United States District Court, W.D. Texas, Austin Division
HONORABLE LEE YEAKEL UNITED STATES DISTRICT JUDGE.
REPORT AND RECOMMENDATION OF THE UNITED STATES
W. AUSTIN UNITED STATES MAGISTRATE JUDGE.
the Court are Plaintiff's Motion for Attorneys' Fees
and Costs (Dkt. No. 393); Plaintiff's Motion for Leave to
Amend its Complaint to Make Clear It Seeks Attorneys'
Fees Under Contracts (Dkt. No. 394); IWS's Application
for Attorneys' Fees and Costs (Dkt. No. 395); and all
associated Responses and Replies. The undersigned submits
this Report and Recommendation to the United States District
Court pursuant to 28 U.S.C. § 636(b) and Rule 1(h) of
Appendix C of the Local Court Rules.
Wireless Services, a wireless telephone services provider,
hired Transverse, a software development company, to develop
customized billing software. Transverse and IWS entered into
two agreements: a “Contract for the Supply of: blee(p)
Customer Care and Billing System” under which
Transverse was to develop software for IWS; and a mutual
Non-Disclosure Agreement dated March 3, 2009, under which IWS
agreed to maintain the confidentiality of certain proprietary
information of Transverse.
parties' relationship broke down, and Transverse sued in
Texas state court asserting IWS breached both the Supply
Contract and the NDA, as well as tort claims for
misappropriation of trade secrets, conversion, and violation
of the Texas Theft Liability Act. On July 9, 2010, IWS
removed to federal court on the basis of diversity and
countersued for breach of the Supply Contract. The claims
related to the breach of the Supply Contract were tried to a
jury and the remaining claimswere tried to the bench.
jury found in favor of Transverse, determining that IWS
breached the Supply Contract both by wrongfully terminating
it and by violating an express prohibition to not give
“a competitor access to the Service. ” The jury
awarded Transverse lost profit damages, reliance damages, and
lost value damages for the “access to the
Service” breach. However, the district court set aside
the award for the “access to the Service” breach
because it determined that it was not supported by legally
sufficient evidence. The district court also ruled against
Transverse on its tort claims and on its claim for breach of
the NDA. The Final Judgment, awarding Transverse in excess of
$11 million in damages, was entered by the district court on
September 30, 2013. Dkt. No. 305. On October 15, 2013, both
parties separately moved for attorneys' fees, arguing
that Texas law applied, and that each was entitled to fees
pursuant to Texas Civil Practice and Remedies Code § 38
.001 et seq. Dkt. Nos. 306 & 308. Transverse argued that
it was entitled to fees because it prevailed on its Supply
Contract claims, and IWS argued that it was entitled to fees
because it successfully defended the NDA claim, and the tort
claims were “subsumed under” the defense of that
claim. Upon motion, the district court stayed execution of
its judgment, Dkt. No. 321, and once the parties appealed,
Dkt. No. 323, dismissed without prejudice the competing
motions for attorneys' fees. Dkt. No. 324.
parties cross-appealed. In Transverse I, the Fifth Circuit
panel affirmed in part, reversed and rendered in part,
vacated in part, and remanded. The panel held that: 1) IWS
did breach the Supply Contract by wrongfully terminating but
not by providing “access to the Service” to a
competitor; 2) the district court should not have permitted
Transverse to recover lost profits for a twelve-year period
for the breach of the Supply Contract claim; 3) Transverse
could not recover both lost profits and reliance damages for
the same breach; and 4) IWS did breach the non-disclosure
agreement. Transverse, L.L.C. v. Iowa Wireless
Servs., L.L.C., 617 Fed.Appx. 272 (5th Cir. 2015).
court clarified to the district court the issues remaining on
the proper amount and type of damages that Transverse may
collect on its breach-by termination claim; the amount of
damages, if any, that Transverse may collect for IWS's
breach of the [non-disclosure agreement]; and whether IWS is
liable under any of the tort theories pressed by Transverse.
617 Fed.Appx. at 282.
remand, the district court held a bench trial. Dkt. No. 355.
This go around, Transverse elected reliance damages instead
of lost profits, and the district court awarded Transverse
$1.7 million in reliance damages for IWS's breach of the
Supply Contract and determined that Transverse had “no
cognizable damages” for IWS's breach of the
non-disclosure agreement “as a matter of law.”
Dkt. No. 358 at 7. Having determined that IWS's conduct
resulted in no lost value to Transverse, the district court
also rejected Transverse's misappropriation of trade
secrets, conversion, and Texas Theft Liability Act claims.
Id. at 7-9. The district court ordered that IWS take
nothing on its counterclaim for breach of the Supply Contract
and that Transverse take nothing on its claims against IWS
for breach of the NDA. The district court also found,
regarding attorneys' fees and costs: 1) IWS was not a
prevailing party under the Texas Theft Liability Act (thus
not entitled to a mandatory award of attorneys' fees and
costs); and 2) IWS was not entitled to costs for the
supersedeas bond premiums on the first appeal. Dkt. No. 359.
parties once again both moved for attorneys' fees.
Transverse argued that it was once again entitled to fees
pursuant to the Texas Civil Practice and Remedies Code §
38 .001 et seq., this time arguing it was the prevailing
party on both the Supply Contract and the NDA. Dkt. No. 360.
IWS also moved for attorneys' fees under the mandatory
fee provision of the TTLA, arguing that
“Transverses's claims for misappropriation of trade
secrets, conversion, violation of the TTLA, and breach of
contract based on disclosure, were all premised on the same
facts and legal arguments, ” and that therefore, it was
entitled to its fees for all of these claims. Dkt. No. 365-1
at 6. The parties again cross-appealed and the district court
again dismissed the motions for fees without prejudice. Dkt.
