Susan Chatelain v. Gideon Math & Reading LLC

Opinion

Affirmed in part, and Reverse and Remand in part and Opinion Filed August 8, 2017

S In The Court of Appeals Fifth District of Texas at Dallas No. 05-16-00458-CV

SUSAN CHATELAIN, Appellant V. GIDEON MATH & READING LLC, Appellee

On Appeal from the 417th Judicial District Court Collin County, Texas Trial Court Cause No. 417-01628-2015

MEMORANDUM OPINION Before Justices Bridges, Myers, and Brown Opinion by Justice Bridges Susan Chatelain appeals the trial court’s summary judgment in favor of Gideon Math &

Reading LLC on Chatelain’s claims under a licensing agreement. In a single issue, Chatelain

argues the trial court erred in holding there was not an enforceable agreement between her and

Gideon. We affirm the trial court’s judgment in part, reverse in part, and remand for further

proceedings.

Chatelain operates a business providing educational instruction in math and reading in

McKinney, Texas. Gideon produces proprietary materials for use by its franchisees and

licensees in providing educational instruction. Prior to the formation of Gideon, the business

was a sole proprietorship. Gideon was formed on October 14, 2010 and, on June 13, 2011,

Gideon Learning, LLC was formed, and the research and development, publication, and sales of Gideon’s material was transferred to Gideon Learning. In the beginning, there were no

agreements between Gideon and customers purchasing its materials for use in after-school

learning centers. Prior to the formation of the Gideon entity, Gideon used a form agreement

contract which provided parties would not copy material from Gideon’s “Do Not Copy” list;

would “pay $20,000 for new Gideon Center fee + materials for opening kit”; and would be

available for three days of training in Dallas. In exchange, Gideon agreed to provide a current

manual with the Do Not Copy list; send a Gideon representative to the center for training;

provide three days’ free training in Dallas and unlimited access by phone and email; give notice

of changes to the curriculum and “give ability to re-order; and “Will not allow any new centers

to open within ten minutes of your center.”

As alleged in Chatelain’s original petition, In January 2012, Gideon and Chatelain

entered into a license agreement “for the purpose of granting to [Chatelain] the right to use

Gideon Materials and display the Gideon Marks” at Chatelain’s business. The agreement

granted Chatelain “a non-exclusive, non-transferable, personal license” to use the Gideon

materials and display the Gideon Marks at her place of business only. Gideon retained sole

ownership of the materials and marks and Chatelain agreed she was “not entitled to copy, store

electronically, print, or sell” the materials or marks except for certain specified materials listed in

an exhibit. Chatelain further agreed to run her business “with adequate lighting, working and

clean bathrooms, clean student workrooms, a clean waiting room, adequate and appropriate

furniture, and in a safe manner.” In return, Gideon agreed not to place another licensee “within a

ten (10) minute driving time from your Location.” Upon termination of the agreement, Chatelain

agreed to stop using the marks and materials, immediately return the materials to Gideon or sell

them to another licensee with Gideon’s approval, and provide proof of any sale to Gideon.

–2– Chatelain retained no right to the materials or marks upon termination of the agreement. Gideon

did not charge Chatelain any fees in connection with the signing of the agreement.

In 2013, Gideon opened a learning center which Chatelain claimed was within ten

minutes of her location. Gideon responded that the ten minute restriction “is determined by

reference to Google maps at the time the new center is introduced.” Chatelain took no further

action. Chatelain’s petition alleged that, in April 2015, Gideon was opening another new

location within ten minutes from her location. Chatelain sought declaratory judgment as to the

“rights, status, or other legal relations under the License Agreement between the parties.”

Chatelain also alleged claims for breach of contract, injunctive relief, and attorney’s fees.

In December 2015, Gideon filed a motion for summary judgment seeking traditional

summary judgment on the grounds that there was no genuine issue of material fact precluding

judgment in favor of Gideon because the license agreement is a unilateral contract and

unenforceable. Gideon also moved for no-evidence summary judgment on the ground that there

was no evidence of an enforceable contract, no consideration for the license agreement, and no

damages proximately caused by the alleged breach. Gideon argued further that, without an

enforceable contract, Chatelain had no claims for declaratory judgment, injunction, or attorney’s

fees.

