Securus Techs. Inc. v. Global Tel*link Corp., 2016-1470
| Decision Date | 26 January 2017 |
| Docket Number | 2016-1506,2016-1470 |
| Parties | SECURUS TECHNOLOGIES INC., Plaintiff-Cross-Appellant v. GLOBAL TEL*LINK CORPORATION, Defendant-Appellant |
| Court | U.S. Court of Appeals — Federal Circuit |
NOTE: This disposition is nonprecedential.
Appeals from the United States District Court for the Northern District of Texas in No. 3:13-cv-03009-K, Judge Ed Kinkeade.
MARK STRACHAN, Sayles Werbner, P.C., Dallas, TX, argued for plaintiff-cross-appellant. Also represented by E. SAWYER NEELY, DARREN PATRICK NICHOLSON, RICHARD ALAN SAYLES; GRADY MICHAEL GRUBER, ANTHONY MAGEE, Gruber Hurst Elrod Johansen Hail Shank LLP, Dallas, TX; BRUCE SOSTEK, RICHARD L. WYNNE, JR., Thompson & Knight LLP, Dallas, TX.
JOHN CHRISTOPHER ROZENDAAL, Sterne Kessler Goldstein & Fox, PLLC, Washington, DC, argued for defend- ant-appellant. Also represented by WILLIAM H. MILLIKEN, Kellogg, Huber, Hansen, Todd, Evans & Figel, PLLC, Washington, DC.
Before DYK, BRYSON, and REYNA, Circuit Judges.
Securus Technologies, Inc., owns patents relating to the delivery of communications services to correctional facilities. It has sued various entities for infringement of those patents. One of the entities Securus sued was Public Communications Services, Inc. ("PCS"). That suit ended in 2009 with a settlement that included Securus's agreement not to sue "PCS or its affiliates" for "infringement of any Securus Patent" until September 18, 2014.
In 2010, Global Tel*Link Corporation ("GTL") acquired PCS through a stock purchase, and PCS became a wholly owned subsidiary of GTL. Three years later, Securus brought an infringement action against GTL. GTL invoked Securus's covenant not to sue PCS or its affiliates as an affirmative defense, asserting that it was an "affiliate" of PCS. GTL also filed a counterclaim charging Securus with breach of contract, alleging that Securus had violated the covenant by suing GTL for patent infringement. For relief on the counterclaim, GTL sought damages in the amount of the attorney fees it incurred in defending against the infringement claim.1
Based on the covenant not to sue, GTL moved for summary judgment on Securus's infringement claim. The district court granted GTL's motion. The court agreed that GTL qualified as an affiliate of PCS and that the covenant therefore protected GTL from Securus's suit. Under Texas law, the court explained, "entities who are a subsidiary, parent, or sibling corporation . . . are all encompassed within the plain, ordinary, and generally accepted meaning of 'affiliate.'" Because GTL satisfied that definition, the court held that the covenant not to sue barred the infringement action against GTL.
For its part, Securus moved for summary judgment on GTL's counterclaim for breach of the covenant not to sue. Securus argued that it was entitled to summary judgment on GTL's breach of contract claim because GTL had not offered competent evidence of damages. In particular, Securus argued that GTL had not introduced any evidence that the attorney fees GTL incurred in the infringement action were reasonable and necessary. Securus also argued that under Texas law GTL was required to present expert testimony in support of its claim for attorney fees as damages for the breach of the covenant not to sue. Because GTL had not designated an expert to testify on the reasonableness and necessity of its fees, Securus argued that it was entitled to summary judgment on GTL's request for attorney fees as damages on its counterclaim.
The district court granted Securus's motion for summary judgment, holding that under Texas law GTL's claim for attorney fees as damages required expert testimony, or at least an attorney for GTL testifying as an expert. Because GTL had not timely designated an expert, the court held that GTL would not be able to satisfy that requirement and thus would not be able to prove attorney fee damages for breach of the covenant not to sue.
Securus has appealed from the district court's order holding that the covenant not to sue barred Securus from suing GTL for patent infringement. GTL has appealed from the district court's order holding that GTL did not properly support its claim for damages. We affirm both orders.
On Securus's appeal, we agree with the district court that the covenant not to sue that Securus entered into as part of the 2009 settlement agreement was applicable to GTL and that the covenant barred Securus from bringing a patent infringement action against GTL before 2014.
