Cytogenix, Inc. v. Waldroff

• Decision Date: 14 December 2006
• Docket Number: No. 01-05-00492-CV.,01-05-00492-CV.
• Citation: 213 S.W.3d 479
• Parties: CYTOGENIX, INC., Appellant, v. William B. WALDROFF and Applied Veterinary Genomics, Inc., Appellees.
• Court: Texas Court of Appeals

213 S.W.3d 479

CYTOGENIX, INC., Appellant, v. William B. WALDROFF and Applied Veterinary Genomics, Inc., Appellees.

No. 01-05-00492-CV.

Court of Appeals of Texas, Houston (1st Dist.).

December 14, 2006.

Rehearing Overruled March 2, 2007.

Robert W. Higgason, Law Office of Robert W. Higgason, Woodlands, for Appellant.

Louis Paine, Glast, Phillips & Murray, Houston, David S. O'Neil, O'Neil & McConnell, PLLC, Woodlands, for Appellee.

Panel consists of Chief Justice RADACK and Justices ALCALA and BLAND.

OPINION

JANE BLAND, Justice.

In this technology licensing case, CytoGenix, Inc., appeals the trial court's judgment and permanent injunction rendered in favor of appellees, William Waldroff and Applied Veterinary Genomics, Inc. ("AVGI"). CytoGenix sued Waldroff and AVGI, seeking a declaration that two license agreements between CytoGenix and Waldroff are unenforceable. AVGI and Waldroff counterclaimed for declaratory relief and breach of contract. The jury found that CytoGenix breached the two agreements but awarded no damages. The trial court then entered judgment, issuing a permanent injunction requiring specific performance of the two licensing agreements, and awarding attorney's fees to Waldroff and AVGI.

We conclude that the trial court erred in entering a permanent injunction that requires specific performance of the licensing agreements because the agreements do not provide for specific performance or otherwise support specific performance by permanent injunction as a remedy. We further conclude that the trial court erred in awarding attorney's fees to Waldroff and AVGI because their claims for relief arise solely from breach of the licensing agreements, and the jury found no damages for breach of these agreements. Finally, we conclude that CytoGenix is not entitled to its attorney's fees upon reversal of the judgment against it. We therefore reverse the judgment of the trial court and render judgment that the parties take nothing on their claims against each other.

FACTS AND PROCEDURAL HISTORY

The Parties and Their Dealings

CytoGenix, formerly known as Cryogenic Solutions, Inc., is a Houston-based public company engaged in genetic research and development. At the time of the jury trial in February 2005, CytoGenix had yet to show a profit, develop a product for a clinical trial, or generate any significant revenue. However, it owns a number of patents in the area of genetic technology.

In 1996, CytoGenix became interested in developing gene silencing technology. In particular, CytoGenix sought to develop single stranded DNA ("ssDNA") that could control telomeres — the physical ends of linear chromosomes that play an important role in cell division — by controlling the enzyme telomerase.¹ One of the goals of ssDNA research is to develop a pharmaceutical compound that will stop production of harmful proteins. A necessary starting point for the research is the specific gene sequence for the cells under study, whether they are from animals, plants, bacteria, or viruses.

In 1998, Charles Conrad, a researcher who has developed an ssDNA expression vector, conveyed the right to use his technology to CytoGenix, together with a patent assignment. Before that point, from late 1996 through 1998, Conrad provided consulting services to CytoGenix in its research endeavors. While Conrad was consulting for CytoGenix, Mike Skillern, then CytoGenix's president, approached Waldroff with a request for funding for Conrad's research. Skillern and Waldroff discussed the possibility that Conrad's research could be useful for shrimp farms — either to prevent disease or to grow larger shrimp. Waldroff paid CytoGenix $15,000 in exchange for an exclusive agreement to use its ssDNA technology in connection with crustaceans. Later, Skillern prepared a similar agreement for horses and delivered it to Waldroff. Waldroff contends that he invested another $20,000 into CytoGenix in exchange for the equine license.

After the parties executed the crustacean license, Waldroff ventured briefly into creating a shrimp farm on his land. He bulldozed an area to build tanks. He filled the tanks with seawater and placed live shrimp in them. Unfortunately, the seawater heated to a temperature that was too hot for the shrimp and they died in three days. Waldroff froze the shrimp and ate them, and later filled the tanks with dirt. Waldroff testified that he would not have begun a shrimp farm had CytoGenix not granted a license to him.

