Keith v. J.D. Byrider Systems, LLC, et al
Filing
47
MEMORANDUM OPINION AND ORDER granting in part, denying in part 37 MOTION to Dismiss for Failure to State a Claim, filed by Byrider Holding Corporation, Byrider Sales of Indiana S, LLC, CarNow Auto Receivables Trust 2012-1, Byrider Finance, LLC, J.D. Byrider Systems, LLC, Byrider Funding, LLC; granting MOTION to dismiss filed by James F. DeVoe, Jr.; and denying MOTION for more definite statement. (Ordered by Judge Sidney A Fitzwater on 6/5/2015) (Judge Sidney A Fitzwater)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
MARVIN KEITH,
§
§
Plaintiff,
§
§ Civil Action No. 3:14-CV-1317-D
VS.
§
§
J.D. BYRIDER SYSTEMS, LLC F/K/A §
J.D. BYRIDER SYSTEMS, INC., et al., §
§
Defendants. §
MEMORANDUM OPINION
AND ORDER
In this action by plaintiff Marvin Keith (“Keith”) to recover on claims for breach of
contract and quantum meruit, defendants move to dismiss under Fed. R. Civ. P. 12(b)(6) for
failure to state a claim on which relief can be granted, defendant James F. DeVoe, Jr.
(“DeVoe”) moves to dismiss under Rule 12(b)(2) for lack of in personam jurisdiction, and
defendants move in the alternative under Rule 12(e) for a more definite statement. For the
reasons that follow, the court grants DeVoe’s Rule 12(b)(2) motion without reaching whether
Keith has stated a claim on which relief can be granted, grants in part and denies in part the
remaining defendants’ Rule 12(b)(6) motion to dismiss, and denies the remaining defendants’
alternative Rule 12(e) motion, in part as moot and in part on the merits.
I
Because the background facts and procedural history are set out in the court’s prior
memorandum opinion and order, Keith v. J.D. Byrider Systems, LLC, 2014 WL 5148124, at
*1 (N.D. Tex. Oct. 14, 2014) (Fitzwater, C.J.) (“Keith I”), the court will focus on what is
pertinent in the present decision.
Keith is a consultant who advises businesses on financing strategies for acquisitions
and large-scale debt refinancing projects.1 In 2007 Keith began working with defendants
J.D. Byrider Systems, LLC f/k/a J.D. Byrider Systems, Inc., Byrider Sales of Indiana S, LLC
f/k/a Byrider Sales of Indiana S, Inc., (collectively, the “Byrider Entities”), nonparty
Manchester, Inc. (“Manchester”), and DeVoe, who was then the Chief Executive Officer of
the Byrider Entities, to negotiate Manchester’s purchase of the Byrider Entities’ existing
components. As part of these negotiations, Manchester and the Byrider Entities entered into
a mutual non-disclosure agreement.
The Byrider Entities were concerned that Manchester would not be able to secure
adequate financing for the acquisition, and DeVoe requested to meet with the financing
sources whom Manchester intended to use. Under a confidentiality agreement that it had
1
In deciding defendants’ Rule 12(b)(6) motion, the court construes plaintiff’s second
amended complaint in the light most favorable to him, accepts as true all well-pleaded factual
allegations, and draws all reasonable inferences in plaintiff’s favor. See, e.g., Lovick v.
Ritemoney Ltd., 378 F.3d 433, 437 (5th Cir. 2004). “The court’s review [of a Rule 12(b)(6)
motion] is limited to the complaint, any documents attached to the complaint, and any
documents attached to the motion to dismiss that are central to the claim and referenced by
the complaint.” Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th
Cir. 2010).
-2-
with Keith’s company, Manchester was not allowed to disclose a financing source without
first obtaining written permission from Keith. Keith granted Manchester permission to make
this disclosure, and he helped arrange a meeting between DeVoe (along with other
representatives of the Byrider Entities) and Keith’s contacts at Greenwich Capital and the
Royal Bank of Scotland Group (“RBS Group”) (along with their affiliates), who were the
potential financiers for Manchester’s acquisition.
During this time, and with Manchester’s permission, Keith discussed with DeVoe the
possibility that another entity might acquire the Byrider Entities if Manchester’s attempt
failed. In connection with this contingency, Keith developed financing plans that involved
entities other than Manchester.
In January 2008 Keith entered into a Non-Circumvention Agreement (the “Written
Agreement”) with J.D. Byrider Systems, Inc. and Byrider Sales of Indiana S, Inc. The
Agreement’s Confidentiality and Non-Circumvention Term (“Confidentiality/NonCircumvention Clause”) provides:
If Byrider does not consummate the Acquisition with
Manchester or its assignee for a period of twenty four (24)
months from the date of this agreement, Byrider and those of its
affiliates to whom the Financiers are disclosed will not contact
or deal with or otherwise be involved in any transaction with
any Financier introduced to Byrider pursuant to the terms of this
Agreement without the express written approval of Consultant,
which approval may be withheld by Consultant in his sole and
absolute discretion.
-3-
P. Mem. Resp. Mot. Dis. Ex. 1 at 1.2 Keith alleges in his second amended complaint that
subsequent to the Written Agreement, Keith and the Byrider Entities entered into other
agreements (“Oral Agreements”) under which the Byrider Entities agreed that they would
not contact, deal with, or otherwise conclude or be involved in any transaction with financial
sources introduced by Keith without his consent, and further represented and agreed that he
would be compensated if the Byrider Entities utilized or entered into any transaction with
financial sources he had introduced. Keith also alleges that he entered into similar
agreements with DeVoe, individually.
