PEG Bandwidth TX LLC v. Texhoma Fiber, LLC
MEMORANDUM OPINION AND ORDER. It is therefore ORDERED that Plaintiff's Motion for Partial Summary Judgment (Dkt. 37 ) is hereby GRANTED and the Court declares that Defendant is bound by the non-circumvention obligation until the expiration of the thirty-year Lease Agreement. It is further ORDERED that Defendant's Motion for Summary Judgment (Dkt. 36 ) is GRANTED in part and DENIED in part. Defendant's motion is granted only as to Plaintiff's claim for attorneys' fees and Plaintiff's claim for attorneys' fees is hereby dismissed. Signed by District Judge Amos L. Mazzant, III on 3/7/2018. (baf, )
United States District Court
EASTERN DISTRICT OF TEXAS
PEG BANDWIDTH TX, LLC
TEXHOMA FIBER, LLC
Civil Action No. 4:16-CV-00815
MEMORANDUM OPINION AND ORDER
Pending before the Court are Defendant Texhoma Fiber, LLC’s Motion for Summary
Judgment (Dkt. #36) and Plaintiff PEG Bandwidth TX, LLC’s Motion for Partial Summary
Judgment (Dkt. #37). Having considered the relevant pleadings and evidence, the Court finds that
Plaintiff’s motion should be granted. The Court further finds that Defendant’s motion should be
granted in part and denied in part.
Plaintiff PEG Bandwidth TX, LLC (“PEG”) provides network solutions for cellular
telephone carriers. In 2010 and 2011, PEG began discussions with the Hilliary family about
providing PEG access to fiber optic cables for the purpose of supplying “backhaul” service to
cellular carriers in the Wichita Falls area. 1 Defendant Texhoma Fiber, LLC (“Texhoma Fiber”) is
owned by the Hilliarys. The fiber in Wichita Falls was owned by Community Telephone, a
subsidiary of Comcell, Inc. (“Comcell”), which was owned by the Humpert family. The Hilliarys
were in discussions to purchase Comcell, but had not finalized the acquisition.
The parties negotiated an agreement whereby Texhoma Fiber would lease to PEG preexisting fiber in the Wichita Falls area and PEG would pay Texhoma Fiber to build out and extend
“Backhaul” service connects a cell phone tower or site to a switch location designated by the cellular telephone
carrier in order to enable the cellular carrier to service a market.
the Wichita Falls fiber network to make it suitable for PEG to supply backhaul service to its
customers. In May 2011, the parties finalized the contract into an agreement called the Dark Fiber
Lease Agreement (the “Lease Agreement”). Texhoma Fiber was named as the lessor in the Lease
Agreement. The dark fiber leased in the Lease Agreement would eventually connect numerous
sites in the Wichita Falls area. Under the Lease Agreement, PEG could connect its equipment to
the fiber at each site and thereby use the fiber to transmit data between the sites for the benefit of
its customers. 2 Specifically, PEG used the fiber leased pursuant to the Lease Agreement in order
to service three CMRS [Commercial Mobile Radio Service] carriers – Verizon Wireless, US
Cellular, and AT&T. The term of the Lease Agreement was thirty (30) years.
The Lease Agreement stated that “TEXHOMA FIBER owns and operates a continuous
fiber optic network between the points identified in Exhibit A.” The Lease Agreement defined the
location of the fiber in Exhibit A as the “Texhoma Fiber Route.” The Lease Agreement provided
for PEG to pay Texhoma Fiber $1.6 million in order to design, engineer, and construct a continuous
fiber optic network in the Wichita Falls area that PEG could lease for the purpose of serving its
cellular telephone customers.
Initially, the network would consist of 48-count fiber optic cable that connected the cell
sites described on Exhibit “A” to the Lease Agreement. As amended, the Lease Agreement gave
PEG the exclusive right to use only six of those fibers throughout the network. 3 Therefore, there
were 42 fibers in the bundle to which PEG did not have exclusive access, even though it had largely
This is a typical arrangement in the telecommunications industry whereby the lessor installs, maintains, and retains
title to the fibers but attaches no electronics to the fibers. Instead, at each end of the fibers and at other locations
between the end points, the lessee attaches the transmitting and receiving electronic equipment that processes and
passes the communications signals over the optical fibers. Typically, as is the case here, the lessor builds a network
consisting of a large number of fibers and then leases or otherwise conveys, pursuant to a substantial upfront fee paid
prior to and/or contemporaneously with the delivery of the fibers, the exclusive right to use a subset of those fibers to
the lessee for the entire anticipated useful life of the fibers.
