N.Y. Pizzeria, Inc. v. Syal

• Decision Date: 08 October 2014
• Docket Number: Civil Action No. 3:13–CV–335.
• Citation: 53 F.Supp.3d 962
• Parties: NEW YORK PIZZERIA, INC., Plaintiff, v. Ravinder SYAL, et al., Defendants.
• Court: U.S. District Court — Southern District of Texas

53 F.Supp.3d 962

NEW YORK PIZZERIA, INC., Plaintiff
v.
Ravinder SYAL, et al., Defendants.

Civil Action No. 3:13–CV–335.

United States District Court, S.D. Texas, Galveston Division.

Signed Oct. 8, 2014.

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Joseph Leo Lanza, Vethan Law Firm, Charles M.R. Vethan, Attorney at Law, Houston, TX, for Plaintiff.

Matthew Luke Hoeg, Andrews Kurth et al., Larry Alton Vick, Attorney at Law, Houston, TX, for Defendants.

MEMORANDUM AND ORDER

GREGG COSTA, Circuit Judge.^*

Even in this land of Tex–Mex and barbecue, people are passionate about pizza. In this case, a Houston-area pizza chain named New York Pizzeria filed suit alleging that a former employee conspired with others to steal secret recipes and other proprietary information so they could open a competing chain. Defendants contend, however, that New York Pizzeria is trying to get a second slice of the pie. They seek dismissal, arguing that this federal lawsuit is barred by the final judgment in a prior state court suit between New York Pizzeria and one of the Defendants, as well as a contractual release of claims between New York Pizzeria and that same defendant. The Court agrees that the release precludes this second suit against the individual who entered into that contract—Defendant Adrian Hembree. A more difficult question is whether res judicata bars the claims New York Pizzeria asserts against the other Defendants who were not parties in the first case but now are alleged to be Hembree's coconspirators.

I. Background

New York Pizzeria, Inc. (NYPI) is a franchisor of restaurants founded and solely owned by Gerardo Anthony Russo. Adrian Hembree is a former vice president of NYPI and former owner of an NYPI-franchised

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restaurant. Hembree's employment was terminated in March 2011.

In November 2011, NYPI and Hembree¹ entered into a settlement agreement in which NYPI assumed ownership of Hembree's franchised restaurant in exchange for payment of $466,000 (the First Settlement Agreement). The agreement contained provisions requiring Hembree to return documentation relating to the restaurant's operations and employees. It also provided that each party would release the other from “liabilities of any kind or nature whatsoever, at law and in equity, whether known or unknown, ... foreseen or unforeseen.” Id. at 4–5.

After the agreement was executed, NYPI refused to pay the $466,000 because of Hembree's alleged failure to honor his obligations under the agreement. Hembree subsequently brought suit in state court to enforce payment. NYPI asserted counterclaims, many of which alleged that Hembree had breached the settlement agreement on which he was seeking payment. NYPI also asserted counterclaims for misappropriation of trade secrets and under the Texas Theft Liability Act based on allegations that Hembree was using NYPI's trade secrets to develop his own restaurants. The final counterclaim asserted was for conspiracy, alleging that the three plaintiffs in that case—Hembree, his wife, and their business Salcedo/Hembree Investments, LLC—conspired to misappropriate NYPI's trade secrets. The pleading collectively labelled the identified conspirators as the “Hembree Parties.”

In December 2012, the state court granted Hembree partial summary judgment on NYPI's fraudulent inducement claim and all counterclaims “based upon pre-settlement conduct and contracts.” Docket Entry No. 15–7 at 2. About a month after this ruling, the parties signed a settlement agreement (the Second Settlement Agreement) (Docket Entry No. 18–1), and the court dismissed the case with prejudice in March 2013 (Docket Entry No. 15–3).