After the Written Agreement was executed and the Oral Agreements were made,
Keith introduced the Byrider Entities to his financing sources and explained potential
financing structures. Manchester’s acquisition attempt, however, eventually dissolved.
In 2011 nonparty Altamont Capital Partners (“Altamont”) acquired the components
of the Byrider Entities then in existence. In April 2012 the Byrider Entities refinanced and
restructured large amounts of debt using Keith’s financing contacts and restructuring
proposals, without Keith’s involvement. They restructured $145 million in receivables, made
possible in part by financing from RBS Securities, Inc. (“RBS Securities”), a subsidiary of
2
The court is citing the document in this manner because Keith did not, as N.D. Tex.
Civ. R. 7.1(i)(1) requires, include the document in an appendix. See Rule 7.1(i)(1) (“A party
who relies on materials—including depositions, documents, electronically stored
information, affidavits, declarations, stipulations, admissions, interrogatory answers, or other
materials—to support or oppose a motion must include the materials in an appendix.”). Nor
did he comply with Rule 7.1(i)(4), which provides, in relevant part, that “[e]ach page of the
appendix must be numbered legibly in the lower, right-hand corner.”
-4-
RBS Group.
Keith sues the Byrider Entities and DeVoe, asserting claims for breach of contract and
quantum meruit. In support of his breach of contract claim, Keith alleges that the Byrider
Entities and DeVoe breached the Written Agreement as well as the Oral Agreements by
contacting and negotiating a deal with RBS Securities—an affiliate of Keith’s financing
source, RBS Group—and by implementing “the very same” restructuring plan that Keith
created, without first obtaining his written consent. Id. at ¶ 41. In support of his quantum
meruit claim, Keith alleges that he provided valuable consulting services to the Byrider
Entities by introducing them to his confidential financing sources and preparing a valuable
restructuring plan, for which the Byrider Entities had reasonable notice that he expected
compensation.
In Keith I the court concluded that Keith had failed to state plausible breach of
contract and quantum meruit claims on which relief could be granted, dismissed those claims
under Rule 12(b)(6), and granted Keith leave to replead. Keith then filed a second amended
complaint, which defendants now move to dismiss under Rule 12(b)(6), contending that he
has failed to state a claim on which relief can be granted. One defendant—DeVoe—moves
to dismiss under Rule 12(b)(2), contending that the court cannot exercise in personam
jurisdiction over him. In the alternative, defendants move for a more definite statement under
Rule 12(e).
-5-
II
The court first considers DeVoe’s Rule 12(b)(2) motion to dismiss Keith’s action
against him for lack of in personam jurisdiction.
A
“When a nonresident defendant presents a motion to dismiss for lack of personal
jurisdiction, the plaintiff bears the burden of establishing the district court’s jurisdiction over
the nonresident.” Stuart v. Spademan, 772 F.2d 1185, 1192 (5th Cir. 1985) (citing Thompson
v. Chrysler Motors Corp., 755 F.2d 1162, 1165 (5th Cir. 1985)). The determination whether
a federal district court has in personam jurisdiction over a nonresident defendant is bipartite.
The court first decides whether the long-arm statute of the state in which it sits confers
personal jurisdiction over the defendant. If it does, the court then resolves whether the
exercise of jurisdiction is consistent with due process under the United States Constitution.
See Mink v. AAAA Dev. LLC, 190 F.3d 333, 335 (5th Cir. 1999). Because the Texas
long-arm statute extends to the limits of due process, the court need only consider whether
exercising jurisdiction over DeVoe would be consistent with the Due Process Clause of the
Fourteenth Amendment. See id.; Alpine View Co. v. Atlas Copco AB, 205 F.3d 208, 214 (5th
Cir. 2000).
The Due Process Clause of the Fourteenth Amendment permits
the exercise of personal jurisdiction over a nonresident
defendant when (1) that defendant has purposefully availed
himself of the benefits and protections of the forum state by
establishing “minimum contacts” with the forum state; and (2)
the exercise of jurisdiction over that defendant does not offend
“traditional notions of fair play and substantial justice.” To
-6-
comport with due process, the defendant’s conduct in
connection with the forum state must be such that he “should
reasonably anticipate being haled into court” in the forum state.
Latshaw v. Johnston, 167 F.3d 208, 211 (5th Cir. 1999) (footnotes omitted). To determine
whether exercising jurisdiction would satisfy traditional notions of fair play and substantial
justice, the court examines (1) the defendant’s burden, (2) the forum state’s interests, (3) the
plaintiff’s interests in convenient and effective relief, (4) the judicial system’s interest in
efficient resolution of controversies, and (5) the states’ shared interest in fundamental social
policies. Ruston Gas Turbines, Inc. v. Donaldson Co., 9 F.3d 415, 421 (5th Cir. 1993).
A defendant’s contacts with the forum may support either specific or general
jurisdiction over the defendant. Mink, 190 F.3d at 336. “For the court properly to assert
specific personal jurisdiction, the defendant must have ‘purposefully directed’ his activities
at residents of the forum, and the litigation must result from alleged injuries that ‘arise out
of or relate to’ the defendant’s activities directed at the forum.” Archer & White, Inc. v.