After negotiations, the parties agreed that Texhoma Fiber would lease two fibers to PEG in the “backbone” of the
fiber route, and four fibers in the “lateral” routes.
paid for the construction of the network for those additional fibers. In total, PEG paid Texhoma
Fiber $2,240,000 for the Texhoma Fiber Route.
In order to protect PEG’s interests, the parties agreed that Texhoma Fiber could lease the
other 42 fibers to other lessees subject to a non-circumvention provision:
18.1 NON-CIRCUMVENTION. TEXHOMA FIBER shall not, directly or
indirectly through other customers, offer or provide services to licensed CMRS
carriers at the sites contained in Exhibit A, without the prior written consent of
PEG. Nothing herein shall restrict TEXHOMA FIBER’S right to provide any
services to wireless carriers at sites not contained in Exhibit A.
Lease Agreement, at § 18.1.
This 30-year non-compete obligation restricts Texhoma Fiber from directly or indirectly
offering or providing any service to any licensed CMRS carriers at any of the sites located on
Texhoma Fiber Route (or any other sites that became subject to the Lease Agreement), without
first receiving written consent from PEG. The non-circumvention provision allowed Texhoma
Fiber to use the other 42 fibers to service customers other than licensed CMRS carriers, such as
local businesses seeking to connect multiple sites. It also permitted Texhoma Fiber to use the other
42 fibers to provide backhaul service to CMRS carriers at locations not subject to the Lease
On July 15, 2011, PEG entered into a Master Services Agreement (the “US Cellular
Agreement”) to provide cellular communication services to United States Cellular Corporation
(“US Cellular”). On August 10, 2011, pursuant to the US Cellular Agreement, US Cellular issued
a Market Service Order that authorized PEG to provide cell site backhaul services to US Cellular
for five years at fourteen new cell sites in the Texhoma Fiber Route.
Texhoma Fiber ultimately never finalized its purchase of Comcell. Because Texhoma Fiber
was using fiber owned by Comcell’s subsidiary, Community Telephone, apparently without
compensating Comcell, Comcell and Community Telephone eventually threatened to disconnect
their fiber from the Texhoma Fiber Route. Then, Comcell and Community Telephone filed suit
against both Texhoma Fiber and PEG.
Texhoma Fiber settled with Comcell and Community Telephone in 2014. In the settlement,
Texhoma Fiber agreed to pay Comcell and Community Telephone $250,000, to assign to Comcell
the Lease Agreement, and to convey to Comcell half the fiber in the route served by the Lease
Agreement. PEG was not a party to this settlement. On January 1, 2014, Texhoma Fiber, pursuant
to § 18.10 of the Lease Agreement, assigned the Lease Agreement to Comcell (“Comcell
Assignment”). The relevant assignment provision reads:
Texhoma does hereby assign and transfer unto Comcell, effective as of [January 1,
2014], all of Texhoma’s benefits, obligations and liabilities under the PEG
Bandwidth Contract, to have and hold the same. Subject to the provisions of Section
1(b) below, Comcell hereby accepts such assignment and transfer and therefore
agrees to assume all of Texhoma’s benefits, obligations and liabilities under the
PEG Bandwidth Contract pursuant to the terms of this Assignment.
(Dkt. #36, Exhibit 6).
By letter dated March 12, 2014, Texhoma Fiber, pursuant to § 18.10 of the Lease
Agreement, notified PEG about the Comcell Assignment, and directed PEG to send all further
payments due under the Lease Agreement to Comcell. The notice letter stated, “Texhoma Fiber,
LLC assigned to Comcell Inc., all rights, title and interest in the Dark Fiber Lease
Agreement . . . . By this Notice, you are directed to make all future payments due under said Lease
and amendments to Comcell, Inc.” (Dkt. #37, Exhibit 21). On July 2, 2014, PEG and Comcell
agreed to amend the Lease Agreement for a third time to include Comcell as successor in interest
to Texhoma Fiber. After the assignment, the fiber optic sheath in the Texhoma Fiber Route
contained 24 fibers owned by Texhoma Fiber and 24 fibers owned by Comcell, with Comcell’s
fibers servicing PEG (Dkt. #37, Exhibit 15).
After the assignment, Texhoma leased certain fiber to Dobson Technologies (“Dobson”),
which Dobson has used to provide cellular communication services to US Cellular at some of the
US Cellular Sites (Dkt. #39 at p. 7). In 2016, US Cellular did not renew its contract with PEG.
US Cellular instead contracted for Dobson Technologies to provide service at the same sites
subject to the Lease Agreement in the Wichita Falls area.
