter into the settlement agreement as well as an anticipatory breach of the settlement agreement.

Furthermore, Berry testified that at least one of the copyrighted materials licensed to ETEN was developed under the current National Science Foundation grant.  Under the terms of the settlement agreement, CAPT, Inc. had no interest in any materials created under the current grant until after the grant expired.  This evidence further supports College of the Mainland’s claims regarding breach of the settlement agreement and a fraudulent inducement to enter into the settlement agreement.

Defendants argue that, as a matter of law, reliance on representations made in an adversarial context is not justified.  See Coastal Bank, 135 S.W.3d at 843.  However, the specific representation—that Joanna Kile would not be affiliated with the combined CAPT organization in any manner—was a term of the settlement agreement.  Both CAPT, Inc. and College of the Mainland agreed in the settlement agreement that the agreement was signed without “reliance upon any statement, promise, or representation not recited in the Agreement.”  (Emphasis added.)  The trial court reasonably could have concluded that the implication of this statement was that they were relying on representations made in the settlement agreement.

We overrule appellants’ first point of error.[1]

                                                                                                                                                     Irreparable Injury

Defendants argue that College of the Mainland failed to establish that it will suffer a probable injury.  Probable injury includes elements of imminent harm, irreparable injury and no adequate remedy at law for damages.  T-N-T Motorsports, Inc. v. Hennessey Motorsports, Inc., 965 S.W.2d 18, 24 (Tex. App.—Houston [1st Dist.] 1998, no pet.)  To establish that there is no adequate remedy at law for its damages, the applicant must show that it “cannot be adequately compensated in damages or . . . the damages cannot be measured by any certain pecuniary standard.”  Ahmed v. Shimi Ventures, L.P., 99 S.W.3d 682, 692 (Tex. App.—Houston [1st Dist.] 2003, no pet.) (quoting Butnaru, 84 S.W.3d at 204).  A remedy is adequate if it gives complete, final, and equal relief.  Henderson v. KRTS, Inc., 822 S.W.2d 769, 773 (Tex. App.—Houston [1st Dist.] 1992, no writ).

In the temporary injunction order, the trial court found that there was a showing of a probable injury:

[T]o wit, the continued diversion and misuse of income and the unauthorized exploitation of Plaintiff’s intellectual property by Defendants.  Plaintiff has further shown that the injury is irreparable because Defendants’ conduct interferes with the ability of Plaintiff’s Center . . . to become a self-sustainable process technology center.  Plaintiff has further shown that there is no adequate remedy at law to rectify its injury.

Lisa Templer, College of the Mainland’s vice president for financial services, testified that College of the Mainland would suffer injury with ETEN publishing the same copyrighted materials as College of the Mainland.  The result of these competing sales would be loss of revenue that would interfere with College of the Mainland’s goal for self-sustainability for the Center.  Templer testified that this in turn could impact College of the Mainland’s ability to obtain future National Science Foundation grants as well as cause lay-offs at the college.

Jack Berry, director for College of the Mainland’s Center, testified that ETEN’s publishing the same copyrighted materials as College of the Mainland was a loss of revenue for College of the Mainland.  In addition, he testified that publishing the same material caused confusion “around who owns the material, who is the real [Center for the Advancement of Process Technology], the real Center, [and] who serves the [process technology] community on behalf of the grant at College of the Mainland.”  Finally, Berry testified that the copyrighted materials included examination material to qualify people for various kinds of employment.  Two entities publishing varying examinations would cause confusion as to who took which exam and whether the examinees were in fact qualified.

We hold that the trial court did not abuse its discretion in determining that there was some evidence that College of the Mainland established it would suffer a probable injury without the entry of the temporary injunction.

We overrule Appellants’ second point of error.

                                                          College of the Mainland’s Ownership of Enumerated Materials

CAPT, Inc. argues there is no evidence that College of the Mainland owns the items enumerated in the temporary injunction.  While CAPT, Inc.’s representative, Ames, was testifying at the hearing, the following exchange took place:

Q.      So, what did CAPT, Inc. do?

A.      CAPT, Inc. gave a non-inclusive [sic] license to ETEN to also sell our process technology copyrights that we had.

Q.      Did CAPT, Inc. feel like they had the authority or the right to do that?

A.      Yes. We’ve owned them for several years; so, we had that right.

The Court: Just for purposes of my notes, the rights to the process technology that you guys gave to ETEN, is that the one that’s co-owned with [College of the Mainland] or something separate? Earlier you said that the ownership of those things was co-owned, jointly owned with [College of the Mainland]. So, are we talking about that or something separate?

The Witness: We’re talking about that. They had rights to them that they get to sell to somebody and we have rights to them, as well.

The Court: The same materials.

The Witness: Yes.

The only item enumerated in the injunction order that is not listed in some manner in the license agreement between CAPT, Inc. and ETEN is item 20: “Use of the ‘CAPT teardrop’ logo for commercial and non-commercial purposes.”  There is no reference to this logo anywhere else in the record.  Accordingly, there is no evidence that College of the Mainland owns this logo or that CAPT, Inc. or any other defendant should be enjoined from using it.  CAPT, Inc. pre-existed this dispute and, even under the terms of the settlement agreement, will continue to exist into the future.  To the degree that this logo is owned by CAPT, Inc., there is no evidence in the record that CAPT, Inc. should be required to refrain from using it.

We sustain Defendants’ third point of error as it relates to item twenty in the temporary injunction order and overrule their point of error as it relates to the remainder of the order.

                                                                                                                                                                    Conclusion

We delete item 20 from the temporary injunction order and affirm as modified.

                                                                   Laura Carter Higley

                                                                   Justice

Panel consists of Justices Keyes, Higley, and Bland.

---

[1]        Because we have determined that the trial court could have determined that College of the Mainland established a probable right to relief under these causes of action, we do not need to address the other causes of action.  See Tex. R. App. P. 47.1.