BHL Boresight, Inc. v. Geo-Steering Solutions, Inc. et al
OPINION AND ORDER denying 357 Opposed MOTION to Strike; denying 246 , 333 & 334 Motions to Dismiss under Rule 12(b)(2); granting in part, denying in part 230 , 323 , 246 , 259 , 317 , 333 & 334 Motions to Dismiss under Rule 12(b)(6). (Signed by Judge Melinda Harmon) Parties notified.(gclair, 4)
United States District Court
Southern District of Texas
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
BHL BORESIGHT, INC., et al,
GEO-STEERING SOLUTIONS, INC., et al,
June 26, 2017
David J. Bradley, Clerk
CIVIL ACTION NO. 4:15-CV-00627
OPINION AND ORDER
Pending in the above-referenced cause are the following Defendants’ Motions to
Dismiss: Statoil Gulf Services LLC (“Statoil”) and Alfonso Zaza’s (“Zaza”), Doc. 230; GeoSteering Solutions, Inc. and Geo-Steering Solutions USA, Inc. (collectively, “GSSI”), Doc. 232;
Pleasant Solutions, Doc. 246; Neil Tice (“Tice”), Doc. 259; Darrell Joy (“Joy”), Doc. 317; and
Byron Molloy (“Molloy”), Docs. 333, 334. Molloy’s Opposed Motion to Strike Arguments from
BHL Boresight’s Sur-Reply is also pending. Doc. 357. After considering the Motions, the Court
denies Molloy’s Motion to Strike, and grants in part and denies in part Defendants’ Motions to
Dismiss for the reasons that follow.
Because the facts of this case have been extensively recited in this court’s prior Opinion
and Order, Doc. 140, the Court only recites what is necessary to understand the context in which
the present motions arose.
The parties in this case dispute the source of Defendant GSSI’s geosteering software,
Geo-Direct. Plaintiff BHL contends that Defendants unlawfully used its proprietary software to
develop Geo-Direct. As a result, BHL initiated this suit against Defendants GSSI and Statoil on
March 10, 2015. Doc. 1.
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In its Original Complaint, BHL asserted claims against Statoil and GSSI for violations of
the Computer Fraud and Abuse Act (“CFAA”), Electronic Communications Privacy Act
(“ECPA”) (Counts I–III), unjust enrichment (Count V), and civil conspiracy (Count VIII). Id. ¶¶
28–51, 60–64, 77–80. BHL also alleged misappropriation of trade secrets (Count IV) and civil
theft (Count VII) against GSSI and breach of contract (Count VI) against Statoil. Id. ¶¶ 52–59,
65–76. GSSI responded by asserting counterclaims against BHL for: request for declaratory
judgment of independent creation of the GSSI software (Count I), request for declaratory
judgment that the GSSI software is an original work (Count II), request for declaratory judgment
that GSSI did not copy BHL’s software in creating GSSI’s software (Count III), Lanham Act
violation (Count IV), common law unfair competition (Count V), state antitrust violation (Count
VI), tortious interference with existing contract (Count VII), and tortious interference with
prospective business relationships (Count VIII). Doc. 19 at ¶¶ 10–56. The parties filed cross
motions to dismiss and on March 29, 2016, this Court dismissed BHL’s ECPA and unjust
enrichment claims and GSSI’s state antitrust, tortious interference with existing contract, and
tortious interference with prospective business relationships counterclaims without prejudice.
After receiving permission from the Court, BHL filed its First Amended Complaint
(“FAC”) on August 29, 2016, in which it amended its claims and added additional Defendants
Pleasant Solutions, Joy, Tice, Molloy, and Zaza. Doc. 209-1. All Defendants responded by filing
the pending Motions to Dismiss. Docs. 230, 232, 246, 259, 317, 334. These Motions are now
ripe for consideration.
II. Motions to Dismiss for Lack for Personal Jurisdiction
Two Defendants, Molloy and Pleasant Solutions, attack their inclusion in this suit with
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their Motions to Dismiss for Lack of Personal Jurisdiction pursuant to Federal Rule 12(b)(2).
Because jurisdictional matters must be resolved first, the Court begins with these Motions. See,
e.g., United States v. Tex. Tech Univ., 171 F.3d 279, 285 n.9 (5th Cir. 1999) (“[C]ourts must . . .
decide issues of personal jurisdiction before ruling on the merits.”).
A. Legal Standard
The Due Process Clause of the Fourteenth Amendment precludes a federal court from
assuming personal jurisdiction over a nonresident defendant “unless the defendant has
meaningful ‘contacts, ties, or relations’ with the forum state.” Luv N’ Care, Ltd. v. Insta-Mix,
Inc., 438 F.3d 465, 469 (5th Cir. 2006) (citing Int’l Shoe Co. v. Washington, 326 U.S. 310, 319,
66 S. Ct. 154, 90 L. Ed. 95 (1945)). Such contacts can give rise to either general or specific
jurisdiction. Id. Where a defendant has “continuous and systematic general business contacts”
with the forum state, the court may exercise “general” jurisdiction over any action brought
against that defendant. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414–15
& n.9, 104 S. Ct. 1868, 80 L. Ed. 2d 404 (1984). Where contacts are less pervasive, the court
may still exercise “specific” jurisdiction “in a suit arising out of or related to the defendant’s
contacts with the forum.” Id. at 414 n.8. This case presents only the question of specific
The Fifth Circuit has reduced the specific-jurisdiction inquiry into a three-step analysis:
“‘(1) whether the defendant . . . purposely directed its activities toward the forum state or
purposely availed itself of the privileges of conducting activities there; (2) whether the plaintiff’s
cause of action arises out of or results from the defendant’s forum-related contacts; and (3)
whether the exercise of personal jurisdiction is fair and reasonable.’” Id. (quoting Nuovo Pignone
v. STORMAN ASIA M/V, 310 F.3d 374, 378 (5th Cir. 2002)). “The ‘minimum contacts’ inquiry is
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fact intensive and no one element is decisive; rather the touchstone is whether the defendant’s
conduct shows that it ‘reasonably anticipates being haled into court.’” McFadin v. Gerber, 587
F.3d 753, 759 (5th Cir. 2009) (citing Luv N’ Care, 438 F.3d at 470). Thus, a defendant may not
be haled into a jurisdiction “solely as a result of ‘random,’ ‘fortuitous,’ or ‘attenuated’ contacts,
or of the ‘unilateral activity of another party or third person.’” Id. (citing Electrosource, Inc., v.
Horizon Battery Techs., Ltd., 176 F.3d 867, 871–72 (5th Cir. 1999)).
In addition to meeting due-process requirements, a federal court’s exercise of personal
jurisdiction must satisfy the requirements of the forum state’s “long-arm” statute. Clemons v.
McNamee, 615 F.3d 374, 378 (5th Cir. 2010) (citing Latshaw v. Johnston, 167 F.3d 2008, 2011
(5th Cir. 1999)). Texas’s long-arm statute, however, is coextensive with the Due Process
When faced with a motion to dismiss for lack of personal jurisdiction, the court may
consider admissible affidavits and other materials. Thompson v. Chrysler Motors Corp., 755 F.2d
1162, 1165 (5th Cir. 1985). In the absence of a full and fair evidentiary hearing, however, a
plaintiff need only make a prima facie showing of jurisdiction through its own affidavits and
supporting material. Cooper v. McDermott Int’l, Inc., 62 F.3d 395, 1995 WL 450209, at *5 (5th
Cir. 1995) (unpublished) (citing Thompson, 755 F.2d at 1165). “Prima facie” means “[s]ufficient
to establish a fact or raise a presumption unless disproved or rebutted.” Black’s Law Dictionary
1310 (9th ed. 2009).
“To decide whether a prima facie case exists, [the court] must accept as true [the
plaintiff’s] ‘uncontroverted allegations, and resolve in its favor all conflicts between the facts
contained in the parties’ affidavits and other documentation.’” Nuovo Pignone, 310 F.3d at 378
(quoting Kelly v. Syria Shell Petroleum Dev. B.V., 213 F.3d 841, 854 (5th Cir. 2000)). This
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general rule of resolving conflicts in favor of the plaintiff only applies to affidavits and other
admissible evidence, however, not merely allegations. Cooper, 62 F.3d 395 (citing FernandezMontes v. Allied Pilots Assoc., 987 F.2d 278, 284 (5th Cir. 1993)).
As the law makes clear, the procedural posture of the case is important; at this early
stage, the Court need not decide whether BHL has proven its contentions, only whether,
resolving conflicts in the affidavits in its favor, it has made a prima facie case for personal
jurisdiction. See Campbell Pet Co. v. Miale, 542 F.3d 879, 888 (Fed. Cir. 2008). Before the
Court may do so, however, it must address a number of objections to the parties’ declarations.
In this case, both parties submitted materials to support their positions. BHL objects to
Molloy’s Declaration and Pleasant Solutions CEO Thomas Stachura’s Affidavit on the grounds
that both contain assertions that are irrelevant, hearsay, conclusory, have little probative value,
and/or go beyond the issue of personal jurisdiction. Docs. 278, 347. The Court addresses the
objected-to submissions in turn.
i. Stachura Affidavit
Specifically, BHL argues that the Stachura Declaration should be disregarded because
Stachura lacks personal knowledge about communications between Pleasant Solutions
employees and GSSI, making his statements about interactions between GSSI and Pleasant
Solutions hearsay. Doc. 278 at 12–13. BHL further argues that Stachura’s Declaration has little
probative value because he is an interested witness offering conclusory statements. Id. at 14–15.