On December 1, 2016, PEG filed its amended complaint asserting that Texhoma Fiber
breached the Lease Agreement’s thirty-year non-compete obligation by leasing fiber to Dobson at
some of the US Cellular Sites where PEG formerly provided cell site backhaul services to US
Cellular (Dkt. #4). On December 8, 2017, the Texhoma Fiber filed its Motion for Summary
Judgment (Dkt. #36). On the same day, PEG filed its Motion for Partial Summary Judgment
On December 29, 2017, both parties filed their respective responses (Dkt. #38;
Dkt. #39). On January 5, 2018, Texhoma Fiber filed its reply (Dkt. #41). On January 8, 2018,
PEG filed its reply (Dkt. #43). On January 8, 2018, PEG filed its sur-reply (Dkt. #44). On January
11, 2018, Texhoma Fiber filed its sur-reply (Dkt. #45).
The purpose of summary judgment is to isolate and dispose of factually unsupported claims
or defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323–24 (1986). Summary judgment is proper
under Rule 56(a) of the Federal Rules of Civil Procedure “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(a). A dispute about a material fact is genuine when “the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby Inc.,
477 U.S. 242, 248 (1986). Substantive law identifies which facts are material. Id. The trial court
“must resolve all reasonable doubts in favor of the party opposing the motion for summary
judgment.” Casey Enters., Inc. v. Am. Hardware Mut. Ins. Co., 655 F.2d 598, 602 (5th Cir. 1981).
The party seeking summary judgment bears the initial burden of informing the court of its
motion and identifying “depositions, documents, electronically stored information, affidavits or
declarations, stipulations (including those made for purposes of the motion only), admissions,
interrogatory answers, or other materials” that demonstrate the absence of a genuine issue of
material fact. Fed. R. Civ. P. 56(c)(1)(A); Celotex, 477 U.S. at 323. If the movant bears the burden
of proof on a claim or defense for which it is moving for summary judgment, it must come forward
with evidence that establishes “beyond peradventure all of the essential elements of the claim or
defense.” Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986). Where the nonmovant
bears the burden of proof, the movant may discharge the burden by showing that there is an absence
of evidence to support the nonmovant’s case. Celotex, 477 U.S. at 325; Byers v. Dall. Morning
News, Inc., 209 F.3d 419, 424 (5th Cir. 2000). Once the movant has carried its burden, the
nonmovant must “respond to the motion for summary judgment by setting forth particular facts
indicating there is a genuine issue for trial.” Byers, 209 F.3d at 424 (citing Anderson, 477 U.S. at
248–49). A nonmovant must present affirmative evidence to defeat a properly supported motion
for summary judgment. Anderson, 477 U.S. at 257. Mere denials of material facts, unsworn
allegations, or arguments and assertions in briefs or legal memoranda will not suffice to carry this
burden. Rather, the Court requires “significant probative evidence” from the nonmovant to dismiss
a request for summary judgment. In re Mun. Bond Reporting Antitrust Litig., 672 F.2d 436, 440
(5th Cir. 1982) (quoting Ferguson v. Nat’l Broad. Co., 584 F.2d 111, 114 (5th Cir. 1978)). The
Court must consider all of the evidence but “refrain from making any credibility determinations or
weighing the evidence.”
Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343
(5th Cir. 2007).
Breach of Contact
Both parties have moved for summary judgment on the contract issues (Dkt. #36;
Dkt. #37). The Court, sitting in diversity, applies Texas law in the interpretation of contracts.
H.E. Butt Grocery Co. v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 150 F.3d 526, 529
(5th Cir. 1998). Under Texas law, “[t]he elements of a breach of contract claim are: (1) the
existence of a valid contract between plaintiff and defendant; (2) the plaintiff’s performance or
tender of performance; 4 (3) the defendant’s breach of the contract; and (4) the plaintiff’s damage
as a result of the breach.” In re Staley, 320 S.W.3d 490, 499 (Tex. App.—Dallas 2010, no pet.).
PEG claims that it can establish each element. Texhoma Fiber argues that the non-circumvention
provision is invalid because it is overly broad, and that even if the covenant is valid, it did not
breach the terms. The Court will address each argument in turn.
