Forum US, Inc. v. Musselwhite
Decision Date | 28 July 2020 |
Docket Number | NO. 14-17-00708-CV,14-17-00708-CV |
Parties | FORUM US, INC., Appellant v. JEFFREY MUSSELWHITE, AUDIE ROMERO, ANTELOPE OIL TOOL & MFG. CO., LLC, INTERVALE CAPITAL, LLC, HKM CONSULTING, LLC, AND WEARSOX, L.P., Appellees |
Court | Texas Court of Appeals |
On Appeal from the 295th District Court Harris County, Texas
Appellant Forum US, Inc. (Forum) sued appellee Jeffrey Musselwhite for, among other claims, violations of the restrictive covenants contained in his employment agreement. Forum also sued the remaining appellees asserting various causes of action including tortious interference and misappropriation of trade secrets. The trial court granted a partial summary judgment declaring the restrictive covenants in Musselwhite's employment agreement unenforceable. Forum's remaining claims against Musselwhite and the other appellees went to trial before a jury, which rejected each of Forum's claims. The trial court subsequently signed a take-nothing final judgment on Forum's claims. Finding no error, we affirm the trial court's final judgment.
Davis-Lynch, Inc. was a family-owned business that sold, among other products, centralizers for deepwater wells in the Gulf of Mexico.1 Musselwhite worked for Davis-Lynch for more than thirty years. Musselwhite rose to become the Western Division Sales Manager. Musselwhite was not on the Davis-Lynch board of directors and was not an officer of the company. According to Musselwhite, Davis-Lynch had an excellent reputation for superior customer service and product delivery times.
Appellee WearSox, L.P. had developed and patented a "thermal spray" process that involved spraying metal alloy directly onto a pipe. The thermal-spray process involved spraying layer after layer of a metal onto a pipe. Using this thermal-spray process, Wearsox could build up any shape it wanted on a pipe.
One of Davis-Lynch's deepwater products was the "CentraLaser." The CentraLaser was a centralizer cut from a single tube of steel using a laser. Musselwhite recognized that WearSox's thermal spray technology could be a superior method for securing the CentraLaser to a casing pipe. Eventually, Davis-Lynch and WearSox collaborated through a handshake deal to offer customers a combo product that used WearSox's technology to attach a CentraLaser to the customer's casing pipe. Davis-Lynch would pay WearSox for its thermal sprayservices, then mark up the price of the CentraLaser combo product before selling it to customers.
Forum Energy Technologies, Inc. (Forum Energy) is a global oilfield products company that serves all segments of the oil and natural gas industry. Forum is a wholly-owned subsidiary of Forum Energy. Forum Energy is a very large company employing thousands of people. It was divided into two large divisions each with multiple subparts serving different aspects of the oil and natural gas industry. Forum Energy bought Davis-Lynch in 2011.2 Forum Energy required that certain Davis-Lynch employees, including Musselwhite, sign new employment agreements containing restrictive covenants. After signing the employment agreement, Musselwhite retained his title of Western Division Sales Manager and he was responsible for sales in Houston, Dallas, Denver, and California. Musselwhite directly supervised a single salesman, appellee Audie Romero.
Musselwhite's employment agreement created a three-year term of employment. The agreement provided for Musselwhite's salary, bonuses, stock options, and other benefits. It also included a recital that Davis-Lynch, LLC was "in the business of designing, producing and selling oil field downhole cementing and related equipment (the "Business")." The restrictive covenants are found in section 6 of the employment agreement. They include a covenant not to compete, a non-solicitation of employees provision, and a non-solicitation of customersprovision.
After the acquisition, Forum installed new management and made numerous changes to Davis-Lynch's business operations. Among other things, Forum implemented new inventory management software and downsized the number of employees working in the warehouse and manufacturing. According to Musselwhite, Forum management took over Davis-Lynch with an attitude that Davis-Lynch's long-time employees did not know what they were doing. One of Forum's vice presidents told Musselwhite that "Davis-Lynch is a very good company, but we're going to show you how to make it better."
