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Super Starr International, LLC v. Fresh Tex Produce, LLC

Court of Appeals of Texas, Thirteenth District, Corpus Christi-Edinburg

July 20, 2017


         On appeal from the 92nd District Court of Hidalgo County, Texas.

          Before Justices Rodriguez, Benavides, and Hinojosa


          NELDA V. RODRIGUEZ Justice

         The trial court granted appellee Fresh Tex Produce, LLC, Individually and Derivatively on behalf of Tex Starr Distributing, LLC, a temporary injunction order against appellants Super Starr International, LLC, Lance Peterson, and Red Starr, SPR de R.L. de C.V., that mandates and prohibits certain commercial conduct and requires the preservation of electronic information.

         In seven issues, which we construe as three, appellants complain that the trial court abused its discretion by signing the temporary injunction order on the grounds that (1) there is legally insufficient evidence of a probable right to relief on some of the claims used as a basis to gain injunctive relief or contractual provisions negate any right to injunctive relief, (2) the parameters of the order prohibiting certain commercial conduct are overbroad and unspecific, and (3) there is legally insufficient evidence to support an injunctive restriction relating to preservation of electronic information.

         We sustain in part and overrule in part the first issue on the grounds that there is legally insufficient evidence of a probable right to relief on all but one of the claims that have been asserted, and the trial court abused its discretion by mandating certain commercial conduct. Furthermore, we sustain the second and third issues. Therefore, we reverse the temporary injunction order, render a denial in part, and remand in part.

         I. Background

         The plaintiff in the underlying suit is Fresh Tex Produce, LLC (the Distributor), a Texas entity that distributes produce throughout the United States, who filed suit "individually and derivatively on behalf of" Tex Starr Distributing, LLC (the LLC).[1] The defendants are: (1) Super Starr International, LLC (the Importer), a Texas entity that imports foreign grown produce into the United States; (2) Lance Peterson, the current president of the Importer; (3) Red Starr, SPR de R.L. de C.V. (the Grower), a Mexican entity that grows produce in Mexico and exports it into the United States through the Importer; and (4) Kemal Mert Gumus, [2] an employee of the Importer.

         Our understanding of the relationship of the parties, the formation of the LLC and its operation, and the dispute comes from the record of a temporary injunction evidentiary hearing at which Kenneth Alford, president of the Distributor, Lance Peterson, and George Garcia, an assistant manager in the Distributor's shipping department, testified.

         A. Pre-LLC Relationship

         In 2010, the Grower, the Importer, and the Distributor, had a distribution agreement for papayas. Under the distribution agreement, the Distributor received a ten percent commission on sales proceeds. Alford testified that he was approached by David Peterson, [3] the then-president of the Importer. According to Alford, David was "happy with the sales, " and he "offered us a proposed partnership." The Grower wanted to grow and sell, through the Importer, a "hybrid papaya" that was smaller, longer lasting, and more aromatic than existing papayas. The Importer proposed that the Distributor forgo its customary ten percent commission in exchange for a five percent commission, but double the volume.

         B. The LLC

         1. LLC's Organization, Structure, and History

          In December 2010, Alford, on behalf of the Distributor, and Lance and David, on behalf of the Importer, executed an operating agreement that created the LLC, a limited liability company that is governed by the Texas Business Organizations Code. See Tex. Bus. Orgs. Code Ann. § 101.001(3) (West, Westlaw through Ch. 49, 2017 R.S.).

         Under the LLC's operating agreement and minutes from an organizational meeting: the Distributor and the Importer were the LLC's only members and owners of equal halves of the LLC, Alford and David were the only managers, and Alford was the president. The operating agreement included an exclusivity provision. The exclusivity provision mandated that the LLC serve as the "sole and exclusive distributor of papayas exported into the United States by [the Importer] and/or other existing or future companies of Lance Peterson and/or David Peterson pertaining in whole or in part to the growing, production, shipping or packaging of papayas." Under the operating agreement, the exclusivity provision lasted for three years, until the end of 2013.