Tishler, 2003 WL 22456806, at *2 (N.D. Tex. Oct. 23, 2003) (Fitzwater, J.) (citing Burger
King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985); Helicopteros Nacionales de Colombia,
S.A. v. Hall, 466 U.S. 408, 414 (1984)). “General jurisdiction exists when a defendant’s
contacts with the forum state are unrelated to the cause of action but are ‘continuous and
systematic.’” Id. (citations omitted). “[A] court may assert jurisdiction over a foreign
corporation ‘to hear any and all claims against [it]’ only when the corporation’s affiliations
with the State in which suit is brought are so constant and pervasive ‘as to render [it]
essentially at home in the forum State.’” Daimler AG v. Bauman, ___ U.S. ___, 134 S.Ct.
-7-
746, 751 (2014) (first brackets added) (quoting Goodyear Dunlop Tires Operations, S.A. v.
Brown, 564 U.S. ___, 131 S.Ct. 2846, 2851 (2011)).
“The district court usually resolves the jurisdictional issue without conducting a
hearing.” Ham v. La Cienega Music Co., 4 F.3d 413, 415 (5th Cir. 1993) (footnote omitted).
“When a court rules on a motion to dismiss for lack of personal jurisdiction without holding
an evidentiary hearing, it must accept as true the uncontroverted allegations in the complaint
and resolve in favor of the plaintiff any factual conflicts posed by the affidavits. Therefore,
in a no-hearing situation, a plaintiff satisfies his burden by presenting a prima facie case for
personal jurisdiction.” Latshaw, 167 F.3d at 211 (footnotes omitted). “This liberal standard,
however, does not require the court to credit conclusory allegations, even if they remain
uncontradicted.”
Panda Brandywine Corp. v. Potomac Elec. Power Co., 2000 WL
35615925, at *2 (N.D. Tex. Sept. 15, 2000) (Fitzwater, J.) (citing Felch v. Transportes
Lar-Mex SA DE CV, 92 F.3d 320, 326 n.16 (5th Cir. 1996)), aff’d, 253 F.3d 865, 869 (5th
Cir. 2001) (per curiam) (affirming, inter alia, this conclusion).
B
The court concludes that Keith has not made a prima facie showing that the court can
exercise either general or specific personal jurisdiction over DeVoe. In Keith’s response to
DeVoe’s motion to dismiss, he contends that DeVoe solicited and negotiated contracts with
Keith in Texas, that were to be performed in Texas, and that were governed by Texas law.
But these assertions neither appear in Keith’s second amended complaint nor are they
supported by evidence (such as in the form of an affidavit or declaration of Keith). This is
-8-
a material failure. The court must accept as true the uncontroverted allegations of Keith’s
second amended complaint and resolve in his favor any factual conflicts posed by the
affidavits. But if the necessary allegations are missing from the second amended complaint,
there are no uncontroverted allegations to be accepted as true. And if Keith has also failed
to introduce any supporting evidence, there are no factual conflicts to resolve in his favor so
that he can avoid dismissal. See New Vector Commc’ns, Inc. v. Strategic Commc’ns Servs.,
Inc., 2007 WL 465215, at *2 (N.D. Tex. Feb. 13, 2007) (Fitzwater, J.) (holding that once
defendant presented evidence controverting allegations of plaintiff’s complaint that purported
to show existence of specific and general jurisdiction, burden shifted to plaintiff to adduce
affidavit evidence sufficient to satisfy minimum contacts prong of due process test, and that
plaintiff’s failure to respond to motion and adduce evidence warranted dismissal).
The only allegation in the second amended complaint that is related to the court’s
power to exercise personal jurisdiction over DeVoe is a conclusory assertion that defendants
“engage, or have engaged, in a continuous and systematic course of business, and are doing
business, within the State of Texas.” 2d Am. Compl. ¶ 5. Keith does not specifically address
DeVoe’s contacts apart from those of the Byrider Entities. Concerning DeVoe’s conduct,
Keith alleges that DeVoe signed the Written Agreement on behalf of each of the Byrider
Entities, see id. at ¶ 30, and that he separately entered into the Oral Agreements with Keith,
see id. at ¶ 38, but Keith does not allege that any of these actions occurred in Texas, were
directed at Texas, or would have an effect in Texas. Keith has failed to allege that DeVoe
had any contacts with Texas, much less contacts that are sufficient to support the exercise of
-9-
either general or specific personal jurisdiction.
Furthermore, there are no allegations that would support imputing the Byrider
Entities’ contacts with Texas to DeVoe. “[A]n individual’s transaction of business within
the state solely as a corporate officer does not create personal jurisdiction over that individual
though the state has in personam jurisdiction over the corporation.” Tempur-Pedic Int’l, Inc.
v. Go Satellite Inc., 758 F.Supp.2d 366, 378 (N.D. Tex. 2010) (Fitzwater, C.J.) (quoting
Stuart, 772 F.2d at 1197). Although there are exceptions to this general rule where the
corporation is the alter ego of the individual corporate officer, or where the corporate officer
injures a person by tortious activity, see id.; Optimum Return LLC v. CyberKatz Consulting,
Inc., 2004 WL 827835, at *2 (N.D. Tex. Mar. 26, 2004) (Fitzwater, J.), Keith has not
suggested or made any allegations that would indicate that either of these exceptions applies
here.