As the specific grounds for no-evidence summary judgment, Gideon alleged Chatelain

was not able to show: (1) a valid, enforceable contract exists; (2) any contract is supported by

consideration; (3) [Gideon] breached the agreement; (4) [Chatelain] suffered any damage; or (5)

any breach by [Gideon] was the proximate cause of any injury sustained. Gideon alleged certain

“undisputed summary judgment facts” including the assertion nothing was requested in return for

the license agreement and a 10% discount was offered for those that would sign and return the

license agreement. This assertion was supported by a letter attached to the motion indicating

–3– that, in January 2012, Gideon was “moving into franchising all new centers” and requested that

all current licensees sign the license agreement by January 31, 2012. In exchange, Gideon

offered a 10% discount on online store purchases from the time the licensee signed the

agreement until July 1, 2012.

In further support of its motion, Gideon asserted Chatelain did not pay anything of value

to Gideon in exchange for the license agreement; Chatelain is free to terminate the license

agreement at any time; Chatelain has no obligation to purchase any materials from Gideon under

the license agreement; Chatelain did not have to change any aspect of the way she ran her

business when she signed the license agreement; and Chatelain has no obligations under the

license agreement that are not illusory because she can simply walk away from the relationship

with Gideon without any cost or penalty. Based on these facts, Gideon asserted the license

agreement is unilateral because Chatelain has no obligation that is not illusory.

Gideon also argued the license agreement is not supported by sufficient consideration

because Chatelain paid nothing for the license, paid no royalties, and took on no obligations she

did not already have under the license agreement. To the extent the license agreement contained

a covenant not to compete, Gideon argued the license agreement did not meet the criteria

required of an enforceable covenant not to compete. Regarding Gideon’s use of Google maps to

determine drive times, Gideon argued Chatelain had waived the issue by continuing her

relationship with Gideon after learning in 2013 that Gideon used Google maps, and quasi-

estoppel barred Chatelain from disputing the use of Google maps by accepting the use of Google

maps in 2013. Finally, Gideon sought a declaratory judgment that the license agreement was not

enforceable.

In January 2016, Chatelain filed a response to Gideon’s motion for summary judgment

arguing the licensing agreement was enforceable but, even if it were not, Gideon should be

–4– estopped from denying the enforceability of its own agreement. Chatelain argued she

“purchased her materials from [Gideon] and exhibited [Gideon’s] sign or trademark to generate

business.” Gideon sold educational materials to Chatelain and did not argue that the licensing

agreement was unenforceable when Chatelain complained about the proximity of a new center.

Instead, Gideon argued that the new center was in compliance with the terms of the agreement.

Chatelain argued the licensing agreement “confers upon [Chatelain] the right to use materials

developed and sold by [Gideon] as long as [Chatelain] complies with various terms and

conditions, none of which [Chatelain] has been accused of violating.” As long as she abides by

the terms of the license agreement and buys Gideon’s materials, Chatelain argued, she has the

right to operate under the Gideon name, a name which has value. In support of her response,

Chatelain attached the deposition testimony of Stephanie Coppedge, Gideon’s managing

member, who testified she believes “there is some value to the name Gideon Math & Reading

and the instructional system” it employs, and she had “25 or 26 other people who agree with

[her] and use [her] system and buy [her] materials to tutor and instruct people.”

In May 2016, the trial court signed a final judgment granting Gideon’s motion for

summary judgment and declaring “that the License Agreement attached hereto is not enforceable

as a matter of law on the grounds that the agreement is unilateral and [Chatelain’s] promises are

illusory, and because it is not supported by sufficient consideration.” This appeal followed.

In a single issue, Chatelain argues the trial court erred in holding there was not an

enforceable agreement between her and Gideon. As a result, she argues, the trial court erred in

granting summary judgment in favor of Gideon.