While BHL requests that the Court disregard the Affidavit in its entirety, BHL only identifies
four allegedly problematic statements:
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“Pleasant Solutions has no regular, continuous, systematic contact with the
State of Texas” (Stachura Aff. ¶ 9);
the GSSI Defendants “did not inform Pleasant Solutions where it intended to
market the software once Pleasant Solutions completed the development.”
(Aff. ¶ 19);
“At no time did any employee of Pleasant Solutions knowingly receive a live
demonstration . . . .” (Aff. ¶ 26); and
Pleasant Solutions did not “knowingly acquire any information that was
designated, marked or labeled as confidential and proprietary belonging to
BHL or any third party, nor any information which it could reasonably have
known, based on industry standards, is confidential to third parties”(Aff. ¶
The Court sustains BHL’s objections to the first statement, although it fails to see what
strategic advantage BHL gains thereby. BHL argues that the first statement is a “conclusory and
legalistic argument that is no substitute for specific facts.” Doc. 278 at 14. The Court agrees that
the statement contains a legal conclusion, however, Stachura testifies in prior paragraphs that
Pleasant Solutions has no offices; phone numbers or addresses; employees, officers, directors,
agents, or representatives; or property or security interests in Texas and has never conducted
business in the state. See Doc. 247 at ¶¶ 4–6. In doing so, he provides the proper factual support
for Pleasant Solutions’ contention that it lacks the necessary contact with Texas to support
The Court next finds unpersuasive BHL’s argument that the Affidavit should be
disregarded because Stachura is an interested witness. The cases that BHL cites in support of this
contention are nonbinding and easily distinguishable, and as Pleasant Solutions astutely points
out, “the individuals who have the personal knowledge necessary to give affidavits about
disputed facts in cases like this simply happen to be the employees or officers of such entities.”
Doc. 390 at 8–9.
Finally, the Court overrules BHL’s objection to the last three statements on hearsay
grounds. Nowhere in these three statements does Stachura aver that he based this knowledge on
what third parties told him. Furthermore, as CEO of the company, he is certainly capable of
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making a statement based on his own personal knowledge and experience regarding the extent of
the relations between the companies. See United Techs. Corp. v. Mazer, 556 F.3d 1260, 1277
(11th Cir. 2009) (concluding that defendant company’s managing director’s statement that the
company “at no time . . . ever assisted Defendant West–Hem in negotiating a price for the
blueprints with Anthony DiLorenzo, and did not decide, alone or together with anyone, what
Defendant West–Hem should pay Mr. DiLorenzo for those blueprints” was a factual statement
based on personal knowledge, not hearsay).
ii. Molloy Declaration
BHL renews the hearsay and lack-of-personal-knowledge arguments it leveled at
Stachura’s Affidavit against Molloy’s Declaration, but it further argues that a number of
Molloy’s statements are conclusory and that, as a whole, the Declaration is improper because it
addresses more than jurisdictional issues. Doc. 347. BHL points to the following statement as
hearsay: “I learned that Boresight and Myall Hawkins, Boresight’s attorney, contacted my
employer Chinook Consulting Ltd. in Canada, to locate me and discuss this lawsuit against me. I
also learned that Mr. Hawkins actually visited Chinook in Canada to discuss my role in this
lawsuit.” Doc. 334-1 ¶ 31.
The Court agrees with BHL that this statement constitutes hearsay; however, yet again,
BHL’s victory is hollow because this statement is irrelevant to the 12(b)(2) analysis. Contrary to
Molloy’s assertion that “[e]verything in [his] declaration pertains to the issue of personal
jurisdiction” and is “directly relevant to proving that [he] was merely a peripheral player,” Doc.
391 at 11, the Court fails to see how an alleged visit to Canada by BHL’s counsel has any
bearing on whether Molloy himself has the necessary minimum contacts to sustain personal
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BHL also calls out Molloy’s statements regarding his relationship with Cody Hembree 1
as conclusory. Doc. 347 at 13–14. Like Molloy’s statements regarding Chinook, however, the
Court does not believe these statements are relevant to the 12(b)(2) analysis.
BHL points to a number of other statements in Molloy’s Declaration that it argues go
beyond the scope of personal jurisdiction and, from there, argues that the entire Declaration
should be disregarded. Id. at 14–16. As already discussed, the Court agrees that some of
Molloy’s statements are of limited relevance in the context of his 12(b)(2) motion. Nevertheless,
a number of Molloy’s assertions do indeed go to the heart of the personal-jurisdiction dispute.
Specifically, Molloy’s statements regarding his role within GSSI and his participation in the
development of the GSSI software are relevant to the question of whether Molloy purposefully
availed himself of the forum such that he should be anticipated being haled into court here.
Moreover, just because not all of the statements are relevant to the 12(b)(2) analysis, the
Court need not disregard the entire affidavit. The Court is well-versed in what can and cannot be
considered in the context of Rule 12 motions and rather than disregard the entire Affidavit,
simply disregards the allegations not relating to personal jurisdiction in its evaluation of the
Objections aside, the Court now turns to the dispositive question presented by Pleasant
Solutions and Molloy’s Motions to Dismiss: whether specific jurisdiction exists.
i. Purposeful Availment
The specific-jurisdiction analysis begins with a determination of whether the defendant
For example, Molloy states: “I was never Cody Hembree’s friend. I knew him as the sales
person for GSSI, and in that relationship he was barely an acquaintance. We have only met one
time in person, and we do not exchange phone calls (he doesn’t even have my number).” Doc.
334-1 ¶ 29.
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has the requisite “minimum contacts” with the state. Luv N’ Care, 438 F.3d at 469. To make this
determination, the Court “must identify some act whereby [the defendant] ‘purposely availed
itself of the privilege of conducting activities there, thus invoking the benefits and protections of
its laws.’” Id. at 469–70 (quoting Hanson v. Denckla, 357 U.S. 235, 253, 78 S. Ct. 1228, 2 L. Ed.
2d 1283 (1958)).
One way to establish “purposeful availment” for minimum-contacts analysis is under the
stream-of-commerce theory. Luv N’ Care, 438 F.3d at 470. Under this theory, when a nonresident defendant introduces a product into the stream of commerce and thereby benefits from
the product’s final sale within the forum, he has purposefully availed himself of the forum.
Choice Healthcare, Inc. v. Kaiser Found. Health Plan, 615 F.3d 364, 374 n.9 (5th Cir. 2010)
(collecting cases). “Generally, parties invoke and courts rely on stream-of-commerce theory
where the defendant does not intentionally direct its product to a forum, but rather places the
product in the stream of commerce which eventually brings the product to the forum.” Maxum
Indem. Co. v. BRW Floors, Inc., 5:15-CV-00167-RCL, 2015 WL 5881584, at *5 (W.D. Tex. Oct.
7, 2015) (citing Nuovo Pignone, 310 F.3d at 381; Goodyear Dunlop Tires Operations, S.A. v.
Brown, 564 U.S. 915, 926, 131 S. Ct. 2846, 2855, 180 L. Ed.2d 796 (2011)).
There are two variations of the stream-of-commerce theory that have emerged from
Supreme Court jurisprudence. Choice Healthcare, 615 F.3d at 373 & n.7. The Fifth Circuit has
consistently rejected the “stream-of-commerce-plus theory” in favor of the more relaxed “mere
foreseeability” test. Id. See also In re Chinese Manufactured Drywall Prods. Liability Litig., 742
F.3d 576, 586 (5th Cir. 2014)). Under this interpretation:
As long as a participant in this process is aware that the final product is being
marketed in the forum State, the possibility of a lawsuit there cannot come as a
surprise. Nor would the litigation present a burden for which there is not
corresponding benefit. A defendant who has placed goods in the stream of
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commerce benefits economically from the retail sale of the final product in the
forum State, and indirectly benefits from the State’s laws that regulate and
facilitate commercial activity. These benefits accrue regardless of whether that
participant directly conducts business in the forum State or engages in additional
conduct directed toward that State.
Asahi Metal Indus. Co., Ltd. v. Superior Court of Cal., 480 U.S. 102, 117, 107 S. Ct. 1026, 1033,
94 L. Ed. 2d 92 (1987) (Brennan, J., concurring).
a) Pleasant Solutions
Here, BHL argues that Pleasant Solutions developed GSSI’s Geo-Direct software with
the knowledge that the software was based on BHL’s product and the end product would be
marketed and sold to Texas oil-and-gas companies. Doc. 278 at 17. Specifically, BHL alleges
that the evidence shows that Pleasant Solutions:
was/is in possession of screenshots of BHL’s Boresight geosteering Software
that the GSSI Defendants provided to Pleasant Solutions without BHL’s
entered into transactions and/or agreements that contemplated conducting
business in Texas—the epicenter of U.S. energy companies;
directed its business activities to Texas companies;
knew that the GSSI Defendants intended to, and did license and use the GeoDirect software in Texas; and
tailored the Geo-Direct software for Texas-based customers.
