Western Power, Inc v. Transamerican Power Products, Inc.

Filing 27

MEMORANDUM OPINION AND ORDER denying 17 MOTION for Leave to File Amended Answer and Counterclaim (Signed by Judge Sim Lake) Parties notified. (aboyd, 4)

United States District Court
Southern District of Texas

ENTERED

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

WESTERN POWER, INC.,

§
§
§
§
§
§
§
§
§
§

Plaintiff,

v.
TRANSAMERICAN POWER
PRODUCTS, INC.,
Defendant.

April 06, 2018
David J. Bradley, Clerk

CIVIL ACTION NO. H-17-1028

MEMORANDUM OPINION AND ORDER

Plaintiff

Western

Power,

Inc.

("Western"

or

"Plaintiff")

brings this action against defendant TransAmerican Power Products,
Inc.

("TransAmerican" or "Defendant") asserting claims for breach

of contract, quantum meruit, violation of the Texas Theft Liability
Act,

and fraudulent

Defendant's

Motion

inducement. 1
for

Leave

("Defendant's Motion to Amend")

Pending before
to

File

Amended

(Docket Entry No.

the

court

is

Counterclaim
17) .

For the

reasons stated below, Defendant's Motion to Amend will be denied.
I.

Factual and Procedural Background

Plaintiff is a manufacturer's representative whose business
consists

of

promoting

its

clients'

products. 2

Defendant entered into a written agreement

1

See
Plaintiff's
Original
Complaint
("Complaint"), Docket Entry No. 1, pp. 4-6.
2

Id. at 2

~

6.

Plaintiff

("Agreement")

and

Jury

and

setting

Demand

forth the terms under which Plaintiff would represent Defendant. 3
The Agreement provides that
Representative shall maintain a sales office in the
territory and shall use its best efforts and devote such
time as may be reasonably necessary to sell and promote
the sale of Seller's products within the territory. 4
The

Agreement

Representative a

also

sales

states

that

"Seller

commission on actual

. . . " and provides a commission schedule. 5

agrees

to

pay

sales of products,

Plaintiff alleges that

it dutifully and properly represented Defendant and sold Defendant's
products,

but

that Defendant

"failed and refused to compensate

Plaintiff in accordance with the terms of the Agreement." 6
In
asserted

its

original

several

answer

affirmative

filed

on June

defenses

5,

and a

2017,

Defendant

counterclaim

that

"[TransAmerican] is entitled to recover its attorneys' fees as the
prevailing
§

party

134.005 (b) . " 7

Amend

and

pursuant

to

Tex.

Civ.

Prac.

& Rem.

Code

On January 17, 2018, Defendant filed its Motion to

attached

a

proposed

amendment

counterclaim for breach of contract. 8

3

See Agreement,
Entry No. 1-1.

in

which

it

Id. at 2-3.

6

Complaint, Docket Entry No. 1, p. 3

Docket

Id. at 2.

5

a

Western filed Plaintiff

Exhibit A to Plaintiff's Complaint,

4

adds

~~

8-9.

7

See
TransAmerican
Power
Products,
Inc. 's Answer
and
Counterclaim ("Original Answer"), Docket Entry No. 7, p. 3 ~ 23.
8

See Defendant's
TransAmerican
Power

Motion to
Products,
-2-

Amend,
Inc.'s

Docket Entry No. 17;
Amended
Answer
and
(continued ... )

Western Power, Inc.'s Objection and Response to Defendant's Motion
for

Leave

to

Amend

and

("Plaintiff's Objection")
the

court

to

File

Breach

of

Contract

(Docket Entry No. 21) .

deny Defendant's Motion

Counterclaim

Plaintiff urges

to Amend because

of

the

futility of the amendment. 9
II.
A.

