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Agar Corporation, Inc. v. Electro Circuits International, LLC

Supreme Court of Texas

April 5, 2019

Agar Corporation, Inc., Petitioner,
v.
Electro Circuits International, LLC and Suresh Parikh, Respondents

          Argued January 23, 2019

          On Petition for Review from the Court of Appeals for the Fourteenth District of Texas

          Justice Devine delivered the opinion of the court. Justice Busby did not participate in the decision.

          John P. Devine, Justice.

         In this summary-judgment appeal we must determine what statute of limitations applies to a claim of civil conspiracy. Following its own precedent, the court of appeals applied the two-year statute generally applicable to torts, including trespass, and affirmed the trial court's summary judgment concluding that the civil conspiracy claims were indeed barred by limitations. 565 S.W.3d 12, 18 (Tex. App.-Houston [14th Dist.] 2016) (mem. op.) (citing Tex. Civ. Prac. & Rem. Code § 16.003 and cases applying it to civil conspiracy). We do not agree that section 16.003 universally applies to such claims.

         Because civil conspiracy is a derivative tort that "depends on participation in some underlying tort," we conclude that the applicable statute of limitations must coincide with that of the "underlying tort for which the plaintiff seeks to hold at least one of the named defendants liable." See Tilton v. Marshall, 925 S.W.2d 672, 681 (Tex. 1996) (describing the nature of a civil conspiracy claim). And because at least one of the underlying torts asserted as the basis for the conspiracy claims here may not be barred by its applicable statute of limitations, we reverse the court of appeals' judgment in part and affirm it in part.

         I. Background

         Agar Corporation designs, manufactures, and sells measuring devices for use in the oil and gas industry. Agar sued more than a dozen individuals and entities, including Sanjay Shah and Pandurang Nayak, who they alleged sold Agar's technology in the scheme to produce the knock-off products. Electro Circuits and its owner Suresh Parikh (collectively "Electro") were subsequently implicated in the scheme and added to Agar's lawsuit in November 2011. Electro once manufactured circuit boards for Agar, and its alleged role in the conspiracy was that it used Agar's proprietary information to manufacture circuit boards for the knock-off products.

         In its seventh amended petition filed on February 10, 2012, Agar asserted claims against Electro for tortious interference, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, fraud, fraud by non-disclosure, misappropriation of trade secrets, violations of the Texas Theft Liability Act, conversion, and civil conspiracy and asserted similar claims against the other defendants. Electro answered and, as pertinent here, filed a counterclaim against Agar seeking attorney's fees under the Texas Theft Liability Act.

         Electro later filed a traditional motion for summary judgment based on the statute of limitations and a no-evidence motion that attacked the elements of Agar's various claims. See Tex. R. Civ. P. 166a(c), (i). The trial court (1) denied the no-evidence motion for summary judgment as to Agar's claims for civil conspiracy; (2) granted the no-evidence motion in favor of Electro "as to all other claims [by Agar] alleging direct liability;" and (3) granted "a traditional summary judgment on Plaintiff's claims against Defendants Electro Circuits International, LLC and Suresh Parikh only on the limited basis as to [their] . . . affirmative defense of statute of limitations." Following the severance of Agar's and Electro's adverse claims from the others in the case, Electro filed another motion for summary judgment in the severed case on the issue of attorney's fees under the Texas Theft Liability Act. The trial court granted that motion, awarded Electro its attorney's fees, and together with the previous summary judgment in Electro's favor disposed of all issues in the severed case.

         Agar appealed, complaining about that part of the summary judgment that barred its civil conspiracy claims because of limitations and the subsequent summary judgment that awarded Electro attorney's fees. Agar argued that the trial court should not have applied a two-year statute of limitations to its conspiracy claims and thereby erred in concluding that such claims were barred by limitations. Agar also contended that the Texas Theft Liability Act did not provide for the award of fees to Electro, the defendant. The court of appeals rejected Agar's arguments and affirmed the summary judgments for Electro. 565 S.W.3d at 26. In a concurrence to the denial of rehearing en banc, Chief Justice Frost explained that the courts of appeals have uniformly applied section 16.003's two-year statute of limitations to civil conspiracy claims, even though the logic for that rule might reasonably be questioned. 529 S.W.3d 559, 563-64 (Tex. App.-Houston [14th Dist.] 2017) (Frost, C.J., concurring in order denying rehearing en banc). Having never passed on the question, we granted Agar's petition to consider the relevant statute of limitations for a claim of civil conspiracy.