Id. at 8. BHL goes on to cite Ainsworth v. Moffett Engineering, Ltd., 716 F.3d 174 (5th Cir.
2013) for the proposition that “[a] plaintiff meets the minimum contacts requirement if the
defendant ‘delivered the product into the stream of commerce’ expecting that consumers in the
forum state would purchase or use the product it the forum state.” Id. at 16–17.
Pleasant Solutions responds by arguing that BHL’s purposeful-availment arguments are
undercut by Ainsworth’s “shaky” precedential value and the narrow scope of the stream-ofcommerce test. Doc. 390 at 14. According to Pleasant Solutions, the stream-of-commerce
principle is of limited value outside of the products-liability context. Id. at 14. Rather, it argues,
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the facts of this case are more analogous to J. McIntyre Machinery, Ltd. v. Nicastro, 564 U.S.
873, 131 S. Ct. 2780 (2011) and cases cited therein. Id. at 15–16 & n.18. Pleasant Solutions
further contends that the evidence BHL includes in its Response fails to demonstrate purposeful
availment. Id. at 18–23.
The Court disagrees. At this early stage, BHL need only make out a prima facie case of
personal jurisdiction and does so with the evidence it presents. The Fifth Circuit has made it
clear that, even outside the products-liability context, when a defendant company could have
foreseen that its products might end up in the forum once they were placed into the stream of
commerce—even when the manufacturer distributes its product through another rather than
directly—the stream-of-commerce test is satisfied. Luv N’ Care, 438 F.3d at 471. See also
Uniloc USA, Inc. v. PCI Geomatics Grp. Inc., 6:13-CV-912, 2015 WL 12838317, at *5 (E.D.
Tex. Mar. 12, 2015), report and recommendation adopted, 6:13-CV-912, 2015 WL 12838318
(E.D. Tex. Mar. 31, 2015); Feline Instincts, LLC v. Feline Future Cat Food Co., Inc., 4:09-CV644-Y, 2010 WL 4942188, at *3 (N.D. Tex. Dec. 6, 2010); Icon Health & Fitness, Inc. v.
Horizon Fitness, Inc., 5:08CV26, 2009 WL 1025467, at *14 (E.D. Tex. Mar. 26, 2009).
As BHL avers, the evidence indicates that Pleasant Solutions developed the Geo-Direct
software product, placed it into the stream of commerce, and was aware (or should have been
aware) that GSSI Defendants’ were marketing it to Texas customers who would use the software
to interpret wells in Texas. The Powerpoint presentation included with BHL’s submissions
clearly names two Texas wells, and in the mockup under “location” states: “County, Texas.”
Doc. 278-7 at 11, 22–23. Furthermore, the communications between GSSI and Pleasant
Solutions regarding additional functionality are clearly titled “Houston Add-ons.” Docs. 278-8 at
2, 278-9 at 2, 278-10 at 2. This is sufficient for the Court to conclude that Pleasant Solutions
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purposefully availed itself of the forum and “the possibility of a lawsuit [in Texas] cannot come
as a surprise.” Asahi, 480 U.S. at 117, 107 S. Ct. at 1033, 94 L. Ed. 2d 92 (Brennan, J.,
With regard to Molloy, BHL argues that he purposefully availed himself of the forum
because he was an integral part of the Statoil project on which GSSI used BHL’s software to
geosteer Statoil’s wells and the primary liaison between Statoil and GSSI during the
development of GSSI’s software. Doc. 347 at 26–29. BHL also argues that because Molloy
played a key role in the development of GSSI’s software, he has purposefully availed himself of
the forum under the stream-of-commerce theory. Id. at 29–31.
Pointing to his Declaration, Molloy responds that he was never the geosteering lead for
Statoil, did not act as liaison, did not use BHL’s software or bitlocks, and did not train GSSI
contractors on the BHL software. Doc. 391 at 11–12. He further argues that BHL’s evidence
actually establishes that he was only a peripheral player with attenuated and fortuitous contacts
with the forum state. Id.
Resolving the conflicts in BHL’s favor, the Court finds that the evidence BHL has
submitted makes a prima facie showing of Molloy’s purposeful availment of the forum.
According to GSSI’s own technical package, Molloy was an integral part of the team. Doc. 3477 at 19, 21. A number of emails also appear to confirm BHL’s contention that Molloy
participated in the use of BHL software on the Statoil project and took the lead on storing data
gleaned thereby that was later used in the development of GSSI’s software. See, e.g., Docs. 3478 at 1, 347-10 at 1, 347-11 at 1.
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ii. Arise out of
Turning to the second factor in the specific-jurisdiction analysis, BHL argues that its
causes of action arise out of Pleasant Solutions and Molloy’s Texas contacts. Docs. 278 at 23,
347 at 31. Specifically, BHL contends that the FAC states that Pleasant Solutions and Molloy
acquired and obtained confidential info belonging to Texas entities, including BHL, and used
and misappropriated such information to develop the GSSI software. Docs. 278 at 23, 347 at 31.
In its Sur-Reply, BHL further explains how these connections gave rise to its causes of action.
Molloy responds to the Sur-Reply with his Motion to Strike. Doc. 357. In his Motion, he
argues that BHL failed to address the second factor in the specific-jurisdiction inquiry in its
Response, namely, whether the plaintiff’s cause of action arises out of or results from the
defendant’s forum-related contacts (i.e., “the nexus prong”) and its attempt to retroactively do so
with “4-pages of ‘nexus’ prong arguments . . . raised for the first time” in the Sur-Reply is
improper. Id. at 3. Accordingly, Molloy requests the Court strike the relevant portions of the SurReply. Id.
After reviewing the Motion and the Sur-Reply, the Court denies Molloy’s Motion to
Strike. The Court believes that BHL is correct when it avers that “BHL addressed the ‘nexus’
prong . . . in its opposition and simply expounded upon [those arguments] in its sur-reply.” Doc.
363 at 1.
Finally, Despite Pleasant Solutions and Molloy’s protestations that all of the development
activities associated with the GSSI software occurred exclusively in Canada, BHL has articulated
that its causes of action arose out of the actions of Pleasant Solutions and Molloy, which—as
already discussed—were done with the knowledge (or foreseeability) that the software would be
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marketed and sold to Texas clients.
iii. Fair and Reasonable
In addressing the final factor, BHL argues that neither Pleasant Solutions nor Molloy
have made a compelling case that the Court’s exercise of personal jurisdiction is unfair or
unreasonable. Docs. 278, 347. Pleasant Solutions does not squarely address the fairness factor,
except to urge that because purposeful availment cannot be shown, “BHL’s request for this
[C]ourt to assert personal jurisdiction over Pleasant Solutions on the basis of specific jurisdiction
isn’t proper and should be rejected. Doc. 246 at 20; See also Doc. 390. Molloy, however, attacks
the third prong of the specific-jurisdiction analysis head on, arguing that the Court’s exercise of
personal jurisdiction over Molloy would be unfair because (1) Molloy is a Canadian citizen and
resides in Canada, making repeated travel difficult; (2) Molloy no longer works in the oil and gas
industry; (3) Molloy has a “tangential relationship” to BHL’s causes of action; (4) all of BHL’s
claims against Molloy are duplicative of its claims against GSSI; (5) BHL can obtain a full
recovery from GSSI alone; and (5) excluding Molloy will not hinder BHL’s ability to seek relief
or this Court’s job of furthering social policies. Doc. 334 at 8, 21–22.
“In determining whether or not the exercise of jurisdiction is fair and reasonable,
defendants bear the burden of proof and ‘it is rare to say the assertion of jurisdiction is unfair
after minimum contacts have been shown.’” McFadin, 587 F.3d at 759–60 (quoting Wien Air
Alaska, Inc., v. Brandt, 195 F.3d 208, 215 (5th Cir. 1999)). The Court examines five factors in
making this determination: “(1) the burden on the nonresident defendant, (2) the forum state’s
interests, (3) the plaintiff’s interest in securing relief, (4) the interest of the interstate judicial
system in the efficient administration of justice, and (5) the shared interest of the several states in
furthering fundamental social policies.” Id. (quoting Luv N’ Care, 438 F.3d at 473) (internal
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quotation marks omitted).
Here, the Court concludes that the exercise of jurisdiction is fair and reasonable.
Although both Molloy and Pleasant Solutions are Canadian citizens and travel will be necessary
to their defense, “[t]he generalized difficulty in traveling to Texas is here not a burden violative
of due process.” McFadin, 587 F.3d at 764. Texas also has an interest in protecting the trade
secrets of Texas companies. Further, BHL has an interest in convenient and effective relief.
Finally, this Court has an interest in resolving the pending controversy and the best place to
adjudicate this case is where claims against all parties can be tried together. See ICEE Distribs.,
Inc. v. J&J Snack Foods Corp., 325 F.3d 586, 594 (5th Cir. 2003) (as matter of judicial
economy, a single forum for multiple defendants is best place to adjudicate controversy).
III. Motions to Dismiss for Failure to State a Claim
All Defendants attack the FAC under Rule 12(b)(6) for failure to state a claim. Docs. 230,
232, 246, 259, 317, 334. Not all Defendants are named in each cause of action. However,
because the parties that do share particular causes of action make materially identical arguments,
the Court addresses Defendants’ arguments claim-by-claim.