Forum did make changes to Davis-Lynch's operations. It was not a smooth transition as Forum's changes created problems in invoicing and inventory control. The problems were so severe that they negatively impacted Davis-Lynch's sales. The warehouse under Forum management struggled to satisfy normal levels of demand and delivery times increased dramatically. In addition, the quality of Forum's product noticeably declined. Forum lost customers as a result of the problems. Forum's management acknowledged that the changes had caused manufacturing and delivery problems. While the situation did eventually begin to improve, it was a very slow process and manufacturing did not return to its pre-acquisition level until sometime in 2014, three years after the acquisition.
Forum continued the relationship with WearSox. Because it was a handshake-only relationship, WearSox was free to partner with Forum's competitors if it so chose. Indeed, Wearsox had worked with Forum's competitors to offer other centralizers using its thermal spray technology. Sales of the Davis-Lynch/Forum CentraLaser combo product totaled approximately twenty-five percent of WearSox's total sales. For Forum, WearSox's freedom to leave the relationship was problematic because of the importance of WearSox's thermalspray technology to the success of the CentraLaser combo product. WearSox's technology, by contrast, could be applied to many other centralizers in the market. As a result, Musselwhite made numerous suggestions to Forum management that they should purchase WearSox. While Forum did try to buy WearSox, WearSox thought the offer was too low and it declined to continue the discussions.
Soon thereafter, WearSox noticed that its relationship with Forum began to change. The biggest change was a pattern of slow or no payment for WearSox's thermal spray services used in sales of the CentraLaser combo product. Eventually, the amount Forum owed WearSox exceeded $740,000. Faced with this, WearSox decided to flip the relationship with Forum. Instead of WearSox selling its thermal spray services to Forum, which would then sell the CentraLaser combo product under Forum's invoice, WearSox would buy CentraLasers from Forum, and sell the combo product under WearSox's invoice. WearSox officially flipped the relationship in late 2012.
Musselwhite tried to help Forum after the acquisition. He introduced the new Forum management to Davis-Lynch's customers. Musselwhite responded to customers and tried to diffuse their complaints. Musselwhite also warned his superiors about the danger of losing WearSox and urged them to maintain the relationship. Eventually, Musselwhite began experiencing severe headaches and believed his headaches were caused by the stress arising out of dealing with the problems created by Forum's changes and management's inability to correct the problems. So, Musselwhite resigned from Forum in early 2013 to take a job with Allied Oil & Gas Services, Inc. (Allied), a cement-pumping business in the oilfield services market. Allied was not in a business that competed with Forum.
Since he worked for a non-competitor, Musselwhite did what he could to help Forum after he left the company. Examples include referring millions ofdollars in sales to Forum instead of Forum's competitors. Musselwhite also responded to calls from Forum's customers and tried to make certain that Forum met the customer's needs. Forum even let Musselwhite keep his company phone so that he could help his former customers. Musselwhite also kept some customer and sales files for the same reason. Musselwhite testified that he never gave this information to anyone else or used it for any purpose other than helping Forum.
WearSox continued to sell the combo product using CentraLasers it purchased from Forum. Tyler Swain, an owner and founder of WearSox, thought it was fair, and industry practice, to pay a commission from these sales to anyone who helped sell WearSox's products. The people receiving these commissions included Musselwhite and Romero, both of whom sold Forum's CentraLasers to WearSox. In Swain's view, WearSox's commission plan did not harm Forum because WearSox continued purchasing Forum's CentraLaser. Swain also did not believe the plan competed with Forum because WearSox's technology was a complimentary product to Forum's CentraLaser. Musselwhite and Romero did not believe the commission arrangement harmed Forum. They instead believed that the arrangement helped Forum because it maintained Forum's access to WearSox's thermal-spray technology and enabled Forum to continue selling CentraLasers. Without Musselwhite and Romero's involvement, because of Forum's prior payment problems, there was a distinct possibility that WearSox would stop dealing with Forum altogether.3 Forum later took issue with this arrangement and sued an entity, HKM Consulting, LLC, which had received the commissions paid by WearSox on the sales that Musselwhite and Romero helped to make.
Intervale Capital, LLC (Intervale) is a private equity fund that invests in oilfield services and equipment companies. Allied, Musselwhite's new employer, was an Intervale company. Intervale purchased Antelope Oil and Manufacturing Co., LLC (Antelope) because it wanted to invest in a casing hardware company and turn the company into a major competitor in the market. Intervale then hired Iain Levie to be Antelope's executive vice-president of sales. Levie knew about WearSox's technology and thought WearSox...
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