         II. Statute of Limitations

         The statute of limitations is an affirmative defense that serves to "establish a point of repose and to terminate stale claims." Murray v. San Jacinto Agency, Inc., 800 S.W.2d 826, 828 (Tex. 1990). Statutes of limitations vary from claim to claim as determined by the Legislature. See generally Tex. Civ. Prac. & Rem. Code §§ 16.002-.051. For example, a two-year limitations period applies to suits for trespass and conversion, whereas a four-year limitations period applies to suits for fraud or breach of fiduciary duty. Id. §§ 16.003(a), .004(a)(4), (5). For claims not expressly identified by the Legislature, a residual limitations period of four years is provided. Id. § 16.051.

         None of the statutes of limitations mention civil conspiracy by name. Rather than apply the residual limitations period, the courts of appeals that have considered the issue have held civil conspiracy falls under the two-year statute of limitations applied to suits for trespass in section 16.003 of the Civil Practices and Remedies Code.[1] Agar contends that these cases are wrong and that they misunderstand the nature of a civil conspiracy claim.

         In civil conspiracy, the plaintiff seeks to hold the defendant liable for an injury caused by a third party who has acted in combination with the defendant for a common purpose. Chu v. Hong, 249 S.W.3d 441, 444-45 (Tex. 2008); Carroll v. Timmers Chevrolet, Inc., 592 S.W.2d 922, 925 (Tex. 1979). Agar therefore submits that the applicable statute of limitations for a civil conspiracy claim should be that of the underlying tort because that limitations period more accurately reflects civil conspiracy's status as a vicarious liability theory that hinges on an underlying tort.

         Electro responds that civil conspiracy is not a vicarious liability theory but rather an independent cause of action in the nature of a trespass to which section 16.003's two-year statute of limitations applies. Electro accordingly concludes that the courts of appeals have correctly applied this limitations period to past civil conspiracy claims and that this uniform line of decisions should not be disturbed. The parties thus disagree about whether civil conspiracy is an independent tort or merely a theory of vicarious tort liability derivative of an underlying wrong.

         A. Civil Conspiracy in Texas as a Vicarious Liability Theory

         In most jurisdictions, civil conspiracy is a vicarious liability theory that imparts joint-and-several liability to a co-conspirator who may not be liable for the underlying tort. See, e.g., Mackey v. Compass Mktg., Inc., 892 A.2d 479, 485 (Md. 2006); Upah v. Ancona Bros. Co., 521 N.W.2d 895, 901 (Neb. 1994), disapproved on other grounds, Welsch v. Graves, 582 N.W.2d 312, 316 (Neb. 1998); Granewich v. Harding, 985 P.2d 788, 792 (Or. 1999); Dunn v. Rockwell, 689 S.E.2d 255, 269 ( W.Va. 2009). Liability depends on injury from the underlying tort, not the conspiracy itself. Mackey, 892 A.2d at 485. By contrast, a minority of states treat civil conspiracy as an independent claim where defendants may be held liable for damages caused by the conspiracy itself, even in the absence of an unlawful act. See, e.g., Allegro, Inc. v. Scully, 791 S.E.2d 140, 144 (S.C. 2016). Our case law on civil conspiracy leaves Texas's position on the debate arguably unclear. Although we have not expressly said whether a civil conspiracy claim is in the nature of a vicarious liability theory or an independent tort, we have at various times used language implying that it was one or the other.

         We have said a proven civil conspiracy means "each of [the] defendants in error is responsible for all acts done by any of the conspirators in furtherance of the unlawful combination." State v. Standard Oil Co., 107 S.W.2d 550, 559 (Tex. 1937). This is a statement of vicarious liability. See Carroll, 592 S.W.2d at 925-26 (citing Standard Oil while describing civil conspiracy as a theory of vicarious liability).[2] We have repeatedly called civil conspiracy a "derivative tort," meaning it depends on some underlying tort or other illegal act. Chu, 249 S.W.3d at 444; Tilton, 925 S.W.2d at 681. Our use of the word "derivative" in this context means a civil conspiracy claim is connected to the underlying tort and survives or fails alongside it. NME Hosps., Inc. v. Rennels, 994 S.W.2d 142, 148 (Tex. 1999). This is because "[i]t is not the agreement itself, but an injury to the plaintiff resulting from [another] act done pursuant to the common purpose that gives rise to the cause of action." Carroll, 592 S.W.2d at 925. Civil conspiracy depends entirely on the injury caused by the underlying tort; the injury is the damage from the underlying wrong, not the ...


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