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New York Pizzeria, Inc. v. Syal

United States District Court, S.D. Texas, Galveston Division

April 5, 2017

NEW YORK PIZZERIA, INC., Plaintiff,
v.
SYAL, ET. AL., Defendants.

          MEMORANDUM AND ORDER

          Gregg Costa, United States Circuit Judge [††]

         This motion originates from a lawsuit filed by New York Pizzeria (NYPI) against Adrian Hembree, Gina's Licensing Company (GLC), and a number of other defendants. NYPI asserted a number of business torts based principally on the allegation that the defendants had stolen their recipes for pizza and other Italian dishes. This court granted Hembree's motion for summary judgment dismissing NYPI's claims against him because of a broad release in a settlement agreement the parties entered into to end a previous lawsuit. Docket Entry No. 36. Based on the same violation of that settlement agreement, the Court later granted summary judgment in favor of Hembree on his breach of contract counterclaim against NYPI. Docket Entry No. 95. This court also granted summary judgment on res judicata grounds in GLC's favor on all of NYPI's claims, including a claim under the Texas Theft Liability Act (TTLA). See Docket Entry No. 99.

         Both GLC and Hembree, represented by the same counsel, now move for attorney's fees. Hembree cites both statutory and contractual grounds for recovering costs incurred in defending against NYPI's claims and pursuing his breach of contract counterclaim. GLC invokes the fee-shifting provision of the TTLA. They seek $218, 114 in attorney's fees and $15, 132 in costs and expenses.

         I.

         Hembree seeks multiple avenues to recover attorney's fees: the Texas Uniform Declaratory Judgments Act (TUDJA), Chapter 38 of the Texas Civil Practice and Remedies Code, the attorney's fee provision of the TTLA, and the First Settlement Agreement he signed with NYPI. Even if one of these sources authorizes fees, we must address the applicability of each because that will determine whether Hembree is entitled to fees for work that helped Hembree defeat NYPI's claims, succeed on his counterclaim, or both. As will be discussed later, those various forms of relief were obtained at different times in the lawsuit. Likewise, even though Hembree and GLC had the same lawyers, it is also necessary to determine whether the TTLA provides a source for recovering fees for work done on GLC's behalf. This parsing is necessary because “if any attorney's fees relate solely to a claim for which such fees are unrecoverable, a claimant must segregate recoverable from unrecoverable fees.” Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 313 (Tex. 2006).

         A. Texas Uniform Declaratory Judgment Act

         The TUDJA allows courts to award attorney's fees “as are equitable and just.” Tex. Civ. Prac. & Rem. Code Ann. § 37.009. But the Fifth Circuit has previously held that district courts may not award attorney's fees under the TUDJA in diversity cases, because the statute sets forth procedural, rather than substantive, law. Utica Lloyd's of Tex. v. Mitchell, 138 F.3d 208, 210 (5th Cir. 1998) (citing Housing Authority v. Valdez, 841 S.W.2d 860, 865 (Tex. App.-Corpus Christi 1992, writ denied) (holding that the TUDJA is “a procedural mechanism for resolving substantive controversies” and does not create substantive rights)). Because this Court applies federal, not state, procedural law to a diversity suit, the TUDJA is not a source for recovering fees. Utica, 138 F.3d at 210; see also Camacho v. Texas Workforce Comm'n, 445 F.3d 407 (5th Cir. 2006).

         B. Chapter 38

         Hembree's fee request also relies on Chapter 38 of the Texas Civil Practice & Remedies Code, which allows for attorney's fees in a successful breach of contract action. Tex. Civ. Prac. & Rem. Code Ann. § 38.001(8). Because the availability of attorney's fees is a substantive issue of state law, this Court applies Texas law in determining the availability of fees under Chapter 38. To recover attorney's fees under Chapter 38, a party must “(1) prevail on a cause of action for which attorney's fees are recoverable, and (2) recover damages.” Green Intern., Inc. v. Solis, 951 S.W.2d 384, 390 (Tex. 1997). Though Hembree succeeded in showing NYPI's breach of contract, he has not been awarded any damages (he chose to forego a bench trial that was scheduled to determine damages, see Docket Entry No. 112). Texas law, therefore, does not allow this Court to award attorney's fees under Chapter 38. Hembree's assertion that he is “entitled to nominal damages” does not change the analysis, as Hembree has neither sought nor obtained nominal damages. See Docket Entry No. 17 at 8-10.

         C. First Settlement Agreement

         Hembree presses on and asserts that the First Settlement Agreement that he entered into with NYPI gives him an alternative path to fees. Parties can contract for a fee- ecovery standard that goes beyond recovery under a state statute. See Intercontinental Grp. P'ship v. KB Home Lone Star, 295 S.W.3d 650, 653 (Tex. 2009). Section 11 of that settlement agreement states that:

In the event of any breach of this Agreement, and in addition to the terms of this agreement and any other legal or equitable remedies, the prevailing party shall be entitled to recover the reasonable costs and attorney's fees incurred in seeking relief for any such alleged breach.

Docket Entry No. 39 Ex. A at 9. This Court has already ruled that NYPI breached the terms of this agreement when it filed this suit. Docket Entry No. 36 at 5-7.

         But it is not a given that Hembree is a prevailing party under the agreement. The agreement does not define “prevailing party, ” so Texas law provides the default definition. KB Home, 295 S.W.3d 650. KB Home held that a plaintiff must obtain an actual remedy that “materially alter[s] the legal relationship” between the parties to be considered a prevailing party. KB Home, 295 S.W.3d at 655-57. The court held that a legal victory on liability, with no actual relief granted, would not suffice. Id. at 655. That leaves Hembree with the same problem he faced in seeking attorney's fees under Chapter 38: Hembree has not actually obtained any remedy for his counterclaim; he has shown that NYPI breached the contract but he has not recovered damages. Under Texas law, Hembree is not a prevailing party as to his counterclaim for breach of contract.

         Fortunately for Hembree, though, he is also a defendant in this action. Not only did the First Settlement Agreement serve as the basis for Hembree's counterclaim for breach of contract, it also served as his defense against the claims NYPI levelled against him. See Docket Entry No. 36 at 5-7. KB Home addressed Texas's definition of “prevailing party” for plaintiffs, but it did not speak to when a defendant is a “prevailing party.” That came later, in Epps v. Fowler, 351 S.W.3d 862 (Tex. 2011). Epps held that a defendant is a prevailing party when it obtains a dismissal with prejudice, because the res judicata effect of that dismissal “works a permanent, inalterable change in the parties' legal relationship to the defendant's benefit.” Id. at 868-69. Hembree achieved exactly that when this court granted its summary judgment motion dismissing NYPI's claims against him. Docket Entry 36 at 5-7. Because dismissal of the charges against him was the relief he sought in ...


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