Defendant's Motion for Leave to Amend

Standard of Review

If a scheduling order has been entered establishing a deadline
for amendments to pleadings, Federal Rule of Civil Procedure 15(a)
provides the standard for requests to amend that are filed before
the scheduling order's deadline has expired, and Federal Rule of
Civil Procedure 16(b) provides the standard for requests to amend
that are filed after the scheduling order's deadline has expired.
Marathon Financial Insurance, Inc., RRG v. Ford Motor Co., 591 F.3d
458, 470 (5th Cir. 2009); Fahim v. Marriott Hotel Services, Inc.,
551 F.3d 344, 348 (5th Cir. 2008).
Plaintiff filed its Complaint on April 4, 2017 (Docket Entry
No. 1), and Defendant filed its Original Answer on June 5,
(Docket Entry No.
scheduling

7) .

conference

2017

The court held an initial pretrial and
on July

28,

2017,

and

entered a

Docket

( • • • continued)
Counterclaim
("Defendant's
Amended Answer") ,
Exhibit A
Defendant's Motion to Amend, Docket Entry No. 17-1, pp. 4-7.
8

9

to

See Plaintiff Western Power, Inc.'s Objection and Response to
Defendant's Motion for Leave to Amend and File Breach of Contract
Counterclaim ("Objection"), Docket Entry No. 21, pp. 1-5.
-3-

Control Order

(Docket Entry No.

13)

The Docket Control Order

contained the notation "None" on the lines provided for deadlines
to file motions to amend the pleadings and motions to add new
parties.

The order states "None" because counsel indicated at the

pretrial conference that they would need no further amendments to
the pleadings.

See Breaux v. Tri Star Freight Systems, Inc., Civil

Action No. H-16-846, 2016 WL 6581929, at *2 (S.D. Tex. November 7,
2016)

("The 'N/A' notation next to the amendment deadlines on the

Scheduling Order indicates that,
parties

indicated

that

they

at the Rule 16 conference,

would

not

need

to

amend

the

their

pleadings, not that the parties may amend their pleadings at any
time without seeking leave to do so.").

Nevertheless, Defendant

filed the pending Motion to Amend on January 17, 2018.

The court

can understand how Defendant's counsel would be confused by the
entry of "None" and could conclude that the court meant that there
were

no

deadlines

for

filing

amended

pleadings.

Neither

Defendant's Motion to Amend nor Plaintiff's Objection and Response
to it addressed the applicable Rule 16 standard.
analyzed the Rule 15 standard.

Instead,

each

Because neither party addressed the

requirements under Rule 16 and because of the confusion caused by
the "None" entry on the Docket Control Order, the court will apply
the more liberal Rule 15 standard.
B.

Analysis

Federal Rule of Civil Procedure 15(a) allows a party to amend
its pleading once as

a

matter of
-4-

course within 21 days

after

serving it or within 21 days after service of a responsive pleading
or service of Rule 12 (b),
15(a) (1) (A) and (B).

or (f)

(e),

motions.

Fed. R.

Civ.

P.

In all other cases Rule 15(a) requires the

opposing party's written consent or leave of the court and states,
"[t]he court should freely give leave when justice so requires."
Id. at (2).

Rule 15(a) provides "a strong presumption in favor of

granting leave to amend."

Financial Acquisition Partners LP v.

Blackwell, 440 F.3d 278, 291 (5th Cir. 2006).

"A decision to grant

leave is within the discretion of the court, although if the court
'lacks a "substantial reason" to deny leave, its discretion "is not
broad enough to permit denial."'"
Mortgage

Co.,

50

F.3d

1298,

State of Louisiana v.

1302-03

(5th

Cir.

1995)

Litton

(quoting

Jamieson By and Through Jamieson v. Shaw, 772 F.2d 1205, 1208 (5th
Cir.

1985)).

The Supreme Court has identified five factors to

consider in determining whether to grant leave to amend a pleading:
(1)

undue delay,

failure

(2)

bad faith or dilatory motive,

(3)

to cure deficiencies by previous amendments,

repeated
(4)

undue

prejudice to the opposing party, and (5) futility of the amendment.
United States ex rel.

Steury v.

262, 270 (5th Cir. 2010)
(1962)).

Inc.,

625 F.3d

(citing Foman v. Davis, 83 S. Ct. 227, 230

Plaintiff argues that Defendant's proposed counterclaim

would be futile.

10

Cardinal Health,

10

Plaintiff's Objection, Docket Entry No. 21, pp. 2-5.
-5-

1.

