Providence Title Co. v. Truly Title, Inc.
| Decision Date | 29 March 2022 |
| Docket Number | Civil 4:21-CV-147-SDJ |
| Parties | PROVIDENCE TITLE COMPANY v. TRULY TITLE, INC., ET AL. |
| Court | U.S. District Court — Eastern District of Texas |
Providence Title Company (“Providence”) and Truly Title Inc. (“Truly”) are competitors in the Texas title insurance market. In 2019, they unsuccessfully negotiated Truly's potential acquisition of Providence. After negotiations failed, Truly successfully recruited a number of Providence's senior employees in North Texas, including its then-president, Tracie Fleming.[1] Fleming was accompanied by an exodus of Providence personnel to Truly.
The facts and background of this case are more fully set out in the Court's previous Memorandum Opinion and Order. Providence Title Co. v. Truly Title, Inc., 547 F.Supp.3d 585, 593-94 (E.D. Tex. July 1, 2021). Providence maintains that the actions of Truly, Truly's president of Texas operations-Graham Hanks, Fleming, and others associated with these events went well beyond free-market competition and instead embraced the misappropriation of Providence's trade secrets, Truly's violation of nonsolicitation and nondisclosure agreements, Fleming's and others' breach of fiduciary duties, and Fleming's breach of a shareholders' agreement.
Based on these allegations, Providence asserts various causes of action against Fleming. Fleming in turn brings counterclaims against Providence and has counter-sued third-party defendants Daniel Foster, Providence's CEO, and his law firm, Ramsey & Foster LP[2] (together, the “Third-Party Defendants”), asserting claims for fraud, negligence breach of fiduciary duty, and tortious interference, among others.
Before the Court are Providence's Motion to Dismiss Counterclaims Asserted by Tracie L. Fleming, (Dkt. #117), and the Third-Party Defendants' Motion to Dismiss Third Party Claims Asserted by Tracie L. Fleming, (Dkt. #132). Having considered the motions, the responsive briefing, and the applicable law, the Court concludes that the motions to dismiss should be GRANTED.
Also before the Court is Tracie L. Fleming's Amended Motion for Leave to File (i) Restated Original Answer & First Amended Counterclaim and (ii) First Amended Third Party Claim Against Daniel Foster and Ramsey & Foster LP. (Dkt #167).[3] Having considered the motion, the responsive briefing, and the applicable law, the Court concludes that Fleming's motion for leave to amend should be GRANTED in part and DENIED in part.
Providence and Truly negotiated Truly's potential acquisition of Providence throughout 2019 before ultimately deciding to cease such negotiations. According to Providence, after the breakdown in the parties' negotiations, Truly began to use the information Providence provided to solicit Providence's employees and business contacts, allegedly in violation of the nondisclosure and nonsolicitation agreements Providence and Truly executed. Fleming, who was then Providence's president, a member of its board of directors, and a shareholder, resigned from Providence and was hired as Truly's executive vice president.
Prior to these events, Fleming executed Providence's First Amendment to Shareholders' Agreement, (Dkt. #1-6), effective as of April 9, 2013, whereby she acquired Providence shares and acknowledged that she had “received and reviewed a copy of the Shareholders' Agreement” and thereby “assume[d] all of the duties and obligations of a shareholder under the Shareholders' Agreement to the same extent as if she had been an original signatory of such instrument.” (Dkt. #1-6 ¶ 9). For clarity, the Court will refer to the original Shareholders' Agreement, as amended by the First Amendment to Shareholders' Agreement, as the “Shareholders' Agreement.”
As relevant here, Article 8 of the Shareholders' Agreement, which governs the repurchase of a departing shareholder's shares, includes a noncompete provision in Section 8.4 that provides:
Non-Compete. Offering Shareholder agrees for a period of twenty-four (24) months from the date of the Closing (defined in Section 8.1) he/she will not (i) serve as a partner, employee, consultant, officer, director, member, manager, agent, associate, investor, or otherwise, or (ii) directly or indirectly, own, purchase, organize or take preparatory steps for the organization of, or (iii) build, design, finance, acquire, lease, operate, manage, invest in, work or consult for or otherwise affiliate hisself [sic]/herself with any business in competition with or otherwise similar to Providence's business within the Texas counties of Tarrant, Dallas, Harris, Bexar or any Texas counties contiguous to such stated counties. Breach of this covenant shall entitle the payees of the promissory notes given in payment for the Shares acquired under Section 8.2 herein to defer all payments for a period not to exceed twenty-four (24) months, without interest.