Section 18.1 of the Lease Agreement disallows Texhoma Fiber from, directly or indirectly
through other customers, offering or providing services to licensed CMRS carriers at the sites
contained in Exhibit A, without the prior written consent of PEG. It is undisputed that Texhoma
Fiber, indirectly through its customer Dobson, has since 2016 provided service to US Cellular at
In its Response to PEG’s Motion for Partial Summary Judgment, Texhoma fiber asserts that “PEG committed a prior
breach of the [Lease Agreement] which excused Texhoma from continuing to perform.” (Dkt. #39 at p. 20). “[T]he
contention that a party to a contract is excused from performance because of a prior material breach by the other
contracting party is an affirmative defense that must be affirmatively pleaded.” Pivotal Payments, Inc. v. Taking You
Forward LLC, No. 4:16CV-00598, 2017 WL 834980, at *3 (E.D. Tex. Mar. 1, 2017) (quoting Compass Bank v. MFP
Fin. Servs., Inc., 152 S.W.3d 844, 852 (Tex. App.—Dallas 2005, pet. denied)) (citing RE/MAX of Tex., Inc. v. Katar
Corp., 961 S.W.2d 324, 327 (Tex. App.-Houston [1st Dist.] 1997, pet. denied) (citing Tex. R. Civ. P. 94)). See Mullins
v. TestAmerica, Inc., 564 F.3d 386, 411 (5th Cir. 2009). Here, Texhoma Fiber failed to affirmatively plead such
defense. Thus, this affirmative defense is waived.
sites listed in Exhibit A to the Lease Agreement, as amended (Dkt. #39 at ¶ 18). Thus, Texhoma
Fiber would seem to be in breach of the Lease Agreement.
However, Texhoma Fiber argues that it assigned to Comcell all of its “benefits, obligations
and liabilities” under the Lease Agreement. It further argues that the Lease Agreement does not
limit the rights or obligations it can assign under the Lease Agreement, but simply requires it to
provide notice to PEG of the assignment pursuant to § 18.10. Thus, the assignment did not exclude
any of Texhoma Fiber’s obligations under the Lease Agreement, and therefore, included the thirtyyear non-circumvention obligation. Texhoma Fiber further claims that it conveyed to Comcell all
of the fibers in the Wichita Falls Network that PEG had an exclusive right to use.
PEG claims that Texhoma Fiber’s notice was incomplete. PEG asserts that Texhoma Fiber
notified PEG only that it had “assigned to Comcell, Inc., all rights, title, and interest” in the Lease
Agreement. Further, PEG asserts that the notice specifically addresses only payments due from
PEG, which are to be directed to Comcell, instead of Texhoma Fiber, going forward. Thus, PEG
claims that Texhoma Fiber did not notify PEG Bandwidth about assignment of any “obligations,”
such as the non-circumvention obligation.
PEG further claims that Texhoma Fiber’s notice was false because Texhoma Fiber had not
assigned all rights, title, and interest to Comcell. Rather, Texhoma Fiber had retained its rights,
title, and interest in half of the fiber which is the subject matter of the Lease Agreement. The
Settlement Agreement with Comcell required Texhoma Fiber to execute a Bill of Sale, in which
Texhoma Fiber conveyed only half of its interest in the Texhoma Fiber Route. As a result, at most
locations in the Texhoma Fiber Route, the fiber optic sheath contained twenty-four fibers owned
by Texhoma Fiber and twenty-four fibers owned by Comcell, with Comcell’s fibers servicing PEG
PEG further argues that § 18.10 does not permit an assignment of all obligations, including
the non-circumvention provision, but only part of the rights. According to PEG, in order to avoid
the non-circumvention obligation with respect to its retained fibers, Texhoma Fiber has to prove a
novation with respect to that obligation and asserts Texhoma Fiber has not presented any evidence
showing PEG agreed to extinguish the non-circumvention obligation with respect to half of the
fibers. PEG further argues Texhoma Fiber cannot point to any authority allowing it to destroy a
contractual obligation by purporting to assign the obligation while keeping the contractual rights
or property to which that obligation pertains.
The Court need not address whether Texhoma Fiber’s notice of the assignment was
sufficient because it finds that the Lease Agreement does not extinguish Texhoma Fiber’s noncircumvention obligation through an assignment.
In Seagull Energy E&P, Inc. v. Eland Energy, Inc., the Texas Supreme Court held that an
assignment relieves a party of its obligations only if it effects a novation. 207 S.W.3d 342, 346
(Tex. 2006). The Texas Supreme Court looked to the Restatement (Second) of Contracts, which
An obligor is discharged by the substitution of a new obligor only if the contract
so provides or if the obligee makes a binding manifestation of assent, forming a
novation. . . . Otherwise, the obligee retains his original right against the obligor,
even though the obligor manifests an intention to substitute another obligor in his
place and the other purports to assume the duty.
RESTATEMENT (SECOND) OF CONTRACTS § 318, cmt. d. (emphasis added).