Futility Standard

~[L]eave

to do so."

to amend need not be granted when it would be futile

F.D.I.C. v. Conner, 20 F.3d 1376, 1385 (5th Cir. 1994)

(citation omitted) .
survive

a

Rule

"An amendment is futile if it would fail to

12(b)(6)

motion."

National Collegiate Athletic Ass'n,
2014).
'the

Marucci

Sports ,

751 F.3d 368,

L . L . C.

378

v.

(5th Cir.

"Therefore, we review the proposed amended complaint under
same

standard

Rule 12(b) (6) .'"

Id.

of

legal

sufficiency

as

applies

under

(quoting Stripling v. Jordan Production Co.,

LLC, 234 F.3d 863, 873 (5th Cir. 2000).
A motion

to

dismiss

Procedure 12(b) (6)

pursuant

to

Federal

Rule

of

Civil

for failure to state a claim for which relief

may be granted tests the formal sufficiency of the pleadings and is
"appropriate when a defendant attacks
fails

to

state

a

legally

the complaint because it

cognizable

claim."

Ramming

v.

United States, 281 F.3d 158, 161 (5th Cir. 2001), cert. denied sub
nom Cloud v. United States, 122 S. Ct. 2665 (2002).

The court must

accept the factual allegations of the complaint as true, view them
in a light most favorable to the plaintiff, and draw all reasonable
inferences in the plaintiff's favor.

Id.

"When a federal court reviews the sufficiency of a
complaint, before the reception of any evidence either by
affidavit or admissions, its task is necessarily a
limited one. The issue is not whether a plaintiff will
ultimately prevail but whether the claimant is entitled
to offer evidence to support the claims."
Swierkiewicz v. Sorema N.A., 122 S. Ct. 992,

997

Scheuer v.

(1974)).

Rhodes,

94

S.

Ct.

1683,
-6-

1686

(2002)

(quoting
To

avoid

dismissal a plaintiff must allege "enough facts to state a claim to
relief that is plausible on its face."
Twombly,

127

standard"

S.

Ct.

requires

1955,
"more

1974

(2007).

than

an

unlawfully-harmed-me accusation."
19371

1949

"Where

(2009) •

a

Bell Atlantic Corp. v.
This

unadorned,

Ashcroft v.

"plausibility
the-defendant-

Iqbal, 129 S. Ct.

complaint pleads

facts

that

are

'merely consistent with' a defendant's liability, it 'stops short
of the line between possibility and plausibility of "entitlement to
relief."'"

Id.

considering

a

(quoting Twombly,

motion

to

dismiss

127 S.

Ct.

district

at

courts

1966).
are

When

able

to

consider documents that are attached to a motion to dismiss if they
are "referred to in the plaintiff's complaint and are central to
the plaintiff's claim."
533,

536

(5th Cir.

2003)

Scanlan v. Texas A&M University, 343 F.3d
(citing Collins v. Morgan Stanley Dean

Witter, 224 F.3d 496, 498-99 (5th Cir. 2000))
2.

Analysis

In its proposed amended counterclaim, Defendant alleges that
Plaintiff

breached

the

Agreement

contract provision stating

that

by

failing

Plaintiff

to

shall

comply with a
"use

its best

efforts and devote such time as may be reasonably necessary to sell
and promote the sale of Seller's products within the territory." 11
Defendant identifies four companies that it assumes would have
awarded Defendant contracts for products if Plaintiff had complied

11

Defendant's Amended Answer, Exhibit A to Defendant's Motion
to Amend, Docket Entry 17-1, p. 7 ~ 29.
-7-

with the clause of the Agreement . 12

Plaintiff argues that the "best

efforts" clause in the Agreement is unenforceable under Texas law. 13
In Texas "to be enforceable, a best efforts contract must set
some kind of goal or guideline against which best efforts may be
CKB & Associates,

measured."

Inc. v. Moore McCormack Petroleum,
Dallas, writ denied) . 14

Inc., 809 S.W.2d 577, 581 (Tex. App

"A

contracting party that performs within the guidelines fulfills the
contract regardless of the quality of its efforts."
But "the term 'goal'

or 'guideline'

Id. at 582.

need not be read narrowly."