A. Legal Standard
Federal Rule of Civil Procedure 12(b)(6) allows the court to dismiss a claim that fails “to
state a claim upon which relief may be granted.” Fed. R. Civ. P. 12(b)(6). In reviewing a motion
to dismiss for failure to state a claim, the court must accept as true all well-pleaded facts in the
complaint, and must view the allegations as a whole in the light most favorable to the nonmovant. Scanlan v. Tex. A&M Univ., 343 F.3d 533, 536 (5th Cir. 2003). Although Federal Rule
of Civil Procedure 8 mandates only that a pleading contain a “short and plain statement of the
claim showing that the pleader is entitled to relief,” this standard demands more than unadorned
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accusations, “labels and conclusions,” “a formulaic recitation of the elements of a cause of
action,” or “naked assertion[s]” devoid of “further factual enhancement.” Bell Atl. v. Twombly,
550 U.S. 544, 555–57 (2007). Thus, to survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.”
Id. at 570.
Facial plausibility is satisfied when the plaintiff pleads factual content that allows the
court to draw a reasonable inference that the defendant is liable for the misconduct alleged.
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “Threadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S at 678 (citing
Twombly, 550 U.S. at 555). Although the plausibility standard “is not akin to a ‘probability
requirement,’” there must be “more than a sheer possibility that a defendant has acted
unlawfully.” Id. (quoting Twombly, 550 U.S. at 556). Thus, “where the well-pleaded facts do not
permit the court to infer more than the mere possibility of misconduct, the complaint has
alleged—but it has not ‘shown’—‘that the pleader is entitled to relief.’” Id. at 679 (quoting Rule
8(a)(2)). Determining whether a complaint states a plausible claim for relief is a context-specific
task that requires the reviewing court to draw on its judicial experience and common sense. Id. at
BHL asserts its CFAA claim against all Defendants. Doc. 209-1 ¶¶ 93–106. In their
respective Motions to Dismiss, Defendants urge that even though BHL was afforded a chance to
replead its claims after this Court’s last dismissal of BHL’s CFAA claim, BHL’s FAC “still fails
to adequately satisfy the pleading requirements of Rule 12(b)(6) because its amended claim only
alleges damages that are not recoverable under the CFAA.” E.g., Doc. 230 at 10. Specifically,
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Defendants aver that the Fifth Circuit has taken a restrictive approach to determining what
damages are cognizable under the CFAA and only allows recovery of costs for remedying
damage to a “protected computer” or addressing an interruption in service rather than “general
non-computer costs incurred in investigating the violation.” E.g., id. at 12–13. Defendants assert
that BHL cannot plead that the investigation was tied to computer damages or an interruption in
service because BHL’s software is stand-alone in nature. E.g., id. at 13. By taking this approach,
Defendants’ essentially attack BHL’s claims on two grounds: for not meeting the statute’s
definitions of “loss” and for not alleging “computer” damage.
BHL has a private right of action under the CFAA only if it can show qualifying losses of
more than $5,000 in one year. 18 U.S.C. § 1030(c)(4)(A)(i)(I). A CFAA-qualifying loss is “any
reasonable cost to any victim, including the cost of responding to an offense, conducting a
damage assessment, and restoring the data, program, system, or information to its condition prior
to the offense, and any revenue lost, cost incurred, or other consequential damages incurred
because of interruption of service.” Id. § 1030(e)(11). “[T]he term ‘damage’ means any
impairment to the integrity or availability of data, a program, a system, or information.” Id. §
1030. Importantly, qualifying losses also include “[a] plaintiff’s internal investigation costs.”
Quantlab Techs. Ltd. (BVI) v. Godlevsky, 4:09-CV-4039, 2015 WL 1651251, at *3 (S.D. Tex.
Apr. 14, 2015) (citation omitted).
Here, BHL has clearly pled internal investigation costs exceeding the $5,000 calendaryear minimum. Specifically, BHL alleges:
BHL incurred in-house labor costs investigating, responding, assessing, and
quantifying the extent and reach of the Defendants’ unlawful acts. Taking hours
of valuable time away from day-to-day activities, BHL’s President spent
approximately sixty days investigating the Defendants’ unlawful acts. BHL’s
Vice President & Chief Developer spent ten days, the Director of Information
Technology spent at least four days, and the License Administrator spent
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approximately eight days on BHL’s initial investigation of the Defendants’
unlawful acts. BHL’s investigation included reviewing in-house files and data;
collecting and reviewing email threads; retrieving and reviewing license server
records from BHL’s servers; reviewing support call histories; and evaluating
software security measures surrounding BHL’s proprietary Bitlocks and Boresight
Software. BHL’s initial cost of investigating its losses from the Defendants’
unlawful acts exceeds $35,000. BHL continues to incur additional investigation
costs during the pendency of this suit.
Doc. 209-1 ¶ 92. These allegations fall within the purview of § 1030 because they are “cost[s] of
responding to an offense” and “conducting a damage assessment.” 18 U.S.C. § 1030(e)(11).
To the extent that Defendants argue that BHL’s software is not a CFAA-covered
computer because it stands alone, this Court has already concluded that “BHL has sufficiently
pled [the protected computer] element of its CFAA claim.” Doc. 140 at 30. Accordingly, the
Court rejects Defendants attempts to resume their attack on this settled issue. Defendants’
Motions to Dismiss BHL’s CFAA claims are, therefore, denied.
Defendants argue that BHL fails to plead a cause of action under the Texas Uniform
Trade Secrets Act (“TUTSA”) because the allegations in the FAC begin prior to September 1,
2013—the TUTSA’s effective date—and continue thereafter. E.g., Doc. 230 at 14. Accordingly,
Defendants urge this Court to dismiss the claims, or, in the alternative, to recognize that the
claims are governed by the TUTSA’s predecessor, the Texas Theft Liability Act (“TTLA”). E.g.,
id. at 15. In the same breath Defendants contend:
Likewise, BHL’s [TTLA] claim for civil theft of its software and user guides (or
copies thereof) does not implicate Penal Code section 31.03(a) as a matter of law.
The proper construction of [BHL’s misappropriation] claim is therefore for civil
theft of trade secrets embodied in BHL’s Software and User Guide pursuant to the
Texas Theft Liability Act.
E.g., id. at 20. In footnotes, Defendants insist that “to the extent the Court may disagree and find
that BHL has adequately alleged a cause of action for theft of the Software and User Manuals
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under the TTLA as applied to section 31.03 of the Penal Code, the claims would be preempted
by the Copyright Act.” E.g., id. n.7.
BHL responds that its trade-secret claims “are based on the GSSI Defendants’ and others’
use of BHL trade secrets to develop competing geosteering software (Geo-Direct) and the Statoil
Defendants’ use of the Geo-Direct software with knowledge that it was developed with stolen
trade secrets.” Doc. 250 at 9. According to BHL, “this misappropriation by use did not occur
until 2014” when GSSI began to develop the Geo-Direct software and, therefore, BHL’s claims
are governed by the TUTSA. Id. If the Court does find that some of BHL’s trade secrets were
misappropriated before the TUTSA’s effective date, however, BHL urges that it may proceed
with both TUTSA and common-law trade-secret claims. Id. at 10. BHL avers it may do so
because some of its misappropriated trade secrets did not exist until after the TUTSA’s
enactment, thus “at least a portion of BHL’s trade secret misappropriation claims are subject to
TUTSA, and not preempted by the Copyright Act.” Id.
Defendants’ arguments betray a misunderstanding of the interplay of common-law tradesecret-misappropriation, TUTSA misappropriation, TTLA civil-theft, and TTLA theft-of-tradesecret claims. Importantly, these are separate and distinct claims. See e.g., Sisoian v. Int’l Bus.
Machines Corp., A-14-CA-565-SS, 2014 WL 4161577, at *12 (W.D. Tex. Aug. 18, 2014)
(common-law misappropriation of trade secrets and TTLA theft of trade secrets are distinct
claims); ZeniMax Media, Inc. v. Oculus VR, LLC, 166 F. Supp. 3d 697, 704 (N.D. Tex. 2015)
(TUTSA and common-law claims of misappropriation of trade secrets are distinct claims);
Beardmore v. Jacobsen, 131 F. Supp. 3d 656, 669 (S.D. Tex. 2015) (TTLA general-theft and
TTLA theft-of-trade-secret claims are distinct claims).
As the master of its complaint, BHL is free to bring any combination of these claims, but
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the sufficiency of each claim will be measured individually. Because Defendants appear to
conflate the elements of these various claims, it is worth reviewing the history of these claims
and exploring the differences between them.
Trade-secret misappropriation began as a solely common-law claim, but with the
enactment of the TTLA in 1989, the Texas Legislature provided an additional civil remedy to
victims of trade-secret theft as defined in the Texas Penal Code. Beardmore, 131 F. Supp. 3d at
668. As a result, parties could assert both claims against the same defendant if the facts
supported it. See, e.g., Spear Mktg., Inc. v. BancorpSouth Bank, 791 F.3d 586, 591 (5th Cir.
