Tenneco Oil Co. v. Gulsby Engineering, Inc.

• Decision Date: 28 January 1993
• Docket Number: No. C14-92-00252-CV,C14-92-00252-CV
• Citation: 846 S.W.2d 599
• Court: Texas Court of Appeals
• Parties: TENNECO OIL COMPANY and Tenneco Natural Gas Liquids Corporation, Appellants, v. GULSBY ENGINEERING, INC., and Jerry G. Gulsby and Clara J. Gulsby, Individually, and d/b/a Gulsby Enterprises, Appellees. (14th Dist.)

Page 599

846 S.W.2d 599

TENNECO OIL COMPANY and Tenneco Natural Gas Liquids Corporation, Appellants, v. GULSBY ENGINEERING, INC., and Jerry G. Gulsby and Clara J Gulsby, Individually, and d/b/a Gulsby Enterprises, Appellees.

No. C14-92-00252-CV.

Court of Appeals of Texas Houston (14th Dist.).

Jan. 28, 1993.

Rehearing Denied Feb. 25, 1993.

Elton Dry, Houston, for appellants.

Tom Alexander, Linda Marshall, Houston, for appellees.

Before JUNELL, ROBERTSON and DRAUGHN, JJ.

OPINION

ROBERTSON, Justice.

The trial court granted summary judgment on all liability issues in favor of Tenneco Oil Company and Tenneco Natural Gas Liquids ("Tenneco") and submitted for jury determination Tenneco's claim for attorney's fees. In response to an issue asking how much money, if any, would compensate Tenneco for reasonable and necessary attorney's fees, the jury found $ 0.00. Both parties have appealed the judgment. Gulsby Engineering, Inc., Jerry G. Gulsby and Clara J. Gulsby, Individually, and d/b/a Gulsby Enterprises ("Gulsby") appeal from the grant of summary judgment on all liability issues. Tenneco appeals from the judgment denying recovery of attorney's fees. Because we find the trial court erred in holding Mr. and Mrs. Gulsby individually liable, we modify the judgment to reflect that Tenneco recover damages solely from Gulsby Engineering, Inc. Except as so modified, we affirm the remainder of the judgment.

In 1981, Tenneco sought bids for the construction of a natural gas processing plant in Sabine Pass. Ortloff Corp. v. Gulsby Eng'g, Inc., 706 F.Supp. 1295, 1300 (S.D.Tex.1988), aff'd, 884 F.2d 1399 (5th Cir.1989) (per curiam) (published by table). Among those submitting bids were Gulsby and the Ortloff Corporation. 706 F.Supp. at 1300. Ortloff's design employed a recently patented gas separation process that utilized a split vapor method for recovering natural gas. Id. at 1297. Under Gulsby's proposed design, there would be four residue gas compressors and product treating equipment to remove carbon dioxide. Id. at 1300. Recovery under this system was calculated at 82.9 percent. Id. Under Ortloff's patented system, only three residue gas compressors were needed and there was no need for product treating equipment. Id. Ortloff guaranteed ethane recovery of 87.5 percent and calculated 91.9 percent. Id.

After reviewing the bids, Tenneco asked Gulsby to revise its design. Id. Gulsby subsequently submitted a bid embodying Ortloff's patented system. Id. at 1301. Gulsby was awarded the contract and constructed the plant. See id. at 1303. The construction contract contained two indemnity provisions and a provision allowing Tenneco to withhold payment if there was evidence of or the filing of causes of action for which Tenneco could become liable. Upon completion of the plant, Tenneco withheld payment until Gulsby provided a Letter of Credit in the amount of $325,000.00 as security for the performance of the indemnity obligations.

Claiming patent infringement, unfair competition, and misappropriation of confidential information, Ortloff filed suit in federal court against Tenneco and Gulsby. Id. at 1296. Upon the filing of that suit, Tenneco sought and received Gulsby's agreement to substitute collateral for the Letter of Credit securing the indemnity obligations under the contract. The collateral was a corrected deed of trust to four tracts of land owned by Gulsby. Mr. and Mrs. Gulsby signed this deed individually and d/b/a Gulsby Enterprises. Mr. and Mrs. Gulsby also signed this deed as guarantors.

In the Ortloff suit, the district court found that Tenneco had passed to Gulsby details of Ortloff's proposed design and that Tenneco was liable for improper use of Ortloff's confidential information. Id. at 1308. The district court also found Gulsby liable for unfair competition by misappropriation of Ortloff's bid information. Id. The district court found that both Tenneco and Gulsby had infringed Ortloff's patent in the construction and operation of the Sabine Pass Plant. Id. Although the district court found that Tenneco willfully provided Gulsby with confidential information, the court noted that Gulsby took steps to avoid infringement of Ortloff's patent and Tenneco sought legal advice before beginning plant operations. Id. at 1305, 1309. Thus, the district court found that the infringement was not willful. Id. at 1305. Regarding damages, the court found both Tenneco and Gulsby liable in the amount of $835,000.00, the amount of Gulsby's profits. Id. at 1309.