A duty cannot be “assigned” in the sense in which “assignment” is used in this
Chapter. The parties to an assignment, however, may not distinguish between
assignment of rights and delegation of duties. A purported “assignment” of duties
may simply manifest an intention that the assignee shall be substituted for the
assignor. Such an intention is not completely effective unless the obligor of the
assigned right joins in a novation, but the rules of this Section give as full effect as
can be given without the obligor’s assent.
RESTATEMENT (SECOND) OF CONTRACTS § 328, cmt. a. (emphasis added). See Seagull Energy, 207
S.W.3d at 346–47.
“A party raising the defense of novation must prove (1) the validity of a previous
obligation; (2) an agreement among all parties to accept a new contract; (3) the extinguishment of
the previous obligation; and (4) the validity of the new agreement. . . . It must clearly appear that
the parties intended a novation, and novation is never presumed.” Fulcrum Central v. AutoTester,
Inc., 102 S.W.3d 274, 277-78 (Tex. App.—Dallas 2013, no pet.).
Texhoma Fiber has failed to come forth with any evidence of novation and concedes that
a party to a contract generally cannot escape its contractual obligations merely by assigning the
contract to a third party (Dkt. #36 at p. 8). However, Texhoma Fiber contends that the operative
language of the Lease Agreement, specifically Section 18.10, expressly and unambiguously
permits Texhoma Fiber to assign all its contractual obligations, including the non-circumvention
obligation (Dkt. #36 at p. 9).
“An unambiguous contract must be interpreted by the court as a matter of law.” Id. (citing
SAS Institute, Inc. v. Breitenfeld, 167 S.W.3d 840, 841 (Tex. 2005)). If a contract “is worded so
that a court can give it a certain or definite legal meaning or interpretation, it is not ambiguous.”
Id. When a contract is unambiguous, extrinsic evidence “will not be received for the purpose of
creating an ambiguity or to give the contract a meaning different from that which its language
imports.’” Skyland Developers, Inc. v. Sky Harbor Assocs., 586 S.W.2d 564, 568 (Tex. App—
Corpus Christi 1979, no writ) (quoting Universal C.I.T. Credit Corp. v. Daniel, 243 S.W.2d 154,
157 (Tex. 1951)). The court must enforce the unambiguous language in a contract as written, and
the applicable standard is the “objective intent” evidenced by the language used, rather than the
subjective intent of the parties. See Sun Oil Co. v. Madeley, 626 S.W.2d 726, 731–32 (Tex. 1981).
Contract terms “are given their plain, ordinary, and generally accepted meanings unless the
contract itself shows them to be used in a technical or different sense.” Valence Operating Co. v.
Dorsett, 164 S.W.3d 656, 662 (Tex. 2005). The Court’s primary concern is to enforce the parties’
intent as expressed in the contract. Sundaram, 2008 WL 80017 at *9. When construing a contract,
the intention of the parties is to be gathered from the instrument as a whole. See Seagull Energy,
207 S.W.3d at 345; SAS Institute, 167 S.W.3d at 841. The “court is bound to read all parts of a
contract together to ascertain the agreement of the parties.” Forbau v. Aetna Life Ins. Co., 876
S.W.2d 132, 133 (Tex. 1994). “No single provision taken alone will be given controlling effect;
rather, all the provisions must be considered with reference to the whole instrument.” SAS
Institute, Inc., 167 S.W.3d at 841.
The assignment provision reads:
PEG shall not assign this Agreement in whole or in part, nor sublet the Leased
Fibers, without the prior written consent of TEXHOMA FIBER, which
TEXHOMA FIBER may withhold in its sole discretion. Provided, PEG may assign
this Agreement in whole or in part to an affiliate, subsidiary or parent company of
PEG or pursuant to a merger, stock sale or sale or exchange of substantially all of
the assets of PEG or any of its affiliates, subsidiaries or parent companies with prior
notice to TEXHOMA FIBER. TEXHOMA FIBER may, without PEG’s consent,
but with notice to PEG, assign its rights and obligations hereunder to any entity, or
to any affiliate of TEXHOMA FIBER or pursuant to a merger, stock sale or sale or
exchange of substantially all the assets of TEXHOMA FIBER. This Agreement
binds and inures to the benefit of any permitted assignees or successors to the
Lease Agreement, at § 18.10.
Neither party disputes that the Lease Agreement is unambiguous. Furthermore, a plain
reading of the Lease Agreement leads the Court to the conclusion that the contract is unambiguous
and the Court, therefore, will interpret its meaning as a question of law. The Court finds that an
assignment pursuant to § 18.10 of the Lease Agreement is not a valid release of Texhoma Fiber’s
liabilities and responsibilities.
