Tendeka, Inc. v. Glover

• Court: U.S. District Court — Southern District of Texas
• Writing for the Court: Lee H. Rosenthal United States District Judge
• Decision Date: 11 May 2015
• Docket Number: CIVIL ACTION NO. H-13-1764
• Citation: Tendeka, Inc. v. Glover, CIVIL ACTION NO. H-13-1764 (S.D. Tex. May 11, 2015)
• Parties: TENDEKA, INC., Plaintiff, v. NEIL GLOVER, et al. Defendants.

TENDEKA, INC., Plaintiff, v. NEIL GLOVER, et al. Defendants.

CIVIL ACTION NO. H-13-1764

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

May 11, 2015

MEMORANDUM AND OPINION

Tendeka, Inc. sells swellable-rubber packers for use in oil and gas downhole drilling. Elite Elastomers, Inc., supplied Tendeka with swellable rubber used to make the swellable packers Tendeka sold. Tendeka alleges that Elite breached the confidentiality provisions of their License and Supply Agreement ("LSA") by using Tendeka's proprietary swellable-rubber formulations to accelerate Elite's development of a swellable packer for a Tendeka competitor, Swell X. Elite has counterclaimed against Tendeka, alleging that it breached the LSA by replacing Elite as its swellable-rubber supplier.

Tendeka also sued Swell X and its president, Neil Glover, formerly a Tendeka employee, alleging tortious interference with the LSA and breach of Glover's employment contract. The court dismissed Tendeka's claims against Glover in a prior memorandum and opinion. (Docket Entry No. 50).

Five summary judgment motions are pending. This memorandum and opinion addresses the following motions:

• Elite's motions for partial summary judgment dismissing Tendeka's breach-of-contract claim, based on the arguments that (1) Tendeka did not have an exclusive license to use the rubber compounds formulations SwellFix obtained under its agreement with Shell and then provided to Tendeka, (Docket Entry No. 69), (2) the formulations are not protected as confidential information under the LSA, and (3) the LSA's confidentiality provisions do not cover certain rubber compounds formulations because they were publicly known, (Docket Entry No. 72);

• Elite's motion for partial summary judgment granting its breach-of-contract counterclaims against Tendeka, based on the arguments that Tendeka (1) failed to meet the LSA's requirement to purchase 90% of its rubber needs from Elite, (2) worked with another rubber supplier, and (3) did not pay Elite on time, (Docket Entry No. 76);

• Tendeka's motion for partial summary judgment dismissing Elite's breach-of-contract counterclaims, based on the arguments that (1) Elite breached the LSA, (2) the LSA precludes the lost-profits damages Elite seeks, and (3) the parties agreed to terminate the LSA in July 2013, (Docket Entry No. 78);

• Swell X's motion for partial summary judgment dismissing Tendeka's tortious-interference claims, based on the arguments that (1) Tendeka failed to present sufficient evidence that Swell X induced Elite to violate the LSA's confidentiality provisions, and (2) the affirmative defense of justification excused Elite's actions, (Docket Entry No. 75); and

• Elite's motion to exclude the testimony and expert report of Christian Knudsen, (Docket Entry No. 77).

The parties have submitted an extensive summary judgment record.¹ Although much of the evidence is undisputed, there are genuine material factual disputes that are discussed in detail below. Based on the pleadings; the motions, responses, replies, and sur-replies; the record; the arguments of counsel; and the applicable law, the court denies each of the five motions for partial summary judgment, (Docket Entry Nos. 69, 72, 75, 76, 78), and grants in part and denies in part the motion to exclude Knudsen's testimony and report, (Docket Entry No. 77). The parties are ordered to appear for a conference to set the schedule for resolving any remaining pretrial matters and the trial date. The conference is set for May 26, 2015, at 4:30 p.m. in Courtroom 11-B.

The reasons for these rulings are set out below.

I. Background

Swellable packers are a long section of rubber wrapped around a piece of drill pipe and inserted into a wellbore. (Docket Entry No. 69, Ex. A-1 at p. 15; Docket Entry No. 72, Ex. B). The rubber swells when it interacts with either water or oil, creating a seal between the drill pipe and the wellbore. (Docket Entry No. 69, Ex. A-1 at pp. 15, 35, 82-83). Swellable rubber is made from a basic rubber-compound formula with a swelling ingredient added. (Docket Entry No. 72, Ex. B at ¶ 10; Ex. B-1 at p. 10; Ex. C-4 at pp. 63-64; Ex. C-11 at p. 19). Swellable-rubber elastomers are oil-swellable if they expand in oil or water-swellable if they expand in water. (Docket Entry No. 72, Ex. C at ¶ 4; Ex. E at ¶ 4). The technology for making oil- and water-swellable packers is publicly known, and many companies have developed "recipes." (Docket Entry No. 72, Ex. B at¶ 10; Ex. B-1 pp. 5-6; Ex. C-1 at pp. 24, 26-27; Ex. D at ¶ 5; Ex. H. at ¶ 37). While many of these recipes are confidential, the basic ingredients of swellable-rubber compounds and the method for making them are publicly known. (Docket Entry No. 72, Ex. A at ¶ 7; Ex. C-4 at pp. 63-64; Ex. C-11 at p. 19). It is, for example, well known that a compounder can make rubber swellable in water by adding either salt or a super-absorbent polymer to the recipe. (Docket Entry No. 72, Ex. A at ¶¶ 9-10; Ex. D at ¶ 6; Ex. C-9 at p. 21; Ex. F at ¶ 8).