On appeal, the Fifth circuit affirmed the trial court's finding that Tenneco and Gulsby infringed Ortloff's patent in the construction and operation of the plant, that Tenneco improperly used Ortloff's confidential information, and that Gulsby engaged in unfair competition by misappropriation. 884 F.2d at 1399.

Following affirmance of the judgment by the Fifth Circuit, Tenneco paid the damage award to Ortloff and then filed this suit seeking indemnity from Gulsby pursuant to the indemnity provisions in the construction contract. Tenneco filed a motion for summary judgment on all causes of action and the trial court granted this motion. Having granted the partial interlocutory summary judgment on all liability issues, the trial court submitted the issues of attorney's fees to the jury. The two special issues submitted to the jury asked what sum of money, if any, would compensate Tenneco for reasonable and necessary attorney's fees in their defense of the Ortloff litigation and in their prosecution of this case. The jury answered $ 0.00 to both issues.

I. THE SUMMARY JUDGMENT AS TO LIABILITY

Gulsby raises ten points of error challenging the trial court's grant of summary judgment in favor of Tenneco. On appeal from a summary judgment, the question is whether the movant met its burden of proving that there was no genuine issue of material fact and that it was entitled to judgment as a matter of law. Nixon v. Mr. Property Mgmt. Co., 690 S.W.2d 546, 548 (Tex.1985). In determining whether there is a disputed fact issue precluding summary judgment, we must accept as true the evidence favorable to the non-movant, indulging all reasonable inferences and resolving any doubts in the non-movant's favor. Id. at 548-49.

In point of error one, Gulsby contends the trial court erred in granting the motion because the evidence raised fact questions as to Gulsby's liability for Tenneco's independent intentional tort. Tenneco claimed Gulsby was required to indemnify Tenneco for its intentional tort pursuant to §§ 7.1 and 17.1 of the construction contract. Gulsby first contends that Tenneco's act of misusing Ortloff's confidential information constitutes an intentional tort. Because the district court found that Tenneco alone was liable for the improper use of Ortloff's confidential information, Gulsby claims that this intentional act is unprotected by the indemnity provisions of the contract.

Even if we were to hold that the district court's conclusion regarding Tenneco's liability for this act established an independent, intentional tort on Tenneco's part, we would nevertheless find no error by the trial court in granting summary judgment. The single damage award is supported, not only by the findings of liability for misappropriation and improper use of confidential information, but also by the findings of liability for patent infringement. Thus, we overrule point of error one.

In point of error nine, Gulsby claims the trial court erred in granting summary judgment because the evidence raised fact questions whether the contract, as construed by the court, was illegal in that it would require Gulsby to indemnify Tenneco for illegal or tortious acts of Tenneco itself. Tenneco claims that Gulsby did not plead illegality; however, the record indicates that Gulsby did raise this defense in its supplemental answer filed on April 15, 1991.

Gulsby contends that the contract is illegal in that it allows Tenneco to obtain indemnity for its own tortious acts. The case law cited in support of this statement holds that Texas law does not allow indemnification for intentional torts. In ruling on Gulsby's first point of error, however, we found that the summary judgment could be upheld on the basis of the parties' joint and several liability for patent infringement. Thus, we need not determine whether Tenneco would be entitled to indemnity for its acts of unfair competition. We overrule point of error nine.

In point of error two, Gulsby claims the trial court erred in granting Tenneco's motion for summary judgment because the evidence raised fact questions regarding the construction of the contractual indemnity clause to cover intentional torts committed before entry into the contract. In point of error three, Gulsby contends the evidence raised fact issues whether the acts for which Tenneco was found liable, and for which Tenneco sought indemnity, were acts incident to the construction contract. Under both points, Gulsby contends there is a fact question whether the patent infringement was a precontractual act unprotected by the indemnity clause.

Section 7.1 of the contract provided that Gulsby was to indemnify Tenneco for any claims "occurring or in any manner incident to, connected with or arising out of the work to be performed by Contractor" under the contract. The description of work to be performed under the contract included design, engineering, materials procurement, skid fabrication, field installation, and start-up assistance. Even if Tenneco's act of passing confidential information to Gulsby constituted a precontractual act not encompassed by the broad language of the indemnity clause, the parties' use of that confidential information in designing, constructing, and operating the plant brings these acts within the indemnity provision. Thus, we overrule points of error two and three.

In point of error four, Gulsby contends the trial court erred in granting summary...