“Generally speaking, a party cannot escape its obligations under a contract merely by
assigning the contract to a third party.” Seagull Energy, 207 S.W.3d at 346–47 (citations omitted).
“Thus, as a general rule, a party who assigns its contractual rights and duties to a third party
remains liable unless expressly or impliedly released by the other party to the contract.” Id. at 347
(citations omitted). In Seagull Energy, the operator sought the reimbursement of costs incurred
after the assignor assigned its interests to the assignee. The operating agreement in Seagull Energy
included a provision entitled “Assignment of Interest.” It states:
Each Participating Party desiring to abandon a well pursuant to Section 14.2 shall
assign effective as of the last applicable election date, to the non-abandoning
Parties, in proportion to their Participating Interests, its interests in such well and
the equipment therein and its ownership in the production from such well. Any
party so assigning shall be relieved from any further liability with respect to said
Id. (emphasis in original). The Texas Supreme Court found that “[t]he operating agreement simply
does not explain the consequences of an assignment of a working interest to a third party.” Id. at
346. “[T]he operating agreement did not expressly provide that Eland’s obligations under the
operating agreement should terminate upon assignment and Seagull did not expressly release
Eland following the assignment of its working interest.” Id. at 347.
Accordingly, the Court reaches the same conclusion in this case. Section 18.10 of the
Lease Agreement did not expressly provide that Texhoma Fiber’s obligations under the agreement
should terminate upon assignment; thus, Texhoma Fiber was not expressly released from its noncircumvention obligation following the assignment to Comcell.
When a court finds that there is no express release in an assignment, “the contract’s subject
or other circumstances may indicate that obligations were not intended to survive assignment.” Id.
The Court does not find that the Lease Agreement’s subject or any other circumstances imply that
Texhoma Fiber should be released from its non-circumvention obligation after it assigned its
interests to Comcell. Section 18.8 of the Lease Agreement provides that “[n]o subsequent
agreement concerning the Route shall be effective unless made in writing and executed by
authorized representatives of the parties.” There is no written, executed agreement releasing half
of the fibers in the Texhoma Fiber Route from the non-circumvention obligation. Furthermore,
the purpose of the non-circumvention provisions was to prevent Texhoma Fiber from providing
cell site backhaul service to PEG’s competitors at the sites subject to the Lease Agreement using
the network paid for by PEG. To allow Texhoma Fiber to assign its non-circumvention obligation,
retain half of the fibers subject to the Lease Agreement, and then subsequently lease those fibers
to one of PEG’s competitors would directly contradict that purpose. Therefore, the Court finds
that Texhoma Fiber has a continuing obligation to not, directly or indirectly through other
customers, offer or provide services to licensed CMRS carriers at the sites contained in Exhibit A
to the Lease Agreement. Thus, the Court finds granting summary judgment in Texhoma Fiber’s
favor is unwarranted.
Texas Free Enterprise and Antitrust Act, and Texas Covenants Not to Compete Act
Texhoma Fiber asserts that § 18.1 of the Lease Agreement, the non-circumvention
provision, is an unlawful, unreasonable, and unenforceable restraint of trade in violation of the
Texas Free Enterprise and Antitrust Act, Tex. Bus. & Com. Code § 15.01, et seq., and the Texas
Covenants Not to Compete Act, Tex. Bus. & Com. Code § 15.50, et seq. The thirty-year noncompete obligation reads:
TEXHOMA FIBER shall not, directly or indirectly through other customers, offer
or provide services to licensed CMRS carriers at the sites contained in Exhibit A,
without the prior written consent of PEG. Nothing herein shall restrict TEXHOMA
FIBER’S right to provide any services to wireless carriers at sites not contained in
Lease Agreement, at § 18.1.
Texhoma Fiber asserts that the Texas Covenants Not to Compete Act “supplements and
clarifies” the Texas Free Enterprise and Antitrust Act’s “broad proscription against trade restraints
by establishing specific standards for covenants not to compete.” (Dkt. #39 at p. 22). Texhoma
Fiber further asserts that
the general rule of reason [under the Texas Free Enterprise and Antitrust Act] does
not apply to the noncompete obligation at issue in this case. Texhoma does not
dispute that the Texas Free Enterprise and Antitrust Act is patterned off federal
antitrust statutes or that the rule of reason standard that governs most restraints of
trade under federal antitrust law also generally applies to contracts in restraint of
trade under Texas law.