2015); Intermoor Inc. v. Wilson, 4:14-CV-01392, 2016 WL 1107083, at *2 (S.D. Tex. Mar. 22,
2016); Beardmore, 131 F. Supp. 3d at 666; Gen. Universal Sys., Inc. v. HAL, Inc., 500 F.3d 444,
449 n.3 (5th Cir. 2007). In such cases, the common law governed the trade-secretmisappropriation claim, while the TTLA governed the theft-of-trade-secret claim. Samsung
Elecs. Am., Inc. v. Yang Kun Chung, 3:15-CV-4108-D, 2017 WL 635031, at *14 (N.D. Tex. Feb.
16, 2017); Raybourne & Dean Consulting, Ltd. v. Metrica, Inc., SA-14-CA-918-OLG, 2015 WL
12866214, at *13 (W.D. Tex. Apr. 10, 2015), report and recommendation adopted sub
nom. Raybourne & Dean Consulting v. Metrica, Inc., SA-14-CV-00918-OLG, 2015 WL
12867469 (W.D. Tex. May 7, 2015).
In 2013, in an effort to bring Texas law in line with the “overwhelming majority of the
United States” and “provid[e] a simple legislative framework for litigating trade secret issues in
Texas,” the Texas Legislature enacted a modified version of the Uniform Trade Secrets Act.
Texas Bill Analysis, S.B. 953, 2013 at 1. The enrolled bill, known as the TUTSA, became
effective on September 1, 2013, and displaces both common-law misappropriation-of-tradesecret and TTLA theft-of-trade-secret claims. In re Mandel, 578 Fed. App’x 376, 384 n.8 (5th
20 / 38
Cir. 2014) (per curiam) (unpublished); Educ. Mgmt. Servs., LLC v. Tracey, 102 F. Supp. 3d 906,
915 (W.D. Tex. 2015).
Notwithstanding the merger of TTLA theft-of-trade-secret claims and common-law
misappropriation into the TUTSA framework in 2013, because the TUTSA is not retroactive, a
plaintiff may still proceed with TTLA theft-of-trade secret, common-law, and TUTSA tradesecret-misappropriation claims in a single case depending on when his claims accrued and what
claims the facts of his case support. See ZeniMax, 166 F. Supp. 3d at 704 (stating that jury
instruction as to applicability of TUTSA or common law would be determined after discovery
revealed when alleged misappropriation occurred). Importantly, when it comes to asserting
common-law and TUTSA misappropriation claims, precise reliance on one or the other theory in
the pleadings is immaterial if the elements of both are met. See Yang Kun Chung, 2017 WL
635031, at *14 (finding in context of 12(b)(6) motion that “Samsung’s misplaced reliance
on TUTSA is immaterial, however, because Samsung also sufficiently pleads the elements of
Texas common law misappropriation of confidential information.”).
The apparent source of confusion in this case and others like it, is that in Spear
Marketing, Inc. v. BancorpSouth Bank, the Fifth Circuit held that theft-of-trade-secrets claims
under the TTLA—as applied to software—are preempted by the Copyright Act. 791 F.3d 586,
598 (5th Cir. 2015)). In the same case, the Fifth Circuit also dealt with a misappropriation-oftrade-secrets claim, but did not address whether it was preempted. Id. at 600–02. Accordingly, a
number of defendants have since argued that preemption also applies to TUTSA and commonlaw trade-secret-misappropriation claims. See, e.g., Capstone Associated Servs., Ltd. v.
Organizational Strategies, Inc., CV H-15-3233, 2015 WL 9319239, at *2 (S.D. Tex. Dec. 23,
2015) (“Defendants argue also that the TUTSA and misappropriation of trade secrets claims are
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preempted by the Copyright Act, citing Spear Marketing, Inc. v. Bancorpsouth Bank, 791 F.3d
586 (5th Cir. 2015)”). Since Spear, however, district courts in this Circuit have uniformly held
that trade-secret-misappropriation claims—under either the TUTSA or common law—are not
preempted by the Copyright Act, because such claims include an “extra element” of breach of
confidentiality or improper methods, which is not equivalent to any of the exclusive rights of
copyright. Doc. 140 at 7 n.3. See, e.g., Emerald City Mgmt., LLC v. Kahn, 4:14-CV-358, 2016
WL 98751, at *18 (E.D. Tex. Jan. 8, 2016); Capstone, 2015 WL 9319239, at *2; Beardmore,
131 F. Supp. 3d at 670–71; GlobeRanger Corp. v. Software AG USA, Inc., 3:11–CV–0403–B,
2015 WL 3648577, at *4 (N.D. Tex. June 11, 2015); M-I LLC v. Stelly, 733 F. Supp. 2d 759, 786
(S.D. Tex. 2010).
Here, BHL asserts a misappropriation-of-trade-secrets claim under the TUTSA, in
addition to a TTLA civil-theft claim, against all Defendants. Doc. 209-1 ¶¶ 117–26. Examining
solely the misappropriation claim, the Court agrees with BHL that it is based on Defendants’ use
of BHL’s trade secrets, but this conclusion is irrelevant at this juncture. BHL has sufficiently
pled the elements of trade-secret misappropriation (and not TTLA civil theft of trade secrets)
under either the TUTSA or common law. Moreover, because both misappropriation causes
require—and BHL alleges—that the misappropriation was the result of a breach of a confidential
duty or achieved by other improper methods, BHL’s claim is not preempted by the Copyright
Act. Defendants’ Motions to Dismiss BHL’s trade-secret misappropriation claim are, therefore,
D. Unjust Enrichment
BHL only asserts its claims of unjust enrichment against GSSI, Pleasant Solutions, Joy,
and Tice. Doc. 209-1 ¶¶ 127–32. In their Motions to Dismiss, these four Defendants argue that
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BHL’s unjust enrichment claim is preempted by the Copyright Act because “BHL’s allegations .
. . are based entirely on BHL’s software, accompanying materials (including the User Guide),
and BHL’s Data,” which all “clearly fall within the definition of ‘literary works’ protected by the
Copyright Act.” E.g., Doc. 232 at 20.
In determining whether a state-law claim is preempted by the Copyright Act, the Court
applies a two-prong test. Globeranger, 691 F.3d at 706. First, the Court determines whether the
claim falls within the subject matter of copyright. Id. (citing Carson v. Dynegy, Inc., 344 F.3d
446, 456 (5th Cir. 2003)). Next, the Court looks to whether the state-law claim protects rights
that are “equivalent” to any of the exclusive rights protected by copyright. Id. (citing 17 U.S.C. §
106.) Both prongs of this test must be met for a claim to be preempted. Id.
The Fifth Circuit has held that software, standing alone, falls within the subject matter of
the Copyright Act. Spear Mktg., 791 F.3d at 603 (citing Eng’g Dynamics, Inc. v. Structural
Software, Inc., 26 F.3d 1335, 1341 (5th Cir. 1994), opinion supplemented on denial of reh’g, 46
F.3d 408 (5th Cir. 1995)); GlobeRanger, 691 F.3d at 706 (citing Computer Mgmt. Assistance Co.
v. Robert F. DeCastro, Inc., 220 F.3d 396, 400 (5th Cir. 2000). Nevertheless, the Court has also
concluded that claims not “wholly limited to software,” but that “include procedures, processes,
systems, and methods of operation that are excluded from copyright protection under Section
102(b),” fall outside the scope of the Copyright Act and are not preempted. GlobeRanger, 691
F.3d at 709.
In its FAC, BHL alleges that “GSSI Defendants, Pleasant Solutions, Joy, and Tice
derived benefits, including commercial advantage and private financial gain, from their
unauthorized access, possession and use” of BHL’s “Trade Secrets and Data.” Doc. 209-1 ¶ 128.
The FAC defines “the BHL Trade Secrets” as “[t]he Boresight Software and accompanying
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materials, including the User Guide” and “Boresight Data” as “all digital documents, data,
databases, communications, displays, plots, and interpretations generated using [the BHL
software].” Id. ¶¶ 16 (trade secrets defined), 59 (data defined). These allegations are devoid of
any reference to procedures, processes, systems, and methods of operation that fall outside the
scope of copyright protection. Thus, the first part of the preemption test is satisfied.
With regard to equivalence, BHL’s allegations are expressly based on Defendants
“access, possession, and use” of BHL’s software and data, not on a contractual or fiduciary
breach. See Doc. 209-1 ¶¶ 127–32. The Court concludes that such allegations involve the same
conduct protected by the Copyright Act and are, therefore, preempted. See Genesys Software
Sys., Inc. v. Comerica Bank, 3:12-CV-2682-N, 2013 WL 12126264, at *3 (N.D. Tex. Apr. 9,
2013) (breach-of-contract claim based on defendant using software without permission
preempted by Copyright Act because “allegation essentially alleges nothing other than a
derogation of rights under copyright.” (citation and internal quotation marks omitted));
Schumacher Homes of Louisiana, Inc. v. R.E. Washington Constr. LLC, 2:16-CV-00423, 2016
WL 5415083, at *3 (W.D. La. Sept. 27, 2016) (“Schumacher’s unjust enrichment claim is
preempted by the Copyright Act because the claim is based on the Carrolls’ ‘use of Schumacher
Homes’ copyrighted works,’ and is not based on a contractual or fiduciary breach.” (citation and
internal quotation marks omitted)); Tavormina v. Evening Star Prods., Inc., 10 F. Supp. 2d 729,
734–35 (S.D. Tex. 1998) (“Plaintiffs’ claim for unjust enrichment [based on unauthorized
copying and use] is preempted because it involves the same conduct that would fall under the
scope of the Copyright Act.”). Defendants GSSI, Pleasant Solutions, Joy, and Tice’s Motions to
Dismiss BHL’s unjust enrichment claim are, therefore, granted. BHL may amend only if it has a
claim for unjust enrichment that will not be preempted by the Copyright Act as set forth above.
