Pike v. Tex. EMC Mgmt., LLC

• Decision Date: 19 June 2020
• Docket Number: No. 17-0557,17-0557
• Citation: 610 S.W.3d 763
• Parties: Clinton W. ("Buddy") PIKE, Sr., Daniel L. Walker, W. Tobin Wilson, VHSC Cement, LLC, and Few Ready Mix Concrete Co., Petitioners, v. TEXAS EMC MANAGEMENT, LLC, Texas EMC Products, LP, and EMC cement, BV, Respondents
• Court: Texas Supreme Court

610 S.W.3d 763

Clinton W. ("Buddy") PIKE, Sr., Daniel L. Walker, W. Tobin Wilson, VHSC Cement, LLC, and Few Ready Mix Concrete Co., Petitioners,

v.TEXAS EMC MANAGEMENT, LLC, Texas EMC Products, LP, and EMC cement, BV, Respondents

No. 17-0557

Supreme Court of Texas.

Argued September 24, 2019

OPINION DELIVERED: June 19, 2020

Rehearing Denied October 2, 2020

Angus Earl McSwain, Beard Kultgen Brophy Bostwick Dickson, C. Alfred Mackenzie, West, Webb, Allbritton & Gentry, P.C., Steven Gregory White, Gray Reed & McGraw LLP, Waco, Charles T. Frazier Jr., Alexander Dubose Jefferson & Townsend LLP, Dallas, Lisa M. Norman, Robert A. Plessala, William Benjamin Westcott, Andrews & Myers, PC, Houston, Joe B. Cannon, Cannon & Wilson PC, Groesbeck, for Petitioners Few Ready Mix Concrete Co., Daniel L. Walker, W. Tobin Wilson.

Nina Cortell, Allen Ryan Paulsen, Andrew W. Guthrie, Ben L. Mesches, Haynes and Boone, LLP, Dallas, Joe B. Cannon, Cannon & Wilson PC, Groesbeck, Mark R. Trachtenberg, Haynes and Boone, LLP, Houston, Michael A. Hatchell, Haynes & Boone LLP, Austin, for Petitioner Clinton W. Pike, Sr.

Nina Cortell, Allen Ryan Paulsen, Andrew W. Guthrie, Ben L. Mesches, Haynes and Boone, LLP, Dallas, Lisa M. Norman, Robert A. Plessala, William Benjamin Westcott, Andrews & Myers, PC, Mark R. Trachtenberg, Haynes and Boone, LLP, Houston, Joe B. Cannon, Cannon & Wilson PC, Groesbeck, Michael A. Hatchell, Haynes & Boone LLP, Austin, for Petitioner VHSC Cement, LLC.

Herbert J. Hammond, James Michael Heinlen, Richard B. Phillips Jr., Thompson & Knight LLP, Daniel J. Sheehan Jr., John M. Phalen Jr., Daniel Sheehan & Associates, PLLC, Jeffrey S. Levinger, Levinger PC, Michael Patrick McShan, The Beckham Group, Scott P. Stolley, Stolley Law, P.C., Dallas, Bobby L. Reed, Reed & Reed, LLP, Groesbeck, Craig D. Cherry, Joshua John White, Haley & Olson, P.C., Waco, for Respondents.

Justice Busby delivered the opinion of the Court, in which Chief Justice Hecht, Justice Green, Justice Guzman, Justice Lehrmann, Justice Boyd, Justice Devine, and Justice Blacklock joined, and in Part IV of which Justice Bland joined.

In this case, we address multiple issues arising out of the breakup of a limited partnership created to produce and market a new cement product. The partnership, its general partner, and the limited partner that supplied the cement-making technology sued the limited partners responsible for funding, the partnership's general manager, and the companies that foreclosed on and purchased the partnership's assets; those defendants asserted counterclaims. After a jury trial, the trial court rendered judgment in favor of the partnership on its claims of conspiracy, breach of contract, and tortious interference with a contract. The court also rendered judgment in favor of the technology-supplying partner for breach of the partnership agreement, misappropriation of trade secrets, and conspiracy, and in favor of the funding partners for the partnership's breach of the partnership agreement. All parties appealed, raising a multitude of issues. The court of appeals largely affirmed the judgment, and parties on both sides of the dispute filed petitions for review, raising many of their issues again in this Court.

After addressing a challenge to the limited partner's standing, we hold that the plaintiffs failed to present legally sufficient evidence of damages and reverse the portion of the judgment awarding damages. We also conclude that the technology-supplying partner was not entitled to a permanent injunction for misappropriation of trade secrets and reverse that portion of the judgment. Finally, we conclude the company that purchased the partnership's assets and promissory note did not prove it was entitled to judgment as a matter of law on its counterclaim for the partnership's failure to pay a deficiency balance on the note, and we affirm that portion of the judgment.