Moreover, Keith has not made a prima facie showing based on affidavit or declaration
evidence offered in response to DeVoe’s motion to dismiss. In his response brief, he cites
only his second amended complaint, P. Mem. Resp. Mot. Dis. 24 n.104, and the Texas choice
of law clause in the Written Agreement, id. at n.105. But as noted above, the allegations of
his second amended complaint are insufficient to make a prima facie showing, and the
Written Agreement was entered into by Keith, J.D. Byrider Systems, Inc., and Byrider Sales
of Indiana S, Inc., not DeVoe.
- 10 -
C
Accordingly, the court holds that Keith has failed to make a prima facie showing that
the court can exercise in personam jurisdiction over DeVoe based either on general or
specific jurisdiction. The court therefore grants DeVoe’s Rule 12(b)(2) motion to dismiss
and dismisses Keith’s action against DeVoe without prejudice by Rule 54(b) final judgment
filed today.
III
The court now turns to defendants’ Rule 12(b)(6) motion to dismiss Keith’s breach
of contract claim.3
A
In Keith I the court addressed plaintiff’s first amended complaint, which only asserted
a claim against the Byrider Entities for allegedly breaching the Written Agreement. In his
second amended complaint, Keith re-asserts this breach of contract claim, but he also alleges
that the Byrider Entities breached the Oral Agreements, under which the Byrider Entities
allegedly agreed not to contact, deal with, or otherwise be involved in any transaction with
any financier introduced to them by Keith, without his approval, or to use Keith’s proprietary
information or sources without compensating him. The court will address Keith’s claims
separately.
3
The standard that the court follows in deciding defendants’ Rule 12(b)(6) motion is
set out in Keith I, 2014 WL 5148124, at *2.
- 11 -
B
“‘A breach of contract claim under Texas law requires proof of four elements: (1) the
existence of a valid contract, (2) plaintiff’s performance of duties under the contract, (3)
defendants’ breach of the contract, and (4) damages to plaintiff resulting from the breach.’”
Keith I, 2014 WL 5148124, at *3 (quoting Orthoflex, Inc. v. ThermoTek, Inc., 983 F.Supp.2d
866, 872 (N.D. Tex. 2013) (Fitzwater, C.J.)).
Under Texas law, the court’s primary concern when interpreting
a contract is to ascertain the parties’ intentions as expressed
objectively in the contract. In doing so, the court must examine
and consider the entire writing in an effort to harmonize and
give effect to all contractual provisions, so that none will be
rendered meaningless. Language should be given its plain and
grammatical meaning unless it definitely appears that the
parties’ intention would thereby be defeated. Where the
contract can be given a definite legal meaning or interpretation,
it is not ambiguous, and the court will construe it as a matter of
law. A contractual provision is ambiguous when its meaning is
uncertain and doubtful or if it is reasonably susceptible to more
than one interpretation. Whether a contract is ambiguous is a
question of law for the court to decide by looking at the contract
as a whole, in light of the circumstances present when the
contract was entered.
Id. (internal quotation marks omitted) (quoting Hoffman v. L & M Arts, 774 F.Supp.2d 826,
832-33 (N.D. Tex. 2011) (Fitzwater, C.J.)). “A contract is not ambiguous merely because
the parties have a disagreement on the correct interpretation.” Id. (quoting REO Indus., Inc.
v. Natural Gas Pipeline Co. of Am., 932 F.2d 447, 453 (5th Cir. 1991)). “Courts are to
construe contracts ‘from a utilitarian standpoint bearing in mind the particular business
activity sought to be served and will avoid when possible and proper a construction which
- 12 -
is unreasonable, inequitable, and oppressive.’” Id. (quoting Frost Nat’l Bank v. L & F
Distribs., Ltd., 165 S.W.3d 310, 312 (Tex. 2005)) (internal quotation marks omitted).
C
Defendants move to dismiss Keith’s claim for breach of the Written Agreement,
contending that the court has already dismissed this identical breach of contract claim. Keith
responds that he has now provided additional clarifying information and has included
additional facts and allegations in the second amended complaint that demonstrate that the
court’s interpretation of the Written Agreement in Keith I was incorrect. Before addressing
Keith’s new allegations, the court will briefly summarize its holding in Keith I.
1
In Keith I the court considered the 24-month time limitation contained in the Written
Agreement’s Confidentiality/Non-Circumvention Clause, which provides:
If Byrider does not consummate the Acquisition with
Manchester or its assignee for a period of twenty four (24)
months from the date of this agreement, Byrider and those of its
affiliates to whom the Financiers are disclosed will not contact
or deal with or otherwise be involved in any transaction with
any Financier introduced to Byrider pursuant to the terms of this
Agreement without the express written approval of Consultant,
which approval may be withheld by Consultant in his sole and
absolute discretion.