(Dkt. #39 at p. 23). Thus, the Court finds Texhoma Fiber has abandoned its affirmative defense
under Texas Free Enterprise and Antitrust Act and exclusively relies on the Texas Covenants Not
to Compete Act to invalidate the non-circumvention provision.
PEG asserts that the Covenants Not to Compete Act does not apply to the Lease Agreement
because it applies exclusively to employment contracts, not commercial contracts (Dkt. #37 at pp.
20–22). The Court disagrees with PEG’s argument but finds the Texas Covenants Not to Compete
Act is still inapplicable to the Lease Agreement because the non-circumvention provision is a
restrictive covenant running with the land, i.e. the Texhoma Fiber Route, and should be analyzed
Although not legally binding, the Court finds the analysis in Rolling Lands Investments,
L.C. v. Northwest Airport Management, L.P. persuasive. 111 S.W.3d 187 (Tex. App.—Texarkana
2003, pet. denied). In that case, the court rejected a challenge under the Texas Covenants Not to
Compete Act to a deed restriction associated with a sale of real property which prevented
competition with a neighboring airport. Id. at 200. The court held that “[t]he fueling rights
restriction [was] a restraint on the use of a single parcel of real property and thus should not be
reviewed as a noncompetition contract.” Id. Similar to the fueling rights restriction in Rolling
Lands, the non-circumvention agreement is a restraint on the use of fiber optic cables at the specific
locations in the Texhoma Fiber Route. Texhoma Fiber asserts that
Section 18.1 of the [Lease Agreement] does not provide that Texhoma is prohibited
from using the fibers in the Texhoma Fiber Route to compete with PEG for certain
business at certain locations; it broadly provides that Texhoma is prohibited from
offering or providing services to Cell Phone Companies at the sites covered by the
[Lease Agreement] by any means whatsoever.
(Dkt. #39 at p. 11). The distinction is unavailing. The non-circumvention provision prevents
Texhoma “from using the fibers in the Texhoma Fiber Route . . . [to offer or provide] services to
Cell Phone Companies at the sites covered by the Lease Agreement by any means whatsoever.”
(Dkt. #39 at p. 11).
The noncompete agreements in the cases cited by Texhoma Fiber are also distinguishable
because they specifically prohibit certain competitive conduct, not necessarily limit the use of the
specific land (or in this case, fibers). See CBIF Ltd. P’ship v. TGI Friday’s Inc., No. 05-15-00157CV, 2017 WL 1455407, at *7 (Tex. App.—Dallas Apr. 21, 2017) (analyzing a restrictive covenant
providing the venture partners would not participate in other restaurant operations at the Airport,
and a restrictive covenant concerning the ownership or operations of restaurants in direct
competition with TGI Friday’s); Butts Retail, Inc. v. Diversifoods, Inc., 840 S.W.2d 770, 772
(Tex. App.—Beaumont 1992), writ denied (Apr. 21, 1993) (analyzing two restrictive covenants:
(1) that if prior to the expiration of the franchise agreement, Appellee terminated the franchise
agreement, Appellant was prohibited from operating a business selling fruit and nuts in Parkdale
Mall for a period of two years from the date which Appellant ceased to conduct business pursuant
to this agreement, and (2) that during the five-year term of the franchise agreement, Appellant
would not operate another business selling fruit and nuts within the metropolitan area of the
Parkdale Mall store in Beaumont, Texas). Those restrictive covenants prohibit competitive
conduct within a specified geographical area, not necessarily prohibit the use of specific land. See
Ehler v. B.T. Suppenas Ltd., 74 S.W.3d 515, 520–21 (Tex. App.—Amarillo 2002, no pet.).
The Court now analyzes whether the non-circumvention provision is a valid restrictive
covenant running with the land. 5 “A real covenant ‘runs with land’ if:(1) it touches and concerns
the land; (2) it relates to a thing in existence or specifically binds the parties and their assigns; (3) it
is intended by the original parties to run with the land; and (4) when the successor to the burden
has notice.” Cummings v. Williams Prod.-Gulf Coast Co., L.P., No. 4:06CV11, 2007 WL 172536,
at *4 (E.D. Tex. Jan. 18, 2007) (citing Inwood North Homeowners’ Ass’n, Inc. v. Harris, 736
S.W.2d 632, 635 (Tex. 1987). The Lease Agreement specifically provides that it is binding on the
successors and assigns of Texhoma Fiber. Lease Agreement, at § 18.10 (the Lease Agreement
“binds and inures to the benefit of any permitted assignees or successors to the parties.”). The land
is specifically identified. The agreement is to build a fiber optic cable network to service licensed
CMRS carriers at the sites located in the Texhoma Fiber Route. There is also privity between the
parties. The Court finds that the non-circumvention provision is a valid restrictive covenant that
“runs with the fibers” and is binding on Texhoma Fiber. As such, summary judgment is PEG’s
favor is warranted.
