Associated Telephone Directory Publishers, Inc. v. Five D's Pub. Co., Inc.

• Decision Date: 17 March 1993
• Docket Number: No. 3-91-529-CV,3-91-529-CV
• Citation: 849 S.W.2d 894
• Parties: ASSOCIATED TELEPHONE DIRECTORY PUBLISHERS, INC., and Maurice Lewis, Appellants, v. FIVE D'S PUBLISHING COMPANY, INC., Appellee.
• Court: Texas Court of Appeals

Page 894

849 S.W.2d 894

ASSOCIATED TELEPHONE DIRECTORY PUBLISHERS, INC., and Maurice

Lewis, Appellants, v. FIVE D'S PUBLISHING COMPANY, INC., Appellee.

No. 3-91-529-CV.

Court of Appeals of Texas,

Austin.

March 17, 1993.

Wade Arledge, New Braunfels, for appellants.

D. Douglas Brothers, Law Offices of D. Douglas Brothers, Austin, for appellee.

Before POWERS, ABOUSSIE and B.A. SMITH, JJ.

BEA ANN SMITH, Justice.

Associated Telephone Directory Publishers, Inc. and Maurice Lewis, president of ATD (collectively "ATD"), appeal from a district-court judgment awarding damages to Five D's Publishing Co., Inc. ("Five D's"), for unfair competition and for conversion of telephone directories that were the subject of a prior transaction between the parties. Following a bench trial, the court rendered judgment against ATD and Lewis jointly and severally, and awarded Five D's actual damages of $71,000, prejudgment interest at a rate of ten percent per annum compounded daily, and postjudgment interest at a rate of ten percent per annum.

In six points of error, ATD complains of: (1) the trial court's legal conclusion that conversion occurred; (2) the sufficiency of the evidence to support the trial court's findings of unfair competition and the measure of damages; (3) the trial court's failure to find that Five D's waived its right to recover; (4) the trial court's calculation of prejudgment interest; and (5) the trial court's refusal to make an additional finding of fact as to damages. We will affirm the judgment of the trial court.

THE CONTROVERSY

On December 30, 1985, ATD sold all assets and publication rights to two telephone directories to Vol S. Davis, Jr. This action concerns only the directory serving a five-county area around Kerrville, Fredericksburg and Burnet ("the territory"); this directory was known as the "Kerrville-Fredericksburg" book before the sale to Davis.

Davis, the president of Five D's, signed a promissory note and security agreement in his individual capacity to secure part of the $1.2 million purchase price of the directories. Shortly thereafter, Davis leased the rights relating to the two directories to Five D's with the consent of Lewis, as representative of ATD. Five D's redesignated the Kerrville-Fredericksburg book as the "Heart of the Hills" directory.

Davis filed for personal bankruptcy in February 1987 and stopped paying on the note in April 1987. In May 1987, ATD assigned the Davis note to NBC Bank of Corpus Christi ("NBC Bank"). The following December, after making several demands for payment, Lewis warned Five D's that he was prepared to take a crew of ATD salespeople into the territory in order to sell as much advertising as possible and thereby inhibit Five D's advertising sales in the territory. During February 1988, ATD began selling directory advertising to local Kerrville businesses. ATD's sales representatives used Five D's trade name, "Heart of the Hills," and carried with them earlier editions of the "Heart of the Hills" directory. In March, when Five D's began its sales campaign for the next edition of the "Heart of the Hills" directory, it learned that ATD had been in the territory with its own sales force, claiming to have repossessed the two telephone directories. An ATD sales representative was arrested in Kerrville in April 1988 for deceptive business practices, after portraying himself as a representative of the "Heart of the Hills" directory in an effort to renew an advertisement.

On March 29, 1988, ATD filed suit in state court for judicial foreclosure of its lien against the "Heart of the Hills" directory. ATD also filed an adversary proceeding in Davis' personal bankruptcy case seeking judicial foreclosure. On April 28, 1988, Davis obtained a preliminary injunction from the bankruptcy court, restraining ATD from using the trade name "Heart of the Hills." ATD violated the injunction by ATD's entrance into the territory eventually forced Five D's out of business. Because of the confusion created by the companies' competing claims to be "Heart of the Hills," many businesses canceled their advertisements with Five D's, which was then unable to sell any additional advertising.

continuing to represent itself as "Heart of the Hills" in letters sent to prospective advertisers.

On October 11, 1988, Davis and ATD entered into a settlement agreement by which Davis purported to give ATD the right to foreclose on the "Heart of the Hills" directory. Five D's brought this suit against ATD on February 17, 1989. In a bench trial, the court found that ATD's actions constituted conversion and unfair competition. ATD appeals that judgment.