Resp. Ex. 1 at 1. Keith had argued (as he does now) that the Confidentiality/NonCircumvention Clause should be interpreted to mean that the Byrider Entities had 24 months
to consummate a potential acquisition by Manchester, and, if they did not, the
Confidentiality/Non-Circumvention Clause went into effect and prohibited them from
- 13 -
contacting or transacting with Keith’s financiers from then on. The court disagreed with
Keith’s position, and instead interpreted the 24-month period in the clause as a period that
began on the date the Written Agreement was signed and continued for 24 months, during
which the Byrider Entities were prohibited from communicating with the financiers. In
reaching this conclusion, the court determined that, in the first sentence of the
Confidentiality/Non-Circumvention Clause, a comma should have been inserted after the
word “assignee.” See Keith I, 2014 WL 5148124, at *4 (citing Chicago Manual of Style
Online, § 6.30 (16th ed. 2010) (“A dependent clause that precedes a main clause should be
followed by a comma.”)). The court explained that inserting the comma after the word
“assignee” would clarify the meaning of the clause, which could be paraphrased as follows:
If Byrider does not consummate the Acquisition with
Manchester, then for a period of twenty four (24) months from
the date of this agreement, Byrider and the affiliates to whom
the Financiers are disclosed will not contact, deal with, or
otherwise be involved in any transaction with any Financier
introduced to Byrider pursuant to the terms of this Agreement,
except with Keith’s approval, which he can withhold in his sole
discretion.
Id. The court held that this interpretation of the Confidentiality/Non-Circumvention Clause
was supported both by a natural reading of the words used by the parties and by the Written
Agreement when viewed as a whole. The court set out three reasons for rejecting Keith’s
proposed interpretation.
First, the court looked to the specific words used by the parties in the
Confidentiality/Non-Circumvention Clause. The court concluded that the use of the word
- 14 -
“for” in the phrase “for a period of twenty four (24) months” suggested that the 24-month
period was a period of limited duration, during which the Byrider Entities were precluded
from communicating with the financiers. The court explained that had the parties intended
instead to provide the Byrider Entities with 24 months to consummate the acquisition by
Manchester, after which they would be precluded from contacting the financiers for an
unlimited period, as Keith proposed, the parties would have used a word such as “within” or
“by” to make clear that the 24-month period was a deadline by which the Byrider Entities
had to consummate the transaction.
Second, the court read the Confidentiality/Non-Circumvention Clause in the context
of the Written Agreement as a whole.
The court concluded that Keith’s proposed
interpretation would have permitted the Byrider Entities to contact and deal with the
financiers for a period of up to 24 months beginning on the day the Written Agreement was
executed, and that after the expiration of this 24-month period, the protection of the clause
would take effect. The court explained that Keith’s proposed interpretation of the clause
created a gap in the protection afforded Manchester (and perhaps Keith) at the very moment
when the Written Agreement was first executed and the identity of the financiers was first
disclosed to the Byrider Entities. The court reasoned that this interpretation would be plainly
contrary to the purpose of a non-circumvention agreement, which is designed to protect the
party divulging sensitive information during an ongoing negotiation process. Thus the court
concluded that Keith’s interpretation of the Confidentiality/Non-Circumvention Clause was
not supported by the Written Agreement when viewed as a whole.
- 15 -
Third, the court pointed to the fact that Keith’s interpretation of the
Confidentiality/Non-Circumvention Clause would render the clause unenforceable as an
unreasonable restraint of trade.
The court explained that the Confidentiality/Non-
Circumvention Clause was a restrictive covenant under Texas law, and therefore must, inter
alia, include reasonable limitations as to time, territory, and type of activity to be
enforceable. Keith maintained (and continues to maintain) that the Confidentiality/NonCircumvention Clause imposes a prohibition on the Byrider Entities that is both perpetual
in duration and unlimited in scope. Because this interpretation of the clause would render
it unenforceable, and because the court found that the complaint did not plead factual content
that would permit the court to draw the reasonable inference that the parties intended to enter
into such an extreme and patently unenforceable restrictive covenant, the court concluded
that the only reasonable inference to be drawn from the first amended complaint was that the
parties to the Written Agreement intended the 24-month period to serve as a limitation on the
duration of the restrictive covenant.
The
court
therefore
rejected
Keith’s
proposed
interpretation
of
the
Confidentiality/Non-Circumvention Clause, and it concluded instead that the clause operated
as a time period of limited duration (24 months) beginning at the time the Written Agreement
was executed, during which the Byrider Entities were precluded from contacting the
financiers. Because the Byrider Entities’ debt-restructuring transaction with RBS Securities
occurred more than four years after the execution of the Written Agreement, the court held
that the conduct that made up the alleged breach was beyond the scope of the
- 16 -
Confidentiality/Non-Circumvention Clause and therefore could not support Keith’s breach
of contract claim.
2
Keith contends that he has included in his second amended complaint additional
allegations that demonstrate that his proposed interpretation of the Confidentiality/NonCircumvention Clause is not inconsistent with the general purpose of a typical noncircumvention agreement, and that the court’s interpretation of the clause in Keith I was
incorrect. Keith now alleges that, prior to entering into the 2008 Written Agreement, the
Byrider Entities had already entered into a mutual non-disclosure agreement (the “NonDisclosure Agreement”) with Manchester, wherein the Byrider Entities agreed not to use or
disclose any of the confidential and proprietary information shared with them in connection
with the negotiations or the acquisition process; that the 2008 Written Agreement was a
separate non-circumvention agreement intended to provide additional protections to Keith
outside and beyond the Non-Disclosure Agreement; and that because he was already
protected during the initial 24-month period by the Non-Disclosure Agreement, the Written
Agreement signed in 2008 clearly provided protection that would begin 24 months from the
date of the Non-Circumvention Agreement.