Companies that develop and manufacture swellable packers collect data about well conditions from their oil and gas customers and test the compounds under those conditions. (Docket Entry No. 72, Ex. E at ¶ 25; Ex. C-1 at pp. 56-57). The American Society for Testing and Materials has developed industry-wide standards for testing rubber compounds. (Docket Entry No. 72, Ex. A at ¶ 6; Ex. B at ¶ 8; Ex. B-1 at pp. 8-9; Ex. C-6 at p. 1; Ex. C-20). "Coupon" testing is one of the industry-standard procedures. A small sample of rubber, called a coupon, is soaked in either water or oil at a specified temperature, and the coupon's expansion is measured to evaluate how the rubber compound performed. (Docket Entry No. 72, Ex. C-9 at p. 39; Ex. F at ¶¶ 40-42).

Tendeka B.V., a Dutch company, owns two subsidiaries, SwellFix UK, Ltd. and the plaintiff, Tendeka, Inc. ("Tendeka"). (Docket Entry No. 6, First Amended Complaint at ¶ 15). Tendeka is responsible for Tendeka B.V.'s United States operations. Tendeka sells swellable packers for use in oil-and-gas fracking. (Docket Entry No. 72, Ex. A). Tendeka does not make the packers itself. Instead, Tendeka contracts with third parties to develop and manufacture the packers that Tendeka sells. (Docket Entry No. 72, Ex. A at ¶ 5; Ex. C-10 at p. 390).

SwellFix, B.V. is now a Tendeka, Inc. sister company but was formerly its parent. (Docket Entry No. 69 at p. 5; Docket Entry No. 71 at p. 6). During the time SwellFix was Tendeka's parent,SwellFix signed an Agreement with Shell to obtain a license for certain swellable-rubber compound recipes Shell had developed. Tendeka claims a license under the Agreement between Shell and SwellFix as a wholly owned subsidiary of SwellFix. Tendeka sublicensed these compounds to Elite Elastomers, Inc. to use in manufacturing rubber compounds for Tendeka's swellable packers.

Tendeka had previously worked with another rubber compounder, Ruma, which manufactured swellable-rubber compounds from its own proprietary recipe. (Docket Entry No. 72, Ex. E at ¶ 7; Ex. F at ¶ 21). Tendeka stopped working with Ruma and began working with Elite in 2009. (Docket Entry No. 72, Ex. A at ¶ 9; Ex. E at ¶ 17). Before then, Elite had experience in making rubber compounds but had not made swellable-rubber compounds. (Tendeka Ex. E at ¶ 2.7; Ex. F at pp. 10-13, 17, 19; Docket Entry No. 76, Ex. B at ¶ 3).

On October 30, 2009, Tendeka and Elite entered into a License and Supply Agreement ("LSA"). (Docket Entry No. 72, Ex. C-2). Under the LSA, Tendeka gave Elite a license to use the "Proprietary Compounds Formulations" that Tendeka claimed SwellFix had licensed it to use and to sublicense. Elite agreed to manufacture those compounds for Tendeka to use in its swellable packers. Elite was to sell the rubber compounds it made to Tendeka, which hired third parties to make the packers it sold. (Tendeka Ex. E at ¶¶ 2.7-2.9).

The LSA required both parties to protect the other's "Confidential Information." The LSA defined "Confidential Information" as follows:

"(a) the Proprietary Compounds Formulations; (b) any confidential or other proprietary information, whether of a technical, business or other nature identified by the disclosing party as 'Confidential'; (c) any other information relating to the disclosing Party that is or should be reasonably understood to be confidential or proprietary; and (d) the terms of [the LSA].

(Id. at p. 1). The LSA defined the "Proprietary Compounds Formulations" as the compoundslicensed to SwellFix under its Agreement with Shell that SwellFix then licensed to Tendeka, as well as "any additional formulations for the manufacture of certain un-vulcanized elastomer compounds which may be provided by Licensor hereunder after the effective date." (Id.).

Section 10(a) of the LSA describes each party's obligation not to disclose the other's Confidential Information. Section 10(b) provides an exception from the § 10(a) obligations if the "Receiving Party"—here, Elite—shows that: "(i) the information disclosed to it was already known to it without obligation to keep it confidential; (ii) it received the information in good faith from a third party lawfully in possession thereof without obligation to keep such information confidential; (iii) the information was publicly known at the time of its receipt by it or has become publicly known other than by a breach of this Agreement; or (iv) the information was independently developed by it without use of the Confidential Information, as evidenced by contemporaneous documents." (Id.). Section 10(c) prohibits either party from using the other's Confidential Information "for its own benefit, or the benefit of any third party, or for any purpose not contemplated by this Agreement." Elite argues that neither § 10(a) nor § 10(c) can apply to confidential information that is publicly known.

The LSA provided for an initial five-year term with automatic renewal for...