Eventually, Waldroff assigned his rights in the two licenses to AVGI. AVGI was founded by Dell Gibson, who is also one of the founders of CytoGenix. Together with two other former CytoGenix board members, Gibson created AVGI to focus on potential veterinary applications arising from ssDNA technology. At the time this case was tried, AVGI, CytoGenix, and some of their directors were embroiled in other litigation. Malcolm Skolnick, the current chairman and president of CytoGenix, was at odds with Charles Boyd and Charles Bardwell, former CytoGenix directors who became directors of AVGI. As Waldroff described it, despite his efforts to reconcile those involved, "the animosity flowed" between CytoGenix and AVGI.

It was undisputed at trial that CytoGenix has never developed any ssDNA for shrimp or for horses, and that neither Waldroff nor AVGI had ever provided CytoGenix with the necessary gene sequencing for any shrimp or horse cells so that CytoGenix could pursue ssDNA development for cells found in those animals.² Rather, other than sporadic discussions about future technology development, activity pursuant to these licenses was dormant.

In February 2004, CytoGenix's attorney wrote Waldroff's attorney that CytoGenix would "not recognize" the license agreements. After a further meeting to discuss the licenses proved fruitless, CytoGenix filed this lawsuit, seeking a declaration that the license agreements are unenforceable.

The License Agreements

CytoGenix and Waldroff entered into a "Crustacean ssDNA Vector License Agreement" effective April 5, 1998.³ In the agreement, CytoGenix grants an exclusive license of its ssDNA technology to Waldroff "to use, sell, or license" the "technology or product(s) for use in Crustaceans." It further provides that CytoGenix retains title and ownership of the technology.

The parties executed the crustacean agreement before its April 1998 effective date. After the effective date, CytoGenix sent Waldroff a written agreement for an equine license, with the same effective date as the crustacean agreement and the same terms. Although Waldroff signed a copy of the equine agreement, no party produced a copy executed by CytoGenix, and the parties disputed at trial whether any existed-the jury finding that it did. Upon replacing the term "crustacean" with "equine," the provisions of the two agreements are identical.

In exchange for each license, Waldroff agreed to pay a six percent royalty on any gross revenue realized from the use or sale of CytoGenix's ssDNA vector technology, including any revenue from an increase in value of "crustacean [or equine] culturing products or cultured crustaceans [or equines]," and a six percent royalty on any revenue realized from licenses Waldroff might issue to third parties. Waldroff is responsible for any direct laboratory expense plus twenty percent for the production of ssDNA vector sequence coding, to be performed by CytoGenix or a laboratory it approves. The agreements do not, however, require either party to develop or provide technology of any sort. Waldroff is "responsible for providing DNA sequence codes to be coded into the ssDNA vector for use by Waldroff or any licensee."

If Waldroff defaults, CytoGenix has the right to cancel either agreement upon thirty days' written notice, subject to Waldroff's opportunity to cure the default. Waldroff also has the unfettered right to terminate the agreement on thirty days' written notice. But the agreement does not provide a parallel termination provision for CytoGenix: no clause allows CytoGenix to terminate the agreements, nor does one address the effect of CytoGenix's default, save that CytoGenix may not be liable for any direct, indirect, special, or consequential damages.

The Lawsuit, Jury Verdict, and Judgment

In February 2004, CytoGenix sued Waldroff and AVGI in state district court, seeking a declaratory judgment that the licensing agreements are void for lack of essential terms and mutual mistake. Alternatively, it claimed that Waldroff breached the licensing agreements. AVGI and Waldroff counterclaimed, seeking enforcement of the licenses, actual damages, and attorney's fees. The case proceeded to trial.

The jury found that (1) CytoGenix granted a crustacean and an equine license to Waldroff; (2) CytoGenix failed to comply with the terms of the licenses; (3) Waldroff sustained no past damages for CytoGenix's breach of the licenses; (4) the equine license "exist[ed]"; (5) the crustacean license was "a reasonably definite and certain agreement between the parties"; and (6) Waldroff did not repudiate or breach the agreements. In a series of ancillary questions, the jury further found that (1) the parties did not have "the same understanding of the subject matter of the contract" with respect to the crustacean license, but the parties did not make any "mutual mistake of fact" with respect to either license; (2) CytoGenix made a "unilateral mistake of fact" with respect to both the crustacean and the equine license; (3) CytoGenix did not terminate the licenses after a reasonable period, but the parties did not intend for the licenses to be permanently binding; and, in seeming contradiction of its other findings, that (4) "essential terms are missing from both licenses." The parties stipulated to their respective attorney's fees.

In March 2005, the trial court entered a final judgment in favor of Waldroff and AVGI. In the judgment, the trial court recited: (1) the crustacean and equine...