The court disagrees with Keith’s argument that the existence of the Non-Disclosure
Agreement between Manchester and the Byrider Entities beginning in 2007 necessarily
demonstrates that the protections afforded Keith by the Written Agreement, signed in 2008,
did not take effect until 24-months after the agreement was signed. Although Keith does not
- 17 -
articulate it this way, he is essentially arguing that, because the Non-Disclosure Agreement
existed beginning in 2007, interpreting the Written Agreement to take effect 24 months after
its execution would not create a gap in coverage, as the court suggested in Keith I. Keith
contends that, because the protections of the Written Agreement were not intended simply
to duplicate the protections already afforded by the Non-Disclosure Agreement, the
protections in the Written Agreement were clearly not intended to take effect in 2008, while
the Non-Disclosure Agreement was still in effect.
But this reasoning assumes that the protections afforded by the Written Agreement
were duplicative of those provided by the Non-Disclosure Agreement—an assumption that
is not supported by the allegations in the second amended complaint. Keith alleges that the
Non-Disclosure Agreement was an agreement between the Byrider Entities and Manchester,
while the Written Agreement, entered into in 2008, was an agreement between the Byrider
Entities and Keith, individually. And although the text of the Non-Disclosure Agreement has
not been provided to the court, the fact that Keith was not a party to the Non-Disclosure
Agreement, but was a party to the Written Agreement, suggests that the protections afforded
by the two agreements did not necessarily overlap.
And even if Keith is correct that the existence of the Non-Disclosure Agreement in
2007 adequately addresses Keith I’s conclusion that Keith’s proposed interpretation of the
Confidentiality/Non-Disclosure Clause would create a gap in coverage, this argument alone
does not rebut the other grounds on which Keith I relies: the natural reading of the words
contained in the Confidentiality/Non-Disclosure Clause, the grammatical rules requiring that
- 18 -
a comma be inserted after the word “assignee,” or the absence of facts alleged in the
complaint that would permit the court to reasonably infer that the parties to the Written
Agreement intended to enter into a patently unenforceable restrictive covenant. Thus the
additional facts that Keith alleges in the second amended complaint do not alter the court’s
conclusion in Keith I that the only reasonable inference to be drawn from the language of the
Written Agreement and from the facts that Keith alleges is that the parties intended the
phrase “for a period of twenty four (24) months from the date of this agreement” to serve as
a limitation on the duration of the restriction prohibiting the Byrider Entities from
communicating with the financiers.
The court therefore concludes, as it did in Keith I, that the Confidentiality/NonCircumvention Clause unambiguously operated as a time period of limited duration (24
months), during which the Byrider Entities were precluded from contacting the financiers.
Because it is undisputed that the Byrider Entities’ debt-restructuring transaction with RBS
Securities occurred more than four years after the Written Agreement took effect, the Byrider
Entities’ conduct constituting the alleged breach occurred beyond the scope of the
Confidentiality/Non-Circumvention Clause and cannot form the basis for Keith’s breach of
contract claim. Accordingly, to the extent Keith’s breach of contract claim is premised on
the Byrider Entities’ breach of the Written Agreement, the claim is dismissed.
- 19 -
D
The court now considers Keith’s claim that the Byrider Entities breached the Oral
Agreements.
1
Keith alleges in his second amended complaint that, following the execution of the
Written Agreement, Keith and the Byrider Entities entered into the Oral Agreements, under
which Keith agreed to provide the Byrider Entities advice and consultation in connection
with variations on private investment approaches, a follow-on business growth strategy, and
a debt restructuring plan. Keith alleges that the Byrider Entities promised in exchange that,
without his consent, they would not contact, deal with, or otherwise conclude or be involved
in any transaction with financial sources that Keith introduced to them, and that they agreed
to compensate Keith if they utilized or entered into any transaction with those financial
sources.
Defendants move to dismiss Keith’s claim that the Byrider Entities breached the Oral
Agreements on the following grounds: (1) the existence of the Oral Agreements is
implausible; (2) Keith’s allegations regarding the Oral Agreements fail to state the material
terms of the agreements; (3) the Oral Agreements are unenforceable unreasonable restraints
on trade; and (4) the alleged Oral Agreements violate the statute of frauds.
2
The court need only consider defendants’ contention that the Oral Agreements
constitute unenforceable unreasonable restraints on trade. Defendants rely on the court’s
- 20 -
holding in Keith I that a prohibition against the Byrider Entities’ contacting, dealing with, or
otherwise being involved with any financial source disclosed by Keith is a restrictive
covenant, and that a restrictive covenant is unreasonable unless it is limited appropriately as
to time, territory, and type of activity. Defendants maintain that, as alleged, the Oral
Agreements contain prohibitions that are permanent, unlimited in scope, and thus constitute
an unreasonable restraint of trade, and that the Oral Agreements are unenforceable under
Texas law and cannot serve as the basis for Keith’s breach of contract claim.
Keith responds that the fact that the parties did not expressly state the term of
performance in an oral contract is not determinative, because it is well settled in Texas that
where an oral contract omits such a term, a reasonable duration may properly be implied
from extrinsic evidence; that he has never asserted that the parties expressly agreed to a
proscriptive period of permanent or unlimited duration; and that because a reasonable
duration for performance is to be implied, the Oral Agreements do not constitute
unenforceable permanent restrictive covenants. Keith also notes that Texas courts are
empowered to reform overbroad restrictive covenants to the extent necessary to bring them
into compliance with the reasonable restraint requirement.