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E. Negligent Misrepresentation
BHL asserts its claim for negligent misrepresentation against Statoil only. Doc. 209-1 ¶¶
141–47. It also asserts a breach-of-contract claim against Statoil that is not challenged. Id. ¶ 133–
40. In its Motion to Dismiss, Statoil attacks the negligent misrepresentation claim, arguing that it
should be dismissed because (1) “it is barred by the operative two-year statute of limitations”;
and (2) “BHL cannot simultaneously seek damages for negligent misrepresentation and breach of
contract.” Doc. 230 at 18–19.
BHL replies to Statoil’s second argument first by clarifying that it has plead negligent
misrepresentation and breach of contract as alternative claims and is not seeking damages for
both. Doc. 250 at 18. The paragraph of the FAC that BHL directs the Court to in support states:
“If Defendant Statoil did not breach the Agreements with BHL by failing to conduct due
diligence on its third-party supplies or consultants, in the alternative, Statoil, in the manner set
forth above, negligently misrepresented to BHL that Statoil conducts Integrity Due Diligence on
all of its suppliers or consultants.” Doc. 209-1 ¶ 142 (emphasis added).
Negligent misrepresentation requires an injury independent and apart from breach of
contract. D.S.A., Inc. v. Hillsboro Indep. Sch. Dist., 973 S.W.2d 662, 663 (Tex. 1998) (per
curiam). This “independent injury doctrine” blocks parties in some circumstances from
simultaneously maintaining a breach of contract and a tort claim. Technomedia Int’l, Inc. v. Int’l
Training Servs. Inc., CIV. A. H-09-3013, 2010 WL 3545662, at *5 (S.D. Tex. Sept. 9, 2010)
(citing Eastman Chem. Co. v. Niro, Inc., 80 F.Supp.2d 712, 716 (S.D. Tex. 2000); D.S.A., 973
S.W.2d at 664). The rationale behind the independent-injury doctrine is that tort obligations are
generally obligations imposed by law to avoid injury to others and are, therefore, distinct from
and independent of the promises and intentions of parties that are embodied in a contract. Sw.
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Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494 (Tex. 1991) (citing W. Keeton, D. Dobbs, R.
Keeton & D. Owen, Prosser and Keeton on the Law of Torts § 92 at 655 (5th Ed. 1984)). The
Texas Supreme Court explained the difference thus:
If the defendant’s conduct—such as negligently burning down a house—would
give rise to liability independent of the fact that a contract exists between the
parties, the plaintiff’s claim may also sound in tort. Conversely, if the defendant’s
conduct—such as failing to publish an advertisement—would give rise to liability
only because it breaches the parties’ agreement, the plaintiff’s claim ordinarily
sounds only in contract.
DeLanney, 809 S.W.2d at 494 (Tex. 1991).
Accordingly, there must be both an independent injury and independent duty in order for
a negligent-misrepresentation and breach-of-contract claim to coexist. Tex. Drain Techs., Inc. v.
Centennial Contractors Enters., Inc., CIV.A. H-14-3298, 2015 WL 4094059, at *3 (S.D. Tex.
July 7, 2015). Importantly, this is the case “[e]ven when a party pleads negligent
misrepresentation as an alternative theory of recovery to breach of contract.” Technomedia, 2010
WL 3545662, at *5 (citing Cessna Aircraft Co. v. Aircraft Network, L.L.C., 213 S.W.3d 455,
466–67 (Tex. App.—Dallas 2006, pet. denied)).
One way in which courts determine whether the plaintiff has alleged an independent
injury is by examining the nature of the plantiff’s loss. DeLanney, 809 S.W.2d at 494. “When the
only loss or damage is to the subject matter of the contract, the plaintiff’s action is ordinarily on
the contract.” Id. (citations omitted).
In this case, BHL’s claim for negligent misrepresentation expressly “repeats and realleges
the allegations contained in the foregoing Paragraphs.” Doc. 209-1 ¶ 141. Importantly, directly
preceding the negligent-misrepresentation claim, BHL sets out its allegations in support of its
breach-of-contract claim. See id. ¶¶ 133–40.
With regard to the breach-of-contract claim, BHL alleges that Statoil had “an express
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duty to notify BHL of any consultants that Statoil wanted to hire to use the Boresight Software”
and “an express obligation to ensure that the Boresight Software was not being duplicated,
debugged, relocated, reverse engineered or otherwise altered in any way.” Id. ¶ 135. BHL also
cites a Statoil Annual Report in which the company publicly acknowledges its commitment to
ensuring that “all suppliers and partners are screened for material integrity risks, and, if relevant,
subjected to a more extensive [Integrity Due Diligence] review.” Id. ¶ 136. According to BHL,
Statoil violated these “obligations by retaining the GSSI Defendants as consultants or suppliers
without conducting Statoil’s mandated integrity screening and Integrity Due Diligence Process”
and not limiting use of the Boresight Software to business purposes only. Id. ¶ 137. BHL
contends that “as a direct and proximate result of Statoil’s breach, BHL has been damaged . . . .
[and] has incurred and will continue to incur additional damages, costs, expenses, and attorneys’
fees.” Id. ¶ 139.
In support of its negligent-misrepresentation claim, BHL cites the same Statoil Annual
Report statement, and argues that “Statoil made these representations about its due diligence
process knowing that it did not apply the process to every supplier or consultant.” Id. ¶¶ 143–44.
BHL avers that it “justifiably relied on Statoil’s representations regarding its written process and
procedures for conducting due diligence on and vetting proposed suppliers and consultants” and
“as a direct and proximate result of [these] negligent misrepresentations, BHL has been
proximately damaged in an amount to be determined at trial . . . . [and i]n addition . . . has
incurred and will continue to incur additional damages, costs, expenses, and attorneys’ fees.” Id.
In light of these allegations, the Court concludes that BHL has failed to allege an
independent injury, duty, or loss as required to support its negligent-misrepresentation claim. As
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a result, Statoil’s Motion to Dismiss this claim is granted. However, this dismissal is without
prejudice; BHL may amend its claim if it can allege independent injury. The Court need not
address Statoil’s additional assertion that BHL’s claim is time barred.
F. Civil Theft
In Count Eight of its FAC, BHL asserts a claim for civil theft against all Defendants
under the TTLA, Tex. Civ. Prac. & Rem. Code § 134.000. Doc. 209-1 ¶¶ 148–54. In support of
this claim, BHL urges that its software, bitlocks, data, and user guide constitute “property” under
Texas Penal Code § 31.03 and that it is the sole owner of these materials. Id. ¶¶ 149–50. It
further avers that Defendants “unlawfully appropriated BHL’s property as the appropriation was
without BHL’s effective consent or the Defendants appropriated BHL’s property knowing it was
stolen by another.” Id. ¶ 151.
Defendants argue that BHL’s civil-theft claim must be dismissed because “BHL has
failed to adequately plead a cause of action for theft of its ‘property’ because it has failed to
allege facts regarding . . . Defendants’ intent to deprive BHL of that property.” E.g., Doc. 232 at
14. Defendants base this assertion on the fact that BHL’s FAC states that Defendants returned
the bitlocks soon after BHL demanded their return and Texas Penal Code 31.03(a) requires
property be withheld “permanently or for so extended a period of time that a major portion of the
value or enjoyment of the property is lost to the owner.” E.g., id. at 14–15. Defendants further
contend that “general theft can only apply to unique documents and is not applicable to copies of
documents, such as BHL’s User Guides or Software.” E.g., id. at 16.
The Court can easily dispense with Defendants’ first argument. Under 31.03(a), the
element that must be proved is not a deprivation, but the intent to deprive at the time of the
taking. Menke v. State, 740 S.W.2d 861, 864 (Tex. App.—Houston [14th Dist.] 1987, pet. ref’d).
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“The fact that the deprivation later became temporary does not automatically mean that there was
no intent to deprive permanently or for so long as to satisfy the statutory definition.” Griffin v.
State, 614 S.W.2d 155, 159 (Tex. Crim. App. 1981) (citing Draper v. State, 539 S.W.2d 61, 68
(Tex. Cr. App. 1976)). Rather, “[a] person acts with intent regarding his conduct or a result of his
conduct when ‘it is his conscious objective or desire to engage in the conduct or cause the
result.’” Ruffin v. State, 01-14-00927-CR, 2016 WL 5266641, at *2 (Tex. App.—Houston [1st
Dist.] Sept. 22, 2016, no pet.) (quoting Tex. Penal Code § 6.03(a) and citing Christensen v. State,
240 S.W.3d 25, 32 (Tex. App.—Houston [1st Dist.] 2007, pet. ref’d)). “The intent of the accused
may be inferred from his words, acts, and conduct.” Id. (citing Hart v. State, 89 S.W.3d 61, 64
(Tex. Crim. App. 2002)).
The Court finds that BHL’s FAC sufficiently alleges that Defendants consciously
appropriated its software, data, bitlocks, and user guide. As BHL argues, the fact that Defendants
later returned these materials and the taking turned out to be temporary is irrelevant. See Doc.