         The business strategy for the LLC was, according to Alford, to cultivate a "high end" customer base that would pay between twenty and forty percent more per pound than ordinary papayas. Alford testified that in order to generate sales, the Distributor promoted the hybrid papaya to its existing customer base and attended multiple trade shows on behalf of the LLC. According to Alford, the LLC hired a marketing firm, which developed the hybrid papaya's new brand name-"Royal Star"-and its distinctive logos and smaller, more appealing packaging. Lance testified that the initial marketing program was split three ways between the "seed company, " the LLC, and the Importer. Through marketing efforts, the LLC, according to Alford, carved out a luxury niche for Royal Star as a sweeter papaya with a longer shelf-life and a higher selling price than an average papaya.

         Alford testified that the LLC's revenue came primarily from commissions on hybrid papaya sales. The Distributor's facility housed and its employees staffed the LLC's papaya distribution operation. Alford testified that, the Distributor provided the LLC with salespeople who were familiar with the preferences and buying habits of the Distributor's customers, which were mainly grocers. The Distributor also allowed the LLC to use thirty to forty warehouse employees to grade, sort, and age the papayas.

         By all accounts, the LLC was profitable. According to Alford, "net worth income" began at $264, 000, and it grew to $1.3 million between 2011 to 2012, $700, 000 in 2013, $1.2 million in 2014, and $1.1 million in 2015. Lance testified that, during the five-year period, total sales were "somewhere around 77 million, " and the LLC was compensated in the range of $7.7 million.

         In September 2013, David died. Thereafter, Lance replaced David as president of the Importer. There is no evidence that Lance was elected as a successor manager to replace David in accordance with the terms of the operating agreement.

         In January 2014, a nearly identical operating agreement (the revised operating agreement) took effect. The exclusivity provision in the revised operating agreement was for a period of two years, until the end of 2015.

         2. Gumus

         Gumus, an employee of the Importer, began working at the papaya operation facility after David's death. Alford testified that he believed Gumus was responsible for quality assurance and that he needed access to only the warehouse and loading areas. However, Alford and Garcia testified that as time progressed, Gumus's presence in the LLC's sales office, a room which was locked with a code known only to managers, increased. Alford saw Gumus was taking photographs of: (1) the Distributor's "sales board, " which "had every customer that we were selling our limes, our mangoes, our broccoli to;" and (2) "jackets, " which are large envelopes that hold "bill of ladings, invoices, truck information and so forth."

         Garcia testified that roughly a month before Gumus's eventual departure from the facility, he twice saw Gumus alone in the sales office after business hours. According to Garcia, after he reported Gumus's presence to a manager, the code to the sales office was changed. Gumus was also observed multiple times in the facility's shipping office taking photographs of documents with data on customers, pricing, and quantities.

         3. Pina

         Jose Pina was an employee of the Distributor who resigned early in the spring of 2016. Alford testified that Pina took information from the Distributor and the LLC. Specifically, Alford testified that Pina "made [unauthorized] computer copies of internal information from the shipping from truck brokers to venders to other contacts." Garcia testified that after Pina's resignation, he observed Pina at the papaya facility on a Saturday morning copying phone numbers from a Rolodex. Garcia testified that Pina went to work for the Importer approximately two weeks later.

         C. Expiration of Exclusivity Provision and Beginning of the Breakup

         At the end of December 2015, the exclusivity provision under the revised operating agreement expired. The parties did not renegotiate renewal of the exclusivity provision in the revised operating agreement. Alford testified that he and Lance attempted to negotiate a new term of exclusive distributorship, but the two sides were unable to reach an agreement.

         From January 2016 through March 2016, the Distributor and the Importer continued working together under the same terms as the revised operating agreement.

         In March 2016, Lance told Alford that beginning in July 2016, the Importer would no longer supply the LLC with the newly developed papayas. Instead, the Importer would distribute and market the hybrid papayas to customers in the United States on its own.