ANALYSIS

In its first point of error, ATD purports to challenge the sufficiency of the evidence to support the trial court's ruling that a conversion occurred. However, ATD directs its argument under this point not against the sufficiency of the evidence, but against the trial court's legal conclusion--that ATD's undisputed activities in the territory constituted conversion rather than repossession. Because ATD's complaint is that the trial court erred in ruling on a question of law, we will address it on that basis.

The trial court ruled that conversion occurred based on its findings that ATD exercised dominion and control over the "Heart of the Hills" directory without the consent of Five D's and inconsistent with Five D's right of possession. ATD claims that its activities in the territory constituted an authorized repossession; therefore, the trial court erred in ruling that a conversion occurred. Five D's maintains that ATD had no right of repossession, because ATD had assigned the note and security agreement to NBC Bank prior to the alleged repossession.

ATD assigned the Davis note and security agreement to NBC Bank in May 1987. ATD began telling customers that it was repossessing the directories in February 1988. ATD claims that it did not surrender all of its rights to NBC Bank, but rather retained co-extensive rights. The language of the assignment, however, refers to NBC Bank as the secured party and provides that ATD "transfers, assigns and conveys unto NBC Bank Corpus Christi ... the promissory note ... and all liens, rights, titles, equities and interests securing the same .... [NBC Bank] shall have the full control of the [note] and the liens securing the same." (Emphasis added.) There is no indication in the collateral transfer that the parties intended the rights to be co-extensive. Once a secured party assigns a note, security agreement, and all rights in collateral to a third party, the original secured party no longer retains any right to repossess the collateral. See Steakley Bros. Chevrolet, Inc. v. Westbrook, 558 S.W.2d 544, 546 (Tex.Civ.App.--Waco 1977, writ ref'd n.r.e.). Because ATD transferred all rights to NBC Bank, including the right to repossess, ATD's subsequent conduct constituted not repossession, but conversion.

The undisputed evidence establishes that ATD assigned the note and security agreement to NBC Bank prior to claiming repossession of the directories. Because the legal consequence of the assignment was to preclude ATD from repossessing the collateral, the trial court properly ruled that ATD's activities constituted conversion. We overrule ATD's first point of error.

In its third and fourth points of error, ATD presents true evidentiary-sufficiency challenges, attacking the sufficiency of the evidence to support (1) the trial court's finding that ATD's conduct constituted unfair competition and (2) its award of damages. Findings of fact are reviewable for legal and factual sufficiency of the evidence by the same standards used to review jury findings. Anderson v. City of Seven Points, 806 S.W.2d 791, 794 (Tex.1991). An appellant who challenges the legal sufficiency of the evidence supporting an issue upon which it did not have the burden of proof must demonstrate that there is no evidence to support the adverse finding. Raw Hide Oil & Gas, Inc. v When challenging the factual sufficiency of the evidence supporting an adverse finding upon which it did not have the burden of proof, an appellant must demonstrate that there is insufficient evidence to support the adverse finding. Raw Hide Oil & Gas, Inc., 766 S.W.2d at 275-76. In reviewing a factual-sufficiency challenge, we will consider and weigh all the evidence in support of and contrary to the finding. Plas-Tex, Inc. v. U.S. Steel Corp., 772 S.W.2d 442, 445 (Tex.1989). The contested finding will be upheld unless we find that the evidence is too weak to support the finding. Garza v. Alviar, 395 S.W.2d 821, 823 (Tex.1965).

Maxus Exploration Co., 766 S.W.2d 264, 275 (Tex.App.--Amarillo 1988, writ denied). In reviewing a no-evidence point, we consider only the evidence supporting the finding and we disregard all evidence to the contrary. Best v. Ryan Auto Group, Inc., 786 S.W.2d 670, 671 (Tex.1990).

In its third point of error, ATD claims that the evidence is legally and factually insufficient to support the finding that the conduct of ATD and Lewis constituted unfair competition. To prevail on an unfair competition claim, a plaintiff must establish two elements: (1) the plaintiff's trade name has acquired a secondary meaning through usage; and (2) the similarity of the name used by the defendant would be likely to confuse the public. Hudgens v. Goen, 673 S.W.2d 420, 423 (Tex.App.--Fort Worth 1984, writ ref'd n.r.e.). The trial court found that ATD's use of the name "Heart of the Hills" constituted unfair competition because that use was calculated to deceive and cause members of the public to trade with ATD when they intended to trade and otherwise would have traded with Five D's. The trial court concluded that ATD's conduct satisfied the secondary-meaning and likelihood-of-confusion tests. ATD contests the evidentiary sufficiency of the trial court's finding only as to the likelihood-of-confusion element, and not the secondary-meaning...