NYPI rolled out this federal suit in September 2013. In addition to Hembree, the suit names the following parties:

• Ravinder Syal, who allegedly conspired with Hembree and who owns a number of the defendant businesses;

• Gina's Licensing Company, which is jointly owned by Hembree and Syal and which receives ten percent of the profits of the various Gina's Italian Kitchen restaurants;

• Syal & Sons, LLC and Super Duper Inc., corporations owned by Ravinder Syal that allegedly played a role in the violations;

• a number of Gina's Italian Kitchen franchisee restaurants: Gina's Italian Kitchen (Deer Park), Rollin In The Dough, Inc. d/b/a Gina's Italian Kitchen (Clear Lake), Kindling Restaurant Management, LLC d/b/a Gina's Italian Kitchen (Friendswood);

• Kindling Restaurant Group, LLC, a holding company;

• Robert Salcedo, a part-owner of Salcedo/Hembree Investments LLC, a former NYPI franchisee;

• Juan Garcia, Jose Garcia, Nicola Notarnicola and Evin Sanchez, former NYPI employees hired by Syal; and

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• Polo Sun and Philip Raskin, owners of Gina's Italian Kitchen franchisee restaurants.

NYPI asserts a number of claims against the Defendants in this case, including the following (although not every claim is made against every defendant):

• Violation of the Computer Fraud and Abuse Act (CFAA) and the Stored Wire and Electronic Communications and Transactional Record Access Act (SWECTRA) for improperly accessing a computer system to download NYPI's proprietary information;

• violation of the Lanham Act for copying NYPI's distinctive flavor and plating methods;

• misappropriation of trade secrets, violation of the Texas Theft Liability Act, and engagement in unfair competition for using NYPI's recipes, recipe books, plate specifications, ingredients, suppliers, and training and restaurant operations manuals;

• breach of, and tortious interference with, nondisclosure agreements;

• conspiracy to misappropriate NYPI's trade secrets and confidential information, and to breach fiduciary and contractual duties; and

• aiding and abetting the other defendants' violations.

NYPI's claims are based, in part, on facts that came to light after the dismissal of the state court suit. The complaint, for example, asserts that NYPI's “auditor” taped incriminating conversations with Gina's restaurant personnel in June 2013, and that Gina's Licensing Company's CEO testified in September 2013 that Hembree gave him NYPI's internal manuals.

II. Standard of Review

Defendants filed a motion to dismiss, or in the alternative for summary judgment, on the grounds of (1) claim preclusion and (2) waiver and release. The motion can likely be decided under either procedural vehicle because it relies only on the settlement agreement and prior state court pleadings (which can probably be considered in a Rule 12 motion), but the Court will treat this as a summary judgment motion. Summary judgment should be granted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). After Defendants filed their motion, bankruptcy proceedings involving some of the defendants resulted in a stay of this case. That stay is now lifted, and the Court can decide the motion.

III. Claims Against Hembree

The Defendants assert that the claims against Hembree must be dismissed because the First Settlement Agreement released him from all future claims. That agreement, in relevant part, states:

NYPI ... hereby irrevocably and unconditionally waives, releases, and forever discharges HEMBREE ... from any and all claims, charges, demands, sums of money, actions, rights, promises, agreements, cause of action [sic], obligations and liabilities of any kind or nature whatsoever, at law or in equity, whether known or unknown, existing or contingent, suspected or unsuspected, foreseen or unforeseen, apparent or concealed ... which NYPI now or in the future may have or claim to have against HEMBREE.”

Docket Entry No. 15–4 at 4–5.

In Texas, “a valid release may encompass unknown claims and damages that develop in the future.”

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Keck, Mahin & Cate v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 20 S.W.3d 692, 698 (Tex.2000). While it is true that “general categorical release clauses are narrowly construed,” Victoria Bank & Trust Co. v. Brady, 811 S.W.2d 931, 938 (Tex.1991), the one at issue here uses exceptionally broad language. Because the First Settlement Agreement categorically released Hembree from liability to NYPI for past and future claims, the claims against Hembree are dismissed.²

IV. Claims against the Non–Hembree Defendants

The non-Hembree defendants argue that the claims against them must be tossed for two reasons: (1) the release of Hembree from...