         In July 2016, an employee of the Importer sent a promotional email to customers who had purchased hybrid papayas from the LLC stating,

For the past 6 years, [the Importer] has been growing the Royal Star Papaya. As of today, [the Importer] has started its own sales team to handle the Royal Star Papaya as well as other products we will be bringing out of Mexico. [The Importer] brings over 20 years of farming experience out of Mexico to the produce industry.

         According to Alford, the email incorporated a sales brochure for papayas and other produce. Alford claimed that the Importer's brochure mimicked the Distributor's longtime sales brochure. Alford also took issue with the Importer's phone number announced in the email, which had the same area code and last four digits as the number for the Distributor's sales department: 956-[ ]-8014.

         D. The Suit

         In October 2016, the Distributor filed an original petition and application for injunctive relief. The Distributor asserted the following claims against the corresponding defendants:

         (Image Omitted)

The Distributor then sought and the trial court signed, a temporary restraining order. The trial court set the matter for a temporary injunction hearing.

         E. Evidentiary Hearing and Temporary Injunction Order

         In November 2016, the trial court held an evidentiary hearing, at which the testimony summarized above was presented. Alford argued that the LLC's customer lists contained trade secrets. In responding to the Distributor's questions on direct examination, Alford testified,

Q. Obviously, buyers of produce isn't something secret. I know that H.E.B. buys limes. So, I mean, I'm not stealing that from you, am I? How would you explain that to the Court?
A. Well, those are-certainly-those aren't unique clients. You know, H.E.B. and Kroger might think that, but what about the small guy in New Jersey or small guy in Newton, North Carolina that no one has ever heard of? You talk about the Blue Book. The Blue Book is a book of 10, 000 or 12, 000 customers. Of the 12, 000 customers, we have identified 50 for papayas and about 75 for other items. So to say that they are readily available, to [weed] 100 customers out of 12, 000 is quite an advantage.
. . . .
Q. And as far as [the Distributor] was concerned, the proprietary confidential information that is acquired or owned, is that the customer list that it's built up over its existence, specific as to what people buy, when they buy it?
A. Exactly. These are the customers that we've whittled out. Whittled out the ones and used the ones that we deemed worthy of our business for the last ten to twelve years.

         After the hearing, the trial court signed a temporary injunction order that found the Distributor "had demonstrated a probable right to relief through its claims" against the defendants. It granted injunctive relief mandating that the Importer, Lance, and the Grower (collectively appellants) continue the exclusive business relationship with the LLC (Restrictions 1 and 6 below), prohibiting conduct deemed competitive against the LLC (Restrictions 2-5 and 7 below), and mandating the preservation of electronic information (Restrictions 8 below). Specifically, the temporary injunction order restrained appellants from,

[1.] Distributing any [hybrid] papayas without such distribution going through [the LLC] and dividing proceeds as previously agreed;
[2.] Soliciting or conducting business with [the Distributor's] customers or growers;
[3.] Soliciting, directly or indirectly, accounts of [the LLC] or [the Distributor];
[4.] Diverting any business opportunity away from [the LLC] or [the Distributor];
[5.] Directing any business opportunity[4] away from [the LLC] or [the Distributor];
[6.] Refusing to supply [hybrid] papayas for [the LLC] orders if such papaya is available;
[7.] Using trade secrets and confidential information owned by [the LLC] or [the Distributor];
[8.] Destroying, deleting, erasing, losing, hiding, altering, or modifying in any manner the electronic information, including emails, text messages, recordings, and other communications involving or mentioning [the Importer], [the Grower], [the LLC], [the Distributor] or any of its principals or employees, or accounts which have done business through [the LLC].

         This interlocutory appeal followed.