At the outset, the court agrees with defendants that the prohibition in the Oral
Agreements against the Byrider Entities’ contacting or transacting with the financiers
introduced to them by Keith constitutes a restrictive covenant. In Keith I the court held that
the Confidentiality/Non-Circumvention Clause in the Written Agreement constituted a
restrictive covenant under Texas law because it “prohibit[ed] the Byrider Entities from
- 21 -
contacting, dealing with, or otherwise being involved with any financier disclosed by Keith.”
Keith I, 2015 WL 5148124, at *5. The same reasoning applies to the Oral Agreements
prohibiting the Byrider Entities from contacting or transacting with Keith’s contacts. As the
court noted in Keith I, “[u]nder Texas law, a restrictive covenant is an unenforceable restraint
of trade . . . unless it meets three criteria,” one of which is that “the restraint cannot be greater
than necessary to protect the promisee’s legitimate interest.” Id. (citing Desantis v.
Wackenhut Corp., 793 S.W.2d 670, 681-82 (Tex. 1990)). To meet this criterion, “the extent
of the restraint must be limited appropriately as to time, territory, and type of activity.” Id.
(citing Desantis, 793 S.W.2d at 682). Accepting all well-pleaded facts as true, and viewing
them in the light most favorable to Keith, as the court must, Keith has alleged that the
Byrider Entities violated restrictive covenants that do not include any restraint on the
temporal duration of the restrictive covenant, nor any restraint in terms of scope. Thus, as
alleged, the restrictive covenants contained in the Oral Agreements are unenforceable
restraints of trade.
Keith argues that the Oral Agreements are not unenforceable restraints of trade
because the court can simply imply a reasonable temporal term for performance based on
extrinsic evidence. In support of this argument, Keith cites two decisions of the Supreme
Court of Texas, both of which discuss a court’s power to imply an otherwise absent temporal
limitation in an oral contract, specifically in the context of determining whether an oral
contract falls within the statute of frauds. See Niday v. Niday, 643 S.W.2d 919, 920 (Tex.
1982) (per curiam); Hall v. Hall, 308 S.W.2d 12, 16 (Tex. 1957). Neither of these cases,
- 22 -
however, stands for the proposition that where a restrictive covenant fails to include a
temporal limitation, the court can simply imply one from extrinsic evidence to save the
contract from being deemed unenforceable.
Under certain circumstances, Texas law does permit, and in fact requires, a court to
reform an otherwise unenforceable restrictive covenant. See Tex. Bus. & Com. Code Ann.
§ 15.51(c) (West 2011) (“If the covenant is found to be ancillary to or part of an otherwise
enforceable agreement but contains limitations as to time, geographical area, or scope of
activity to be restrained that are not reasonable . . . the court shall reform the covenant to the
extent necessary to cause the limitations contained in the covenant . . . to be reasonable[.]”).
When a restrictive covenant lacks a reasonable limitation as to time or scope, but otherwise
meets the requirements of an enforceable restrictive covenant, Texas law requires a court to
reform the covenant to contain reasonable limitations on time and scope. But under Texas
law, although the court can reform an unenforceable covenant not to compete, “the court may
not award the promisee damages for a breach of the covenant before its reformation and the
relief granted to the promisee shall be limited to injunctive relief.” Id.
Here, Keith is not suing for injunctive relief; he only seeks actual and compensatory
damages allegedly resulting from the Byrider Entities’ breach of the Oral Agreements. See
2d Am. Compl. 17-18. Accordingly, even if the court were now to reform the Oral
Agreements to contain the reasonable limitations as to time and scope necessary to make
them enforceable, Keith would still be precluded under Texas law from recovering damages
caused by the Byrider Entities’ alleged breach of the Oral Agreements, which occurred
- 23 -
before the Oral Agreements were reformed. And because Keith is only suing for relief that
is unavailable under Texas law, he has failed to state a claim on which relief can be granted.
Accordingly, the court grants defendants’ motion to dismiss Keith’s claim that the
Byrider Entities’ breached the Oral Agreements.
IV
The court now considers defendants’ motion to dismiss Keith’s quantum meruit claim.
A
Quantum meruit is an equitable remedy that does not arise out of a contract, but is
based on an equitable agreement to pay for benefits received. Keith I, 2014 WL 5148124,
at *6 (quoting MetroplexCore, L.L.C. v. Parsons Transp., Inc., 743 F.3d 964, 975 (5th Cir.
2014) (per curiam)).
Generally, a party may recover under quantum meruit only when
there is no express contract covering the services or materials
furnished. This remedy “is based upon the promise implied by
law to pay for beneficial services rendered and knowingly
accepted.” Recovery in quantum meruit will be had when non
payment for the services rendered would “result in an unjust
enrichment to the party benefited by the work.”
Id. (quoting MetroplexCore, 743 F.3d at 975). To state a claim for quantum meruit, Keith
must establish that: “1) valuable services and/or materials were furnished, 2) to the party
sought to be charged, 3) which were accepted by the party sought to be charged, and 4) under
such circumstances as reasonably notified the recipient that the plaintiff, in performing,
expected to be paid by the recipient.” Id. (quoting MetroplexCore, 743 F.3d at 975).