250 at 17. Nevertheless, as this Court has recognized, “general theft only applies to unique
documents and not copies of documents.” Beardmore, 131 F. Supp. 3d at 669 (citing Falcone v.
State, 682 S.W.2d 418, 421 (Tex. App.—Houston [1st Dist.] 1984, no pet.); Joe N. Pratt Ins. v.
Doane, CIV.A. V–0707, 2008 WL 819011, at *13 (S.D. Tex. Mar. 20, 2008). Indeed, the
consensus appears to be that if the plaintiff continues to possess and control originals of the
subject property, he cannot show that the defendant possessed the requisite intent to deprive. See
e.g., In re TXCO Res., Inc., 475 B.R. 781, 833–34 (Bankr. W.D. Tex. 2012) (“Without
Peregrine’s exclusive possession or withholding of TXCO’s trade secrets, it cannot be said that
Peregrine intended to deprive TXCO of the data.”); Doane, 2008 WL 819011, at *13 (“the taking
of copies of Pratt’s files does not implicate the Penal Code’s section 31.03(a) as a matter of
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law.”); Falcone, 682 S.W.2d at 420 (“Womack testified that the prints possessed by the appellant
were not his original drawings, but were merely copies . . . . Nothing in the record shows an
intent to deprive Womack of his prints.”). C.f. Genesco Sports Enter., Inc. v. White, 3:11-CV1345-N BF, 2011 WL 6593415, at *11 (N.D. Tex. Oct. 27, 2011), report and recommendation
adopted, 3:11-CV-1345-N BF, 2011 WL 6433704 (N.D. Tex. Dec. 22, 2011) (“Plaintiff alleged
facts that Defendant acted with the intent to deprive Plaintiff of its property when Plaintiff stated
that Defendant copied the confidential information to a USB device and then deleted the
information from his laptop and the corporate server.”).
Here, there is every indication that BHL’s user guides and software were copies and BHL
continued to have access to the originals. As a result, BHL cannot maintain a cause of action for
civil theft for its user guides or software. BHL concedes as much, stating in its Responses that
“Defendants’ theft of the Boresight Software and User Guides is part of BHL’s trade secrets
misappropriation causes of action and thus need not also be pleaded as a civil cause of action.”
E.g., Doc. 250 at 17. As BHL points out, because it agrees to drop the portion of its cause of
action relating to the software and user guides, “Defendants’ motions to dismiss on this issue are
moot.” E.g., id. at 18.
The data generated by the software and the bitlocks are different, however. BHL alleges
that the bitlocks at issue are physical USB devices that allow users to access its software. See,
e.g., Doc. 209-1 ¶ 20 (stating that BHL’s bitlocks are “physically connected to a single computer
to allow a licensed user to access the Boresight Software.”). They are, therefore, neither
“documents” nor “originals” excluded from the scope of a civil-theft action. Similarly, the data
generated by BHL’s software is unique because it is dependent on the well in which the software
was employed. See, e.g., Doc. 209-1 ¶¶ 59, 73 (defining data as the information generated using
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the software on particular wells). Accordingly, Defendants Motions to Dismiss the claim for civil
theft of the bitlocks and data are denied.
G. Civil Conspiracy
In Count IX of its FAC, BHL asserts a claim for civil conspiracy against all Defendants.
Doc. 209-1 ¶¶ 155–65. In support, BHL specifically avers that “Defendants had a meeting of the
minds to exploit the BHL Trade Secrets in violation of the CFAA, ECPA, and the laws of the
State of Texas.” Id. ¶ 157.
In their Motions to Dismiss, Defendants argue that BHL’s conspiracy claim is preempted
because it is “tethered” to its civil theft and misappropriation claims. E.g., Doc. 232 at 17–19.
According to Defendants, because the misappropriation and civil-theft claims are preempted,
BHL’s conspiracy claim is likewise preempted by the Copyright Act. E.g., id.
BHL responds that Defendants ignore the plain language of its FAC and insist that it has
a viable conspiracy claim based on a number of its other claims. Doc. 250 at 20. The Court
agrees. The FAC is clear: BHL asserts its conspiracy claims on the basis of Defendants’
violations of a number of federal and state laws. See Doc. 209-1 ¶ 157. Moreover, the Court has
already concluded that BHL’s misappropriation-of-trade-secrets and civil-theft claims (as to the
bitlocks and data) are not preempted. See Xpel Techs. Corp. v. Am. Filter Film Distributors,
CIVA SA-08-CA175-XR, 2008 WL 3540345, at *8 (W.D. Tex. Aug. 11, 2008) (“If the
conspiracy claim relates to claims that are not preempted, which in this case includes claims for
fraud, misrepresentation, and misappropriation of trade secrets, the conspiracy claim should also
not be preempted.”). Defendants’ Motions to Dismiss BHL’s conspiracy claim on preemption
grounds are, therefore, denied.
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i. TTLA Civil Theft
In their Motions, a number of Defendants argue that they are prevailing parties under the
TTLA and should, therefore, be awarded court costs and reasonable and necessary attorney’s
fees under section 134.005(b) of the statute. Docs. 246 at 25; 259 at 17; 317 at 17.
BHL responds that “[t]o the extent [these Defendants are] arguing that [they are] entitled
to costs and fees because BHL voluntarily narrowed the issues in this case by dropping a portion
of its civil theft cause of action related to the Boresight Software and User Guides, [they] are
mistaken.” Doc. 326 at 23. BHL cites Arrow Marble, LLC v. Killion, 441 S.W.3d 702, 706–07
(Tex. App.—Houston [1st Dist.] 2014, no pet.) in support, arguing that “a defendant against
whom a plaintiff voluntarily dismisses a portion of its TTLA claims is ‘not considered a
prevailing party or entitled to an award of attorney’s fees.’” Id.
Section 134.005(b) of the TTLA provides that “[e]ach person who prevails in a suit under
this chapter shall be awarded court costs and reasonable and necessary attorney’s fees.” Tex.
Civ. Prac. & Rem. Code § 134.005(b). The award of fees to a prevailing party in a TTLA action
is mandatory. Arrow Marble, 441 S.W.3d 702, 705 (Tex. App.—Houston [1st Dist.] 2014, no
pet.) (citing Bocquet v. Herring, 972 S.W.2d 19, 20 (Tex. 1998)).
The TTLA does not define what it means to “prevail” in a suit. Id. Courts have held that
the phrase applies to both a plaintiff successfully prosecuting a TTLA suit and a defendant
successfully defending against one. Peoples v. Genco Fed. Credit Union, No. 10–09–00032–CV,
2010 WL 1797266, at *7 (Tex. App.—Waco May 5, 2010, no pet.) (mem. op.); Brown v.
Kleerekoper, No. 01–11–00972–CV, 2013 WL 816393, *5 (Tex. App.—Houston [1st Dist.]
March 5, 2013, pet. filed) (mem. op.). Prevailing parties also include those who are successful on
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the TTLA claim even if they are unsuccessful on other claims and counterclaims litigated in the
same suit. Moak v. Huff, No. 04-11-00184-CV, 2012 WL 566140, at *11 (Tex. App.—San
Antonio Feb. 15, 2012, no pet.) (mem. op.).
A successful defense is one that materially alters the plaintiff’s legal relationship with the
defendant such as a dismissal with prejudice. Spear Mktg., 2016 WL 193586, at *3 (citing Arrow
Marble, 441 S.W.3d at 706), aff’d, 844 F.3d 464 (5th Cir. 2016). In contrast, a dismissal without
prejudice does not satisfy the prevailing party requirement because the plaintiff is free to
resurrect its claims against the defendant and may prevail at a later date. Id. (citing Arrow
Marble, 441 S.W.3d at 706). Thus, a defendant who has the claims against him resolved by
voluntary dismissal without prejudice generally is not considered a prevailing party or entitled to
an award of attorney’s fees. Cricket Commc’ns, Inc. v. Trillium Indus., Inc., 235 S.W.3d 298,
311 (Tex. App.—Dallas 2007, no pet.); Travel Music of San Antonio, Inc. v. Douglas, No. 04–
00–00757–CV, 2002 WL 1058527, at *3 (Tex. App.—San Antonio May 29, 2002, pet. denied)
(mem. op., not designated for publication).
As already discussed in the context of BHL’s TTLA claims, BHL dropped its claims for
civil theft of the software and user guides. See Doc. 250 at 17–18. Because these claims were
dropped voluntarily and the remaining two TTLA claims survive Defendants’ Motions to
Dismiss, the relationship between the parties has not been materially altered such that an award
of fees is warranted at this time. Defendants’ present request for fees is, therefore, denied.
ii. Texas Civil Practice & Remedies Code 38.001
In its FAC, BHL seeks attorneys’ fees from only Statoil under Texas Civil Practice &
Remedies Code § 38.001 for Statoil’s alleged “breach of the Agreements.” Doc. 209-1 ¶ 166.
Statoil argues that BHL’s claim is barred by the plain language of § 38.001. Doc. 230 at 22–23.
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According to Statoil, because it is a limited liability company and § 38.001 only enumerates “an
individual or corporation” as entities that a plaintiff may recover fees from, BHL’s claim must be
dismissed. Id. In support, Statoil cites a number of Texas intermediate-court opinions that
endorse its position. Id. at 23.
