Three men and two concrete businesses won a six-year appellate battle against their former business partners on Friday when the Supreme Court of Texas tossed a $16.5 million judgment against them, ending what’s been described as a contentious, bet-the-company trade secrets dispute.
Friday’s ruling, which ended nearly a decade of legal sparring, took VHSC Cement, Clinton “Buddy” Pike, Tobin Wilson, Daniel Walker and Few Ready Mix Concrete off the financial hook for a 2014 trial they lost in Limestone County, Texas against a group of plaintiffs including Texas EMC Products, the limited partnership that they were once a part of.
Referred to as “the partnership” in Friday’s opinion, Texas EMC Products was formed in 2005 by Wilson, Walker and their former European business partners, Vladimir Ronin and Atyle Lygren, to produce and commercialize cement products in Texas. The partnership was an attempt to domestically expand on cement-making technology that Ronin and Lygren’s company, EMC Cement BV (one of the other plaintiff parties), had developed and patented overseas.
Texas EMC Management, LLC, the partnership’s general partner, was the third plaintiff party on the losing side of the Texas Supreme Court’s ruling.
The litigation began after Wilson and Walker, who could be described as business partners-turned-debt-collectors, foreclosed on and sold Texas EMC Products’ assets to another concrete company, VHSC, after attempts to dissolve the partnership were unsuccessful.
The partnership encountered chronic financial problems after the cement technology did not work as hoped, which led Texas EMC Products to default on a $4 million loan with Texas Capital Bank after Wilson and Walker, the guarantors, lost their willingness to continue funding the payments. Wilson and Walker took their alternative route of foreclosure after Texas Capital, facing a lawsuit threat from Lygren, backed down on its own foreclosure efforts.
The day after foreclosure, Pike, who had been the partnership’s business manager, joined VHSC as president. The partnership, the general partner and EMC Cement BV (which owned nearly half of the partnership) sued Pike, Wilson, Walker and Ready Mix Concrete, a company owned by Walker that played a role in the foreclosure and asset sale.
The jury found that the defendants breached their fiduciary duties, misappropriated EMC Cement BV’s trade secrets, tortiously interfered with the plaintiffs’ business and conspired together in the process. The defendants then embarked on a six-year appellate pursuit, twice the time it took the case to come to trial.
First, in Waco’s 10th Court of Appeals, a panel affirmed the $16.5 million judgment, adding to its order a permanent injunction against the defendants that the trial court had declined to instate.
The defendants then appealed to the Texas Supreme Court, but it would take two tries before the high court granted review. While the defendants initially presented various grounds for appeal, they consolidated their arguments the second time around, and the Supreme Court granted review last year.
In its opinion, the Supreme Court laid out a simple explanation for tossing the multimillion-dollar judgment: there was not enough evidence in the record to support the damages.
The court also tossed the lower appellate court’s permanent injunction, finding that the trial court did not abuse its discretion in denying to impose one in the first place “on the ground that it had an adequate remedy at law.”
However, the discussion that composed a considerable and complicated chunk of Justice Brett Busby’s 46-page majority opinion was over whether EMC Cement BV, in its role as a limited partner to Texas EMC Products, had standing to recover damages for injury to the value of the partnership. Out of the $16.5 million trial court judgment, $7 million was awarded to EMC Cement BV for Walker and Wilson’s alleged breach of the partnership agreement.
The question Walker posed on appeal was whether EMC Cement BV’s standing concerns subject-matter jurisdiction. The majority found that it did not.
“The authority of a partner to recover for an alleged injury to the value of its interest in the partnership is not a matter of constitutional standing that implicates subject-matter jurisdiction,” Justice Busby wrote for the majority. “We hold that a partner or other stakeholder in a business organization has constitutional standing to sue for an alleged loss in the value of its interest in the organization.”
But in a 21-page, partial dissent, Justice Jane Bland disagreed, arguing that the majority vote ignores the derivative standing provisions in the Business Organization Code.
“Empowering a partner with standing to directly recover a claim for the partnership’s injury conflicts with a partnership’s status as an independent and separate entity that owns any claims that seeks redress for its injuries,” Justice Bland wrote. “It further undermines the central tenet of every business organization: they stand independently, distinct and separate from any individual stakeholder.”
Haynes and Boone appellate partner Mark Trachtenberg, who presented oral arguments on behalf of all of the defendants last September, called Friday’s ruling a “complete victory.”
“It’s a reaffirmation that plaintiffs cannot rely on conclusory and speculative damages testimony and that damages experts need to be able to support their assumptions with the facts and connect the dots, or they’re vulnerable on appeal,” he said. “The judgment against our clients should have never been entered in the first place.”
Thompson & Knight partner Rich Phillips, who argued the case for the plaintiffs, did not respond to a request for comment.
Haynes and Boone was hired on the case the day after the verdict to represent VHSC and Pike. The Haynes and Boone appellate team also included partners Nina Cortell and Ben Mesches, counsel Ryan Paulsen and Mike Hatchell, as well as associate Andrew Guthrie.
Charles Frazier of Alexander Dubose & Jefferson led the appeal for Walker and Few Ready Mix, while Andy McSwain of Fulbright Winniford led the appeal for Wilson.
Correction: This article as been changed to clarify the ownership of VHSC.