In Keith I the court held that Keith had failed to state a plausible claim for quantum
- 24 -
meruit against the Byrider Entities because he had not pleaded any factual content suggesting
that Keith was a consultant for the Byrider Entities, and the agreement he relied on as the
basis of his claim did not mention any compensation to Keith and thus did not provide a basis
for the court to draw the reasonable inference that the Byrider Entities were on notice that
Keith expected to paid for his disclosure of the financiers’ identities. The court also noted
that the fact that Keith had alleged that he was entitled to $4.35 million, plus interest, in
damages added to the implausibility of his claim that the Byrider Entities were on notice that
he expected to be paid such a large sum for his efforts. The court thus dismissed Keith’s
quantum meruit claim.
B
In his second amended complaint, Keith has repleaded his quantum meruit claim.
Defendants again move to dismiss, arguing that the claim fails because it continues to suffer
from the same defects noted in Keith I. They maintain that Keith’s allegations are selfserving, conclusory, and implausible, and that the second amended complaint lacks factual
content supporting the premise that Keith actually brokered the Byrider Entities’ transaction
with RBS securities, or that the Byrider Entities were on notice that Keith expected to be paid
for his efforts.
The court concludes that Keith’s second amended complaint pleads a plausible
quantum meruit claim. Keith alleges that he provided valuable services and advice to the
Byrider Entities in the form of financial transaction models, materials, and proposals that he
had developed, including debt restructuring proposals, and other novel and unique asset- 25 -
backed security transactions that were not previously being utilized in the marketplace, as
well as by introducing the Byrider Entities to his funding and equity sources. He alleges that
he entered into the Written Agreement as well as the Oral Agreements with the Byrider
Entities, wherein he agreed to provide materials and services and advice regarding possible
variations on a private investment approach, follow-on business growth strategy, and a debt
restructuring plan. He also asserts that the Byrider Entities agreed to compensate him if they
ever utilized or entered into any transactions with the financial sources that Keith introduced
to them, that the Byrider Entities were aware that Keith expected to be compensated for his
services, and that they were aware of the standard minimum compensation for the types of
transactions in which the Byrider Entities sought to engage. These allegations are at least
sufficient to enable the court to draw the reasonable inference that the Byrider Entities
accepted valuable services and/or materials from Keith in the form of financial information
and planning and disclosure of the financiers’ identities, and that they were on notice that
Keith expected to paid for his disclosure of the financiers’ identities.
Accordingly, the court denies defendants’ Rule 12(b)(6) motion to dismiss Keith’s
quantum meruit claim.
V
Defendants move in the alternative that, if the court concludes that the second
amended complaint states a claim for breach of contract and/or quantum meruit, Keith be
required to replead to provide more details. They move under Rule 12(e) for a more definite
statement.
- 26 -
To the extent defendants move for this relief concerning Keith’s breach of contract
claims, the court denies the motion as moot. Insofar as defendants seek this relief regarding
Keith’s quantum meruit claim, the court denies the motion.
“A motion for a more definite statement under Rule 12(e) is available where the
pleading ‘is so vague or ambiguous that the party cannot reasonably prepare a response.’”
Conceal City, L.L.C. v. Looper Law Enforcement, LLC, 917 F.Supp.2d 611, 621 (N.D. Tex.
2013) (Fitzwater, C.J.) (quoting Rule 12(e)). “‘Motions for a more definite statement are
generally disfavored.’” Johnson v. BAE Sys. Land & Armaments, L.P., 2012 WL 5903780,
at *4 (N.D. Tex. Nov. 26, 2012) (Fitzwater, C.J.) (quoting Russell v. Grace Presbyterian
Vill., 2005 WL 1489579, at *3 (N.D. Tex. June 22, 2005) (Solis, J.)). “‘When a defendant
is complaining of matters that can be clarified and developed during discovery, not matters
that impede [its] ability to form a responsive pleading, an order directing the plaintiff to
provide a more definite statement is not warranted.’” Id. (quoting Brown v. Whitcraft, 2008
WL 2066929, at *1 (N.D. Tex. May 15, 2008) (Fitzwater, C.J.)).
The court concludes that Keith’s quantum meruit claim is not so vague or ambiguous
that defendants cannot reasonably prepare a responsive pleading. In fact, the court’s
conclusion that he has pleaded a plausible quantum meruit claim implicitly defeats the
contention that the claim is so vague or ambiguous that defendants cannot reasonably prepare
a responsive pleading.
- 27 -
*
*
*
For the reasons explained, the court grants DeVoe’s Rule 12(b)(2) motion to dismiss
for lack of in personam jurisdiction, and it dismisses Keith’s action against DeVoe without
prejudice by Rule 54(b) final judgment filed today. The court grants in part and denies in
part defendants’ Rule 12(b)(6) motion to dismiss. It grants defendants’ motion to the extent
of dismissing Keith’s breach of contract claims, and it denies the motion as to Keith’s
quantum meruit claim. The court denies in part as moot, and otherwise denies on the merits,
defendants’ alternative Rule 12(e) motion for more definite statement.
SO ORDERED.
June 5, 2015.
_________________________________
SIDNEY A. FITZWATER
UNITED STATES DISTRICT JUDGE
- 28 -
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?