BHL responds to Statoil by first asserting that it has a contractual right of recovery that
operates independently of § 38.001. Doc. 250 at 19–20. Second, BHL urges “this Court has the
discretion to award attorneys’ fees to BHL pursuant to several of its causes of action (including
under the CFAA, ECPA, TUTSA) from any or all of the Defendants.” Id. at 20. Finally, BHL
asserts that the Statoil defendants do not cite any authority that is binding on this Court because
“neither the Supreme Court of Texas nor the Fifth Circuit have ruled that a party cannot recover
attorneys’ fees from a limited liability company.” Id. at 21.
BHL’s first two arguments are irrelevant to the question posed by Statoil’s Motion.
Statoil attacks only BHL’s attempt to collect fees under § 38.001. Accordingly, the Court must
determine what authority there is on this question and whether it is binding on this Court.
“To determine issues of state law, we look to the final decisions of that state’s highest
court.” Chaney v. Dreyfus Serv. Corp., 595 F.3d 219, 229 (5th Cir. 2010) (citing Six Flags, Inc.
v. Westchester Surplus Lines Ins. Co., 565 F.3d 948, 954 (5th Cir. 2009)). However, as BHL
notes, “[t]he Supreme Court of Texas has not yet addressed whether § 38.001 permits the
recovery of attorney’s fees from an LLC.” Hoffman v. L & M Arts, 3:10-CV-0953-D, 2015 WL
1000838, at *4 (N.D. Tex. Mar. 6, 2015), aff’d, 838 F.3d 568 (5th Cir. 2016). Accordingly, “‘we
must make an Erie guess and determine, in our best judgment, how that court would resolve the
issue if presented with the same case.’” Chaney, 595 F.3d at 229 (citing Six Flags, 565 F.3d at
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In making this Erie determination, “decisions of intermediate state appellate courts
provide guidance but are not controlling.” Hoffman, 2015 WL 1000838, at *4 (quoting United
Teacher Assocs. Ins. Co. v. Union Labor Life Ins. Co., 414 F.3d 558, 565–66 (5th Cir. 2005))
(internal quotation marks removed). Thus, “we defer to intermediate state appellate court
decisions, unless convinced by other persuasive data that the highest court of the state would
decide otherwise, and we may consult a variety of sources, including the general rule on the
issue, decisions from other jurisdictions, and general policy concerns.” Chaney, 595 F.3d 219,
229 (quoting Travelers Cas. & Sur. Co. of Am. v. Ernst & Young LLP, 542 F.3d 475, 483 (5th
Cir. 2008)) (internal quotation marks omitted). “Our task is to attempt to predict state law, not to
create or modify it.” Id. (quoting Herrmann Holdings Ltd. v. Lucent Techs., Inc., 302 F.3d 552,
558 (5th Cir. 2002)) (internal quotation marks omitted).
Section 38.001 provides that “[a] person may recover reasonable attorney’s fees from an
individual or corporation, in addition to the amount of a valid claim and costs, if the claim is for:
. . . (8) an oral or written contract.” Tex. Civ. Prac. & Rem. Code § 38.001(8). One of the first
courts to take up the question of whether attorney’s fees may be recovered from an LLC under §
38.001 was Hoffman v. L & M Arts. In that case, Judge Fitzwater of the Northern District of
Texas engaged in a thorough analysis of the statute and concluded:
In sum, based on the plain meaning of the terms “individual” and “corporation,”
the history of § 38.001 and its predecessor, Article 2226, and the construction
given to § 38.001 by Texas courts of appeals and federal courts (including judges
of this court), the court makes an Erie prediction that the Supreme Court of Texas
would hold that an LLC is neither an “individual” nor a “corporation” within the
meaning of § 38.001, and that a party with a valid claim cannot recover attorney’s
fees from an LLC under § 38.001.
2015 WL 1000838, at *10.
On appeal, the Fifth Circuit declined to address the plaintiff’s argument that she was
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entitled to attorneys’ fees under § 38.001(8). Hoffman v. L & M Arts, 838 F.3d 568, 583 n.14
(5th Cir. 2016). However, the Court concluded that Choice! Power, L.P. v. Feeley, 501 S.W.3d
199, 203 (Tex. App.—Houston [1st Dist.] Aug. 4, 2016, no pet.), wherein the Houston 14th
District Court of Appeals interpreted “corporation” in § 38.001(8) to refer specifically to
incorporated entities rather than generally to all businesses, “supports the district
court’s Erie guess that an LLC like L & M is not ‘an individual or corporation’ under section
38.001(8).” Hoffman, 838 F.3d at 583 n.14.
Notably, other courts to consider the issue since Hoffman have also overwhelmingly
concluded that § 38.001 does not support recovery of attorney’s fees from an LLC. See CBIF
Ltd. P’ship v. TGI Friday’s Inc., 05-15-00157-CV, 2017 WL 1455407, at *25 (Tex. App.—
Dallas Apr. 21, 2017, no. pet. h.) (“Under the plain language of section 38.001, a trial court
cannot order limited liability partnerships, limited liability companies, or limited partnerships to
pay attorney’s fees.”); Siwell, Inc. v. Leverage Fin., LLC, 5:12-CV-185-D, 2017 WL 1397818, at
*2 (N.D. Tex. Apr. 18, 2017) (“[T]he court concludes that § 38.001 bars recovery of attorney’s
fees from Leverage, an LLC.”); J.D. Fields & Co., Inc. v. N. Am. Fabricators, L.L.C., CV H-15317, 2016 WL 7912455, at *14 (S.D. Tex. Nov. 7, 2016) (“Plaintiff is not entitled to recover
attorney’s fees [under 38.001] from either Defendant because both Defendants are limited
liability companies.”); Taylors Int’l Servs., Inc. v. Cuero Oilfield Housing, LLC, A-16-CA-512SS, 2016 WL 8674349, at *1 (W.D. Tex. Oct. 31, 2016) (“[A]ttorney’s fees are not allowable
against a limited liability company under [§ 38.001].”); Solid Sys. CAD Servs. v. Total Risc
Tech., Ltd, 4:12-CV-03176, 2016 WL 5942935, at *3 (S.D. Tex. Oct. 13, 2016) (“Taking
guidance from the analysis in Hoffman, and . . . Alta Mesa Holdings, L.P. v. Ives . . . this Court
concludes that attorney’s fees are not recoverable as against an LLC under Section 38.001 of the
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Texas Civil Practice and Remedies Code.”); Varel Int’l Indus., L.P. v. PetroDrillbits Int’l, Inc.,
05-14-01556-CV, 2016 WL 4535779, at *7 (Tex. App.—Dallas Aug. 30, 2016, pet. denied)
(“Under the plain language of section 38.001, a trial court cannot order limited liability
partnerships, limited liability companies, or limited partnerships to pay attorney’s fees.”); Alta
Mesa Holdings, L.P. v. Ives, 488 S.W.3d 438, 455 (Tex. App.—Houston [14th Dist.] Apr. 4,
2016, pet. denied) (“[S]ection 38.001 does not authorize the recovery of attorney’s fees in a
breach of contract action against an LLC.”); Chaparral Energy, LLC v. Dudley, 4:13-CV-3540,
2015 WL 12942050, at *5 (S.D. Tex. Nov. 3, 2015) (“[T]his Court agrees with
the Hoffman Court that LLCs are not corporations as the term is used in § 38.001.”); Dongbu
USA, Inc. v. Partners in Steel Int’l, LLC, CV H-15-1177, 2015 WL 12803707, at *2 (S.D. Tex.
July 17, 2015) (“Plaintiff is not entitled to recover attorneys’ fees against Defendant, a limited
liability company, under 38.001.”).
For the reasons already articulated by these courts, this Court likewise concludes that §
38.001 does not support a claim for attorney’s fees against an LLC for breach of contract. As a
result, the Court grants Statoil’s Motion to Dismiss BHL’s plea for attorney’s fees under §
38.001 of the Texas Civil Practice and Remedies Code.
For the foregoing reasons, it is hereby
ORDERED that Molloy’s Motion to Strike (Doc. 357) is DENIED. It is further
ORDERED that Pleasant Solutions and Molloy’s Motions to Dismiss under Rule
12(b)(2) for lack of personal jurisdiction (Docs. 246, 333, 334) are DENIED. Finally, it is
ORDERED that Defendants’ Motions to Dismiss under Rule 12(b)(6) for failure to state
a claim (Docs. 230, 232, 246, 259, 317, 333, 334) are GRANTED IN PART and DENIED IN
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Specifically, Defendants’ Motions to Dismiss BHL’s claims for unjust enrichment and
negligent misrepresentation as well as its plea for attorney’s fees against Statoil pursuant to §
38.001 of the Texas Civil Practice and Remedies Code are GRANTED. Accordingly, BHL’s
claims for unjust enrichment and negligent misrepresentation are DISMISSED WITHOUT
PREJUDICE and BHL’s plea for attorney’s fees under 38.001 is DISMISSED WITH
Defendants’ 12(b)(6) Motions to Dismiss are DENIED in all other respects.
SIGNED at Houston, Texas, this 26th day of June, 2017.
UNITED STATES DISTRICT JUDGE
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