         II. Discussion

         In appellants' first issue, they essentially challenge either the legal sufficiency or the viability of all of the claims asserted by the Distributor. The claims that form the basis for most of the injunctive relief granted in this case may be divided into two categories:

• The claims for breaches of joint venture agreement, partnership agreement, and joint venture form the basis for the "exclusivity restrictions" (Restrictions 1 and 6) in the injunctive order.
• The claims for breach of fiduciary duty, aiding and abetting in the breach of fiduciary duty, Texas Uniform Trade Secrets Act, Texas Theft Liability Act, and tortious inference with contract form the basis for the "non-competition restrictions" (Restrictions 2-5 and 7) in the injunctive order.

         The claims forming the basis for the exclusivity restrictions (Restrictions 1 and 6) are addressed in subsection B below; the claims forming the basis for the non-competition restrictions (Restrictions 2-5 and 7) are addressed in subsection C below.

         In appellants' second issue, they argue that the parameters of the non-competition restrictions (Restrictions 2-5 and 7) are overbroad and unspecific. In light of our holdings regarding the first issue, we addressed this issue in subsection D below.

         In appellants' third issue, they challenge the legally sufficiency of the evidence supporting an injunctive restriction relating to preservation of electronic information (Restrictions 8). We address this issue in subsection E below.

         A. Applicable Law

         1. Temporary Injunction Elements

         To obtain a temporary injunction, the applicant must plead and prove three elements: (1) a cause of action; (2) a probable right to relief; and (3) a probable, imminent, and irreparable injury in the interim. Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002). To show a probable right to relief, the applicant is not required to establish that it will prevail at trial. Walling v. Metcalfe, 863 S.W.2d 56, 58 (Tex. 1993) (per curiam). The merits of the applicant's suit are not presented for review. Davis v. Huey, 571 S.W.2d 859, 861 (Tex. 1978); Frontera Generation Ltd. P'ship v. Mission Pipeline Co., 400 S.W.3d 102, 108 (Tex. App.-Corpus Christi 2012, no pet.) (combined appeal & orig. proceeding).

         Regarding the third element, an injury is irreparable if the injured party cannot be adequately compensated in damages or if the damages cannot be measured by any certain pecuniary standard. Butnaru, 84 S.W.3d at 204. "'Disruption to a business can be irreparable harm. Moreover, assigning a dollar amount to such intangibles as a company's loss of clientele, goodwill, marketing techniques, and office stability, among others, is not easy.'" Intercont'l Terminals Co., LLC v. Vopak N. Am., Inc., 354 S.W.3d 887, 896 (Tex. App.-Houston [1st Dist.] 2011, no pet.) (quoting Frequent Flyer Depot, Inc. v. Am. Airlines, Inc., 281 S.W.3d 215, 228 (Tex. App.-Fort Worth 2009, pet. denied) (citations omitted)).

         2. Standard of Review

          We assess the trial court's ruling under the abuse of discretion standard. Butnaru, 84 S.W.3d at 204. The test for abuse of discretion is whether the trial court ruled arbitrarily, unreasonably, without regard to guiding legal principles, or without supporting evidence. Bocquet v. Herring, 972 S.W.2d 19, 21 (Tex. 1998). As to ruling without supporting evidence, the trial court does not abuse its discretion if some evidence in the record reasonably supports the trial court's decision. Butnaru, 84 S.W.3d at 211. Under this standard, we draw all legitimate inferences from the evidence in a manner most favorable to the trial court's ruling. Allied Capital Corp. v. Cravens, 67 S.W.3d 486, 489 (Tex. App.-Corpus Christi 2002, no pet.). Under this standard, the legal and factual sufficiency of the evidence are not independent grounds of error, but are relevant factors in assessing whether the trial court abused its discretion. Stewart Beach Condominium Homeowners Ass'n, Inc. v. Gili N Proper Inv., LLC, 481 S.W.3d 336, 343 (Tex. App.- Houston [1st Dist.] 2015, no pet.)

         B. The Exclusivity Restrictions in the Temporary Injunction Order

         Restrictions 1 and 6 of the temporary injunction order include the following exclusivity relief, ...

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