Reynolds-Southwestern Corp. v. Dresser Industries, Inc.

Decision Date12 February 1969
Docket NumberNo. 184,REYNOLDS-SOUTHWESTERN,184
Citation438 S.W.2d 135
PartiesCORPORATION, et al., Appellants, v. DRESSER INDUSTRIES, INC., Appellee. . Houston (14th Dist.)
CourtTexas Court of Appeals

Walter C. Clemons, Jack W. Hayden, Thomas H. Lee, Houston, for appellants.

Alvin M. Owsley, Jr., Baker, Botts, Shepherd & Coates, Houston, for appellee.

TUNKS, Chief Justice.

For a number of years Vining T. Reynolds, one of the appellants, has been professionally engaged in exploration for oil and gas by use of seismograph. Before May 30, 1964, he conceived and worked on a machine called 'Vibration Recording Interpreter.' The purpose of that machine was to assist in the mechanical interpretation of data recorded by seismograph in such exploration. On that date, May 30, 1954, he completed the construction of the working model of such machine. On June 14, 1954, he filed an application for patent on it .

In 1954, Keith Beeman and Richard Parker were the owners of controlling interest in Southwestern Industrial Electronics Company, a corporation. They were officers and directors. That corporation, herein sometimes called 'S.I.E.,' manufactured and sold equipment used in seismographic exploration for oil and gas.

Before August 28, 1954, Reynolds on the one hand, and Beeman and Parker on the other, began nogotiations as to an arrangement for the manufacturing and marketing of the seismographic recording interpreter which had been invented by Reynolds. An agreement was reached and reduced to writing in several related documents. In substance, it was agreed that Beeman and Parker should raise $300,000 to finance the commercial exploitation of the recorder and related processes. In consideration therefor it was agreed that Reynolds should assign to them an undivided one-half interest in his right to the invention and the pending patent of the 'Vibration Recording Interpreter' as well as such improvements thereof as might be thereafter made or affected. As a medium for carrying out this agreement, the parties organized a corporation called Reynolds-Southwestern Corporation. V. T. Reynolds became the owner of one-half of the shares in this corporation and Beeman and Parker jointly were the owners of the other one-half. All three were officers and directors. Reynolds, Beeman and Parker assigned to the corporation their interests in the invention. It was agreed that Reynolds-Southwestern Corporation, hereinafter sometimes called 'R.S .W.' should first pay to Reynolds $50,000 out of the gross receipts from the commercial exploitation of the invention and, thereafter, should pay one-third of such gross receipts to Reynolds and another one-third to Beeman and Parker jointly. Arrangements were made restricting the sale by either party of his shares in Reynolds-Southwestern without the consent of the other parties. Soon thereafter, S.I.E. assumed the obligation of Beeman and Parker to furnish the financing for the project and acquired their interest in the invention, including their right to be paid the one-third of the proceeds from the marketing thereof by R.S.W. From that time on until the relationship was terminated, the venture was carried on through the two corporations.

With the completion of these arrangements, the manufacture and marketing by R.S.W. of the interpreter proceeded with some degree of success. The machines were placed with oil companies and geophysical research companies, generally on a monthly rental basis. S.I.E. furnished personnel and money for the development of the invention.

Between the date of the beginning of this promotional arrangement and its termination the appellee, Dresser Industries, Inc., a corporation, acquired all of the shares in S.I.E. The shareholders of S.I.E., including Beeman and Parker, received shares in Dresser Industries in exchange for their shares in S.I.E. S.I.E. continued its corporate existence as a wholly-owned subsidiary of Dresser. Deeman and Parker continued to be directors and officers of S.I.E. as well as of R.S.W.

In explanation of the controversy which is the basis of this lawsuit, it is necessary to describe briefly and generally the procedure by which the principals of seismology are used in the exploration for geological structures where oil and gas may be found . It is a procedure whereby a tremor created by detonation of a charge of dynamite at or near the surface of the earth sets up waves which travel to the sub-surface geological structures and are reflected back to the surface. The time required for a wave to travel downward to a given stratum and back, by reflection, to the surface varies with the depth of the stratum. The measurements of the differences in the time lapse of these reflections at different points in an area permits the mapping, by contour map or cross-section, of the differences in the depth of the stratum. Such a map shows the location of sub-surface geological structures which may contain reservoirs of oil and gas.

In 1954, when the parties started producing Reynolds' invention, the procedure used in seismographic exploration involved the use of detectors sitting on the ground which picked up the impulse from the reflected waves and transmitted them through electronic equipment which recorded them on photographic paper. The visual record thus created required, in order to give it validity, corrections to account for certain variables--the differences in the elevations of the detectors on the ground, the differences in the character and thickness of unstable deposits near the surface, called 'weathering' and the differences in the distance of the detectors from the point at which the wave was originated.

Before Reynolds' invention those corrections were made by technicians who computed them from data furnished. Reynolds' invention computed those corrections mechanically and automatically. It was his testimony that the machine would make as many of such corrections in four minutes as would require three technicians a half-day of work.

Soon after Reynolds developed his automatic interpreter a change occurred in the procedure for seismographic exploration for oil and gas. Magnetic tape was used as a means of recording the reflections instead of photographic paper. The Reynolds' machine was not usable in making the corrections and interpretations of such magnetic tape records. The testimony shows that when this change occurred, Reynolds began working to make modifications in his machine so as to adapt it for use in interpreting tapes. Beeman and Parker, when they learned that he was using some of the promotional funds advanced by S.I.E. to finance such modifications, objected to his doing so. During the time that R.S.W. and S.I.E. were, under their 1954 promotional agreement, jointly engaged in the production and marketing of Reynolds' interpreter, S.I.E. was working on a machine that could be used in the interpreting of seismographic data recorded on magnetic tape. The purpose of this machine upon which S.I.E. was working was to make the same adjustment in such tape recorded data as Reynolds' interpreter made in photographically recorded data. Though it is the subject of some dispute between in parties there is evidence from which a jury could have believed that Beeman and Parker deliberately concealed from Reynolds the fact that S.I.E. was working on such a device, which would be competitive with that being produced and marketed by R.S.W.

In the early part of 1957, the parties began discussing the termination of the promotional agreement which they had made in 1954 . These discussions led to an agreement effecting such a termination. That agreement was reduced to writing and executed on May 22, 1957. The principal parties to this agreement were the corporations R.S.W. and S.I.E. Reynolds, personally,...

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    ...capacity with a second corporation of which he is also a director or significantly financially associated, Reynold's-Southwestern Corp. v. Dresser Industries, Inc., 438 S.W.2d 135 (Tex.Civ.App.--Houston [14th Dist.] 1969, writ ref'd n.r.e. ); or (4) transacts business in his director's capa......
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    ...Statutes, the forerunner of § 16.003, to claims involving the misappropriation of trade secrets. See Reynolds-Southwestern Corp. v. Dresser Indus., 438 S.W.2d 135, 140 (Tex.Civ.App.1969) (applying art. 5526 to trade secret claim); see also Coastal Distrib. Co. v. NGK Spark Plug Co., 779 F.2......
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