Both parties also move for summary judgment on PEG’s claim for declaratory relief. PEG
specifically seeks a declaration that “Texhoma Fiber has a continuing duty, extending for thirty
years from the date of acceptance, for each site listed in the [Lease Agreement] or its amendments,
In its sur-reply, Texhoma Fiber asserts that “the fibers leased by PEG under the [Lease Agreement], and the
remaining fibers in the Texhoma Fiber Route, are all personal property, not real property” and , thus, “the non-compete
obligation cannot ‘run with the fiber.’” (Dkt. #45 at p. 4). The Court disagrees. See In re Energytec, Inc., 739 F.3d
215, 221 (5th Cir. 2013) (finding “[t]he real property at issue . . . is a gas pipeline system and the rights-of-way required
for its placement” constituted covenants running with the land including the right to transportation fees—because the
traveling of natural gas along the length of the pipeline was for the use of the real property—and the right to consent
to the assignment of the pipeline—because the rights impact the owner’s interest in the pipeline).
not to directly or through other customers, offer or provide services to licensed CMRS carriers,
without prior written consent of PEG Bandwidth.” (Dkt. #37 at p. 37) (quotations omitted).
The federal Declaratory Judgment Act states, “[i]n a case of actual controversy within its
jurisdiction, . . . any court of the United States, upon the filing of an appropriate pleading, may
declare the rights and other legal relations of any interested party seeking such declaration, whether
or not further relief is or could be sought.” 28 U.S.C. § 2201. Federal courts have broad discretion
to grant or refuse declaratory judgment. Torch, Inc. v. LeBlanc, 947 F.2d 193, 194 (5th Cir. 1991).
“Since its inception, the Declaratory Judgment Act has been understood to confer on federal courts
unique and substantial discretion in deciding whether to declare the rights of litigants.” Wilton v.
Seven Falls Co., 515 U.S. 277, 286 (1995). The Declaratory Judgment Act is “an authorization,
not a command.” Public Affairs Assocs., Inc. v. Rickover, 369 U.S. 111, 112 (1962). It gives
federal courts the competence to declare rights, but does not impose a duty to do so. Id.
The Court finds that PEG’s motion for summary judgment on its claim for declaratory
relief should be granted and Texhoma Fiber is bound by the non-circumvention obligation until
the expiration of the thirty-year Lease Agreement.
Texhoma Fiber also moves for summary judgment on PEG’s request for attorneys’ fees,
asserting that the Lease Agreement does not permit PEG to recover attorneys’ fees and
Section 38.001 of the Texas Civil Practice and Remedies Code restricts the proper target of
reasonable attorneys’ fees to an “individual” or a “corporation,” but not other legal entities, such
as limited liability companies. TEX. CIV. PRAC. & REM. CODE § 38.001(8). PEG concedes that
“[a]s of now, the Texas Legislature still has not fixed the hole created by case law construing Texas
statutory law so as not to allow recovery of attorney fees from a limited liability company in a
breach of contract action.” (Dkt. #38 at p. 5) (citing See Vast Construction, LLC v. CTC
Contractors, LLC, 526 S.W.3d 709, 728 n.16 (Tex. App.—Houston [14th Dist.] 2017, no pet. h.)).
Both PEG and Texhoma Fiber are limited liability companies and such a request for attorneys’
fees is misplaced and PEG’s claim for attorneys’ fees should be dismissed. Summary judgment
should be granted on this claim.
It is therefore ORDERED that Plaintiff’s Motion for Partial Summary Judgment
(Dkt. #37) is hereby GRANTED and the Court declares that Defendant is bound by the noncircumvention obligation until the expiration of the thirty-year Lease Agreement. Therefore, no
material questions of fact exist with regard to whether Defendant is liable to Plaintiff for breach of
the Lease Agreement. The only remaining issue to be decided by the trier of fact is the amount of
It is further ORDERED that Defendant’s Motion for Summary Judgment (Dkt. #36) is
GRANTED in part and DENIED in part. Defendant’s motion is granted only as to Plaintiff’s
claim for attorneys’ fees and Plaintiff’s claim for attorneys’ fees is hereby dismissed.
IT IS SO ORDERED.
SIGNED this 7th day of March, 2018.
AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE
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