In reviewing the trial court’s decision to grant summary judgment, we apply well-known

standards. See TEX. R. CIV. P. 166a(c); Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548–49

(Tex. 1985). A defendant who moves for summary judgment must show the plaintiff has no

–5– cause of action. A defendant may meet this burden by either disproving at least one essential

element of each theory of recovery or conclusively proving all elements of an affirmative

defense. See Wornick Co. v. Casas, 856 S.W.2d 732, 733 (Tex. 1993). A matter is conclusively

established if ordinary minds cannot differ as to the conclusion to be drawn from the evidence.

See Triton Oil & Gas Corp. v. Marine Contractors & Supply, Inc., 644 S.W.2d 443, 446 (Tex.

1982). After the movant has established a right to summary judgment, the burden shifts to the

nonmovant to present evidence creating a fact issue. See Kang v. Hyundai Corp., 992 S.W.2d

499, 501 (Tex. App.—Dallas 1999, no pet.).

When traditional and no-evidence motions for summary judgment are filed, we review

the no-evidence summary judgment first. See Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 600

(Tex. 2004). We review a no-evidence summary judgment under the same legal sufficiency

standard used to review a directed verdict. See TEX. R. CIV. P. 166a(i); King Ranch, Inc. v.

Chapman, 118 S.W.3d 742, 750 (Tex. 2003). Thus, we must determine whether the nonmovant

produced more than a scintilla of probative evidence to raise a fact issue on the material

questions presented. King Ranch, 118 S.W.3d at 750. When analyzing both traditional and no-

evidence summary judgments, we consider the evidence in the light most favorable to the

nonmovant. See Nixon, 690 S.W.2d at 549 (traditional summary judgment); King Ranch, 118

S.W.3d at 750 (no-evidence summary judgment).

A contract must be based upon a valid consideration, in other words, mutuality of

obligation. Iacono v. Lyons, 16 S.W.3d 92, 94 (Tex. App.—Houston [1st Dist.] 2000, no pet.);

see Texas Gas Util. Co. v. Barrett, 460 S.W.2d 409, 412 (Tex. 1970). Consideration is a

bargained-for exchange of promises. ULICO Cas. Co. v. Allied Pilots Ass’n, 262 S.W.3d 773,

790 (Tex. 2008). Consideration consists of benefits and detriments to the contracting parties. Id.

–6– The detriments must induce the parties to make the promises and the promises must induce the

parties to incur the detriments. Id.

Here, the summary judgment evidence showed Gideon essentially required all licensees,

including Chatelain, to enter into the license agreement in 2012. As an incentive to sign the

license agreement by a particular date, Gideon offered a discount on purchases from Gideon’s

online store. Under the license agreement, Chatelain could purchase educational materials from

Gideon and use them within certain limitations, but the materials and Gideon’s mark remained

Gideon’s property, and Chatelain was required to return all materials to Gideon if the license

agreement was terminated. The agreement also required Chatelain to maintain her business in a

certain way. In return, Gideon agreed not to place another licensee within a ten minute driving

time from Chatelain’s location. Gideon did not charge any fees in connection with the signing of

the agreement, but the purpose of the agreement was to govern sales of Gideon’s educational

materials and use of Gideon’s mark, which Gideon’s managing member agreed had value.

Under these circumstances, we conclude Chatelain produced more than a scintilla of probative

evidence to raise a fact issue on the questions of whether a valid, enforceable contract existed

between Gideon and Chatelain and whether the agreement was supported by consideration. King

Ranch, 118 S.W.3d at 750. Because fact issues exist as to the agreement’s validity and

enforceability, we reject Gideon’s argument that the agreement, to the extent it created a restraint

on trade, was unenforceable because it was not ancillary to an otherwise enforceable contract.