Securus acknowledges that GTL can claim the benefit of the 2009 covenant not to sue if GTL qualifies as an "affiliate" of PCS. Securus argues, however, that the district court erred in holding that GTL is an "affiliate" of PCS within the meaning of the covenant not to sue.
In the covenant, Securus agreed not to sue "on behalf of itself and its former and present affiliates, subsidiaries and parent corporations, successors and assigns." Securus points out that, by contrast with that sweeping language referring to the parties who were barred from bringing suit, the portion of the 2009 covenant referring to the parties that Securus agreed not to sue names only "PCS or its affiliates." Because the agreement refers to Securus's "affiliates, subsidiaries and parent corporations" as separate entities, Securus argues that the agreement's reference only to PCS's "affiliates" is a clear indication that the term "affiliate," as used in the covenant, does not include a parent corporation of PCS, such as GTL.
That textual argument is unpersuasive. It is not unusual for legal documents to use overlapping language in order to ensure against gaps in intended coverage. Overlapping terms are frequently found in documents such as wills ("give, bequeath, and devise"), contracts of sale ("grant, bargain, sell, and convey"), and releases ("remise, release, and forever discharge"). That appears to be the role of the reference in the 2009 contract to Securus's covenant not to sue "on behalf of itself and its former and present affiliates, subsidiaries and parent corporations, successors and assigns."
The problem with Securus's argument is that if those terms were given non-overlapping meanings, the term "affiliate" would not include subsidiaries, since the term "subsidiaries" is separately set forth in the clause on which Securus relies. Yet Securus acknowledges that a "subsidiary" is a paradigmatic example of an "affiliate" under its narrow interpretation of that term. It is clear, therefore, that even under Securus's view of the meaning of "affiliate," the terms in the clause on which Securus relies must be regarded as overlapping.
Securus further contends that the plain, ordinary, and generally accepted meaning of "affiliate" does not include a corporate parent. According to Securus, the plain meaning of the term "affiliate," both in general and under Texas law, refers to a company "that is either subordinate to another or dependent on another through ownership or control," and that it does not include a parent corporation.
That argument does not stand up against a review of the authorities pertinent to the 2009 covenant. First, the term "affiliate" was defined in the contemporaneous edition of Black's Law Dictionary to mean "a subsidiary, parent or sibling corporation," or a corporation "related to another corporation by shareholdings or other means of control," a definition that clearly includes parent corporations. Black's Law Dictionary 67 (9th ed. 2009). When applying Texas law to interpret a contract, courts have looked to the definition in Black's Law Dictionary as setting forth the ordinary meaning of the term "affiliate." Thus, the court in McLane Foodservice, Inc. v. Table Rock Rests., L.L.C., 736 F.3d 375, 378 (5th Cir. 2013), held that the ordinary definition of "affiliate" under Texas law includes a parent corporation; see also id. at 378 n.3 ().
Texas authorities confirm that Texas law embraces that broad definition of "affiliate." The Texas Business Organizations Code, which GTL accurately describes as "the state's central repository of corporate law," defines "affiliate" as "a person who controls, is controlled by, or is under common control with another person." See Funderburk Enters., LLC v. Cavern Disposal, Inc., No. A-09-CA-327, 2009 WL 3101064, at *5 (W.D. Tex. Sept. 22, 2009) (). That definition clearly includes parent corporations such as GTL, which is under common control with its wholly owned subsidiary, PCS.
Texas state judges have applied that definition as well. See Eckland Consultants, Inc. v. Ryder, Stilwell Inc., 176 S.W.3d 80, 88 (Tex. App. 2004) (); see also Texas Rice Land Partners, Ltd. v. Denbury Green Pipeline-Texas, LLC, 381 S.W.3d 465, 467 (Tex. 2012) (Wainwright, J., concurring) ().
Federal courts interpreting Texas law have consistently reached the same conclusion: that under the general definition of "affiliate" in Texas law, parent corporations are "affiliates" of their subsidiaries. See McLane Foodservice, 736 F.3d at 378; Texas Molecular Ltd. P'ship v. Am. Int'l Specialty Lines Ins. Co., 424 F. App'x 354, 357 (5th Cir. 2011) (); In re Heartland Payment Sys., Inc. v. Customer Data Sec. ...
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