Kevin M. Ehringer Enterprises, Inc. v. McData Services Corp., 646
F.3d 321,

326

(5th Cir.

2011)

(citing Herrmann Holdings Ltd. v.

Lucent Technologies Inc., 302 F.3d 552, 559 (5th Cir. 2002)).
Cases

interpreting
In

instructive.

various

"best

& Associates

CKB

the

clauses

efforts"
contract

required

are
a

petrochemical refiner "'to use its best efforts to process the
crude

oil

Exhibit

into

"A,"

the

volumes

with variations

percent

I

If

production targets.

~~

809
Id.

of

refined

not

to

S.W.2d

at

products

exceed plus
578.

reflect

or minus

Exhibit

on
one

A provided

Because the goal or guideline set by the

12

Id. at 5-7

13

Plaintiff's Objection, Docket Entry No. 21, p. 4.

24-27.

14

The Fifth Circuit has "recognized that CKB & Associates
., is instructive on the issue of how to interpret a 'best
efforts' clause in a contract in Texas."
Kevin M. Ehringer
Enterprises, Inc. v. McData Services Corp., 646 F.3d 321, 326 (5th
Cir. 2011).
-8-

best efforts clause specified an identifiable volume of crude oil,
the contract was enforceable.

Id. at 581-82.

In Herrman Holdings the agreement provided, in relevant part,
that the defendant

(1)

prepare,

cause

file

and

practicable

"shall use its reasonable best efforts to
to

become

effective,

as

promptly

as

." and (2) "use its reasonable best efforts to take

or cause to be taken all actions, and to do, or cause to be done,
all things necessary, proper or advisable under applicable Law to
consummate

and

make

effective

in

the

practicable, the transactions .
added).

most

expeditious

manner

302 F.3d at 556 (emphasis

"

The Fifth Circuit held that the phrases "as promptly as

practicable" and "in the most expeditious manner practicable" were
objective

goals

making

the

"best

efforts"

clause

enforceable

because they "modif [y] the ultimate objective of filing and causing
the [transactions] to become effective."

Id. at 559-61.

In a fraudulent inducement case the Fifth Circuit held that
the

"requirement that

[the defendant]

use its

'best efforts to

further the promotion, marketing, licensing, and sale of Products'
is not enforceable under Texas law"
clause

"does

defendant]

not

provide

a

goal

because the

or

guideline

"best efforts"
by

can be expected to measure its progress."

which

[the

Kevin M.

Ehringer, 646 F.3d at 327.
The "best efforts" clause at issue in this case states no goal
or guideline by which Plaintiff can be expected to measure its
progress.

The requirement that Plaintiff "devote such time as may
-9-

be

reasonably

necessary"

does

not

establish

a

guideline

to

determine what constitutes Plaintiff's "best efforts" to achieve
the

ultimate

objective

Defendant's products.

of

selling

and

promoting

the

sale

of

Because the Agreement does not provide a

goal or guideline that could satisfy the CKB & Associates standard,
the clause is unenforceable as a matter of Texas Law.
Group,

Inc. v. York Southern,

2006 WL 2883363 at *1-3

Inc.,

Civil Action No. H-06-0262,

(S.D. Tex. Oct. 10, 2006)

15

Defendant's

proposed amendment would therefore be futile.
III.

Conclusions and Order

For the reasons stated in Section II above, Defendant's Motion
for Leave to File Amended Counterclaim (Docket Entry No.

17)

is

DENIED.
SIGNED at Houston, Texas, on this the 6th day of April, 2018.

SIM LAKE
UNITED STATES DISTRICT JUDGE

15

In York Group, Inc. the court concluded that there was "no
goal or guideline in the Agreement that could satisfy the CKB
standard" where the two "best efforts" clauses stated that the
distributor will use (1) "its best efforts to promote, sell, and
serve York-brand caskets" and (2) "its good faith best efforts
actively and aggressively to sell and promote the sale of the
Products."
2006 WL 2883363 at *3, *1.
The court held that
therefore those sections of the agreement were unenforceable as a
matter of Texas law.
Id. at *3.