(Dkt. 1-6 § 8.4) (emphases added). Providence maintains that Fleming's present employment with Truly violates the noncompete provision.
Following the breakdown in acquisition negotiations and Fleming's and other Providence employees' departure from Providence to Truly, Providence filed suit, asserting various claims against Fleming. Providence contends that Fleming (1) misappropriated Providence's trade secrets in violation of the Defend Trade Secrets Act and the Texas Uniform Trade Secrets Act, (2) breached fiduciary duties to Providence, (3) breached the Shareholders' Agreement, and (4) engaged in a civil conspiracy.
Early in this litigation, Providence sought a preliminary injunction against Fleming. After briefing and a hearing, the Court granted Providence's request and enjoined Fleming from maintaining employment in any capacity with Truly, or with any other Providence competitor, within the Texas counties of Tarrant, Dallas, Harris, Bexar, or any other Texas counties contiguous to those counties pending the resolution of this case, consistent with the noncompete provision. Providence Title, 547 F.Supp.3d at 613. Fleming has appealed the preliminary injunction entered by the Court. (Dkt. #109).
Fleming now brings counterclaims against Providence and a third-party complaint against the Third-Party Defendants. In her counterclaim and third-party complaint, Fleming explains that she began working for Providence in 2008 and became a shareholder in 2013 after executing the Shareholders' Agreement.
Pursuant to the Shareholders' Agreement, she purchased 60, 000 Providence shares-some of which she purchased from Foster, Providence's majority shareholder. (Dkt. #1-6). Thus, Foster was a “Seller” under the Shareholders' Agreement.
In addition to the noncompete provision discussed above, the Shareholders' Agreement also disclaimed warranties and representations of the sellers in Paragraph 11, which provides:
Disclaimer of Warranties. Fleming acknowledges that she has received and reviewed such information as she deemed necessary in order to evaluate the merits and risks of its purchase of the Shares and that Fleming has such knowledge and experience in financial and business matters to be capable of evaluating the merits and risks associated with the purchase of the Shares. Fleming has made and conducted due inquiry, including without limitation, an investigation of the Corporation and its operations, assets, liabilities, and financial condition and is entering into this agreement based on her due diligence investigation and is not relying upon any representation or warranty of the Sellers (other than as provided in Section 10 hereof [detailing warranties of title to stock]) or of the Corporation or any affiliate thereof or any officer, director, shareholder, contractor, manager, employee, agent, attorney, or advisor of any of them, nor upon the accuracy of any record, document, instrument, projection of statement made available or given to Fleming in the performance of such due diligence or otherwise. Fleming acknowledges that she is acquiring the Shares on an “as is, with all faults” basis without any express or implied representation or warranty of any kind other than as expressly set forth herein.
(Dkt. #1-6 ¶ 11) (emphases added).
Additionally, Section 13.14 of the Shareholders' Agreement states the following regarding legal representation:
Legal Representation. All parties to this Agreement acknowledge that [a named law firm] has represented only Daniel A. Foster in connection with the preparation of this Agreement and that all other signatories are advised to seek separate, independent legal counsel with respect to their respective legal rights and obligations associated with this Agreement and the transactions contemplated herein.
(Dkt. #1-5 § 13.14) (emphasis added). Section 13.1 of the Shareholders' Agreement provides that if the corporation or other shareholders fail “to comply with the provisions of this Agreement, this Agreement may be enforced by specific performance.” (Dkt. #1-5 § 13.1). The Shareholders' Agreement further states that it will be governed under Texas law. (Dkt. #1-5 § 13.3).
Fleming alleges that Foster had a history of representing Providence, along with its shareholders and employees, in legal matters such as divorce proceedings, will and estate planning, and minor criminal and misdemeanor proceedings. As part of this practice, Foster provided legal advice to Fleming and her husband in 2013 regarding their purchase of a used-car-sales business and later advised them when the business began to fail.
Based on this, Fleming alleges that she believed Foster was her personal attorney. Fleming further alleges that, prior to...
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