Gideon argues the licensing agreement imposes on Chatelain no obligations that are not

illusory because she can simply walk away from the relationship with Gideon without any cost

or penalty. Even though a contract is terminable at will, until terminated, the contract is valid

and subsisting. Sterner v. Marathon Oil Co., 767 S.W.2d 686, 689 (Tex. 1989). Further, if

Chatelain walks away from her relationship with Gideon, she must return Gideon’s educational

–7– materials and stop using Gideon’s mark, both of which the evidence shows have value. We

conclude fact issues preclude summary judgment on the issue of whether Chatelain’s obligations

under the agreement were illusory. See King Ranch, 118 S.W.3d at 750.

Chatelain sought a declaratory judgment regarding her “rights, status, or other legal

relations” under the licensing agreement. Gideon argues Chatelain presented no evidence of

damages. A declaratory judgment, by its nature, is forward looking; it is designed to resolve a

controversy and prevent future damages. Intercontinental Grp. P’ship v. KB Home Lone Star

L.P., 295 S.W.3d 650, 660 (Tex. 2009). It affects a party’s behavior or alters the parties’ legal

relationship on a going-forward basis. Id. An action to declare rights is not an action for money

damages. Id. We sustain Chatelain’s issue to the extent she argues summary judgment was

improper on her declaratory judgment and injunctive relief claims.

Gideon argues Chatelain “produced no evidence at all to prove the elements of an

enforceable agreement supported by sufficient consideration, a breach, damages or proximate

cause with respect to her breach of contract claim.” Gideon’s no-evidence motion for summary

judgment asserted Chatelain presented no evidence that she suffered any damage or that any

breach by Gideon was the proximate cause of any injury sustained. The 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 the contract by the defendant; and (4) damages to the plaintiff

resulting from that breach. Woodhaven Partners, Ltd. v. Shamoun & Norman, L.L.P., 422

S.W.3d 821, 837 (Tex. App.—Dallas 2014, no pet.). Chatelain’s petition alleged she had

“suffered significant actual damages” and sought “compensatory damages” as a result of

Gideon’s alleged breach of contract. Chatelain’s petition did not further address the damages

issue. In her response to Gideon’s motion for summary judgment, Chatelain presented no

evidence to show what damages she incurred, if any, as a result of Gideon’s alleged breach of

–8– contract. When presenting summary judgment proof in response to a no-evidence motion, a

party must specifically identify the supporting proof on file that it seeks to have considered by

the trial court. See Arredondo v. Rodriguez, 198 S.W.3d 236, 238 (Tex. App.—San Antonio

2006, no pet.); see also TEX. R. CIV. P. 166a(i) cmt. (“To defeat a motion made under paragraph

(i), ... [a nonmovant’s] response need only point out evidence that raises a fact issue on the

challenged elements.”). Accordingly, we conclude the trial court did not err in granting no-

evidence summary judgment on Chatelain’s breach of contract claim. See King Ranch, 118

S.W.3d at 750. We overrule Chatelain’s issue to the extent she challenges the trial court’s

summary judgment on her breach of contract claim.

We affirm the trial court’s summary judgment on Chatelain’s breach of contract claim for

failure to show evidence of damages. In all other respects, we reverse the trial court’s judgment

and remand for further proceedings.

/David L. Bridges/ DAVID L. BRIDGES JUSTICE

160458F.P05

–9– S Court of Appeals Fifth District of Texas at Dallas JUDGMENT

SUSAN CHATELAIN, Appellant On Appeal from the 417th Judicial District Court, Collin County, Texas No. 05-16-00458-CV V. Trial Court Cause No. 417-01628-2015. Opinion delivered by Justice Bridges. GIDEON MATH & READING LLC, Justices Myers and Brown participating. Appellee

In accordance with this Court’s opinion of this date, the judgment of the trial court is AFFIRMED in part and REVERSED in part. We REVERSE that portion of the trial court's summary judgment on the declaratory judgment claim, the claim for injunctive relief, and the claim for attorney’s fees by appellant Susan Chatelain. In all other respects, the trial court's judgment is AFFIRMED. We REMAND this cause to the trial court for further proceedings consistent with this opinion.

It is ORDERED that each party bear its own costs of this appeal.

Judgment entered August 8, 2017.

–10–