BACKGROUND

A. The parties create the Partnership to make and sell a new type of cement.

Concrete is made by mixing cement, water, sand, and gravel. Portland cement is a base ingredient of concrete and its most expensive component. Vladimir Ronin, a scientist living in Sweden, conducted research and experiments on how to make concrete more efficiently with less Portland cement. He mixed materials such as slag and microsilica (waste byproducts from steam and alloy production, respectively) with Portland cement in vibrating horizontal cylinders with balls of different sizes, subjecting the materials to intensive grinding. After processing in these vibrating ball mills, the strength of the cement base combined with these materials was much higher than normal cement. Ronin named this new material "energetically modified cement" (EMC) and received a patent for the processing of Portland cement with different types of materials in the vibrating cylinders. He built a small pilot plant in Sweden to conduct additional experimentation and testing and went into business with Atle Lygren. They formed EMC Cement BV, a Dutch holding company, to own the exclusive rights to the energetically modified cement technology. Ronin continued his role with research and development, and Lygren took over business development.

While promoting the energetically modified cement, Ronin met Dan Walker, a chemical engineer and the owner of Few Ready Mix, a concrete business in Jasper, Texas. After discussions about replacing Portland cement with Texas fly ash (a waste byproduct from coal power plants), Walker shipped Texas fly ash to Sweden for testing. The testing showed positive results, so Ronin filed for additional patents. After Walker signed a confidentiality agreement, he and Ronin began producing a cement named CemPozz—containing 95% fly ash and 5% Portland cement—at a pilot plant in Jasper. About one year later, Ronin and Walker built a commercial-sized cement plant in Jewett, Texas, near a power plant that produced fly ash.

William Tobin Wilson, an investor, heard about the technology of converting fly ash into a cement product and began discussions about investing in the company. In 2005, he and Walker formed a limited partnership with Ronin and Lygren to do business in Texas. They named the limited partnership Texas EMC Products (the Partnership), and its primary objective was to "maximize the degree and speed of market penetration for the products in the state of Texas in accordance with market demand and market potential respecting sound business principles." Texas EMC Management, LLC (EMC Management) was the general partner and owned a 1% interest in the Partnership; the members of EMC Management were Walker, Lygren, and Ronin. EMC Cement BV was a Class A limited partner, owning 49.5% of the Partnership. Walker, Walker's family members, and Wilson owned the remaining 49.5% of the Partnership and were Class B limited partners.

The partnership agreement required the Class B limited partners to provide financing, providing that they "shall loan funds to and/or obtain financing for the Partnership to meet the Primary Objective until such time as the Partnership has the financial ability to obtain such financing on its own resources." EMC Cement BV had no obligation to make loans to or obtain financing for the Partnership. According to the agreement, the Partnership was to terminate in 2055.

Around the same time the parties signed the partnership agreement, EMC Cement BV gave the Partnership an exclusive license to use its patents to produce and commercialize products in Texas. The license agreement gave EMC Cement BV the right to terminate the agreement under certain circumstances, and the agreement was not assignable or transferable without EMC Cement BV's written consent.

Clinton W. "Buddy" Pike, Sr. was hired as the general manager of EMC Management and the plant. He signed a management agreement that included confidentiality provisions.

The Partnership took out a loan of over $4 million. Because the Partnership did not have the ability to obtain its own financing, the note was guaranteed by Wilson, Walker and his wife, and Few Ready Mix. The note was secured by assets of the Partnership, including the plant and equipment in Jewett, as well as stocks held by Wilson in an investment account. The Partnership paid the interest on the note, while Walker and Wilson paid monthly $25,000 principal reduction payments. Walker and Wilson considered these payments loans to the Partnership.

Ronin and Lygren used the plant in Jewett to continue marketing the technology to other potential investors. Around 2008, Ronin and Lygren began negotiations with C-Change Investments, LLC regarding commercializing the technology in California. They eventually signed a letter of intent regarding a potential partnership in which C-Change would commit to invest up to $50 million. Negotiations continued the following year with John Preston, a principal of C-Change, and Alan Quasha, the CEO of investment firm Quadrant Management. In December 2010, however, the negotiations were called off.

B. The Partnership experiences problems and its assets are sold in foreclosure.

The CemPozz technology did not work as hoped. Seven-day strength testing did not produce consistent or acceptable results. Walker agreed that CemPozz was a "difficult sale" with a very small customer base. In 2006, the Partnership sold 81,402 tons of product and had net income of negative $141,686.72. The next few years were not better. The Partnership never made a profit. Even though it had the capacity to produce 300,000 tons of product, the most it sold in one year was 91,639 tons. In 2010, the Partnership sold only 58,149 tons with net income of negative $377,222.11.

To address the issue of CemPozz not meeting seven-day strength testing, the Partnership modified the vibrating ball mill in 2010, increasing the retention time of fly ash in the mill. Ronin filed for another patent on this method, and the new product was named Pozzo Slag to distinguish it from the old...