No. 367 & 375.
second appeal to the Fifth Circuit, Transverse II, the court
found as follows:
The district court correctly awarded damages. It also
correctly determined that IWS is not entitled to the costs of
the premiums for its supersedeas bond. Accordingly, we now
AFFIRM in part, VACATE the district court's judgment only
as to Transverse's take-nothing judgment on its Texas
Theft Liability Act claim because IWS is the prevailing
party, and REMAND because IWS is entitled to a mandatory
award of costs and attorney's fees on this claim.
Transverse, L.L.C. v. Iowa Wireless Servs., L.L.C.,
753 Fed.Appx. 184, 185 (5th Cir. 2018) (per curium). In a
lengthy footnote, the Fifth Circuit discussed, and did not
determine, whether Iowa law or Texas law was applicable to
the fees issue. Id. at 5 n.2.
remand, the district court entered a scheduling order setting
briefing deadlines for motions for attorneys' fees and
costs. Fully briefed, these motions are now before the
undersigned. Additionally. Transverse, fearing it has not
properly pled a basis for a fee award for its claims under
the Supply Contract under Iowa law, has moved to amend its
complaint “to make clear that its attorneys' fee
claim includes a claim for attorney's fees under Section
15 of the Mutual NonDisclosure Agreement and under ¶
19.2.2 of the Contract, in addition to Tex. Civ. Prac. &
Rem. Code §§ 38.001 et seq.” Dkt. No. 394 at
STANDARD OF REVIEW
Motion for Fees and Costs
under the American rule, “each litigant pays his own
attorney's fees, win or lose, unless a statute or
contract provides otherwise.” Baker Botts LLP. v.
ASARCO LLC, - U.S.-, 135 S.Ct. 2158, 2160 (2015).
Accordingly, “[a] district court may not award
attorneys' fees ‘unless a statute or contract
provides' the basis for such an award.” Spear
Mktg., Inc. v. BancorpSouth Bank, 844 F.3d 464,
470 (5th Cir. 2016) (quoting Baker Botts, 135 S.Ct. at 2164).
Federal Rule of Civil Procedure Rule 54(d)(1) states that
“costs-other than attorneys' fees-should be allowed
to the prevailing party.” Local Rule CV-54 also states
that unless a court determines costs at an earlier point,
“costs will be assessed in the final judgment in a
case, ” and that a “party awarded costs shall
prepare and file a proposed bill of costs no later than 14
days after the entry of judgment.” Unless a party
objects, the clerk of court shall tax costs without further
intervention from the Court. Id.
Motion to Amend
requested prior to trial, leave to amend “shall be
freely given when justice so requires.” Fed.R.Civ.P.
15(a). Rule 15(a) evinces a bias in favor of amendment and
requires that leave be granted “freely.”
Chitimacha Tribe of La. v. Harry L. Laws Co.,
Inc., 690 F.2d 1157, 1162 (5th Cir. 1982). Leave to
amend should not be denied unless there is a substantial
reason to do so. Jacobsen v. Osbourne, 133 F.3d 315,
318 (5th Cir. 1998). There is a substantial reason to deny
leave if the proposed amendment would cause undue delay or
prejudice to the non-movant, if it is motivated by bad faith
or dilatory motives, if there have been repeated failures to
cure deficiencies with prior amendment, or if the amendment
is futile. Foman v. Davis, 371 U.S. 178,
182 (1962); see also Martin's Herend Imps., Inc. v.
Diamond & Gem Trading, 195 F.3d 765, 770 (5th Cir.
1999); Wimm v. Jack Eckerd Corp., 3 F.3d 137, 139
(5th Cir. 1993). However, the “mere passage of time
need not result in refusal of leave to amend; on the
contrary, it is only undue delay that forecloses amendment.
Amendment can be appropriate as late as trial or even after
trial.” 6 Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 1488.
Motion for Leave to Amend Complaint (Dkt. No. 394)
First Amended Complaint Petition, Transverse moved for fees
pursuant to Texas Civil Practice & Remedies Code
§§ 38.001 et. seq., and § 134.005(b). Dkt. No.
49 at 11. Tranverse now moves for leave to amend its
Complaint post-trial, asserting that:
Because of the risk, however small, that this Court or the
Fifth Circuit on a third appeal, despite law of the case,
could conclude that Iowa law governs the Contract, or that
some recent court of appeals cases on §38.001 control
and have changed the law since the 2012 trial, then in the
interest of justice, Transverse should be given leave
beforehand to amend solely to make clear that its
attorneys' fee claim includes a claim for attorney's
fees under Section 15 of the Mutual Non-Disclosure Agreement
(“NDA”) and under Section 19.2 of the Contract,
in addition to Tex. Civ. Prac. & Rem.Code
§§38.001 et seq.
Dkt. No. 394 at 2.
argues it should be afforded leave to amend its Complaint
because of a potential change in Texas law. Specifically,
since this case was tried, Transverse asserts there has been
a split among lower Texas appellate courts regarding whether
§38.001 of the Texas Civil Practice & Remedies Code
permits recovery of attorney's fees against LLC's
like IWS. See Freeman v. Harleton Oil & Gas,
Inc., 528 S.W.3d 708, 755 fn. 39 (Tex. App.-Texarkana,
July 07, 2017) (noting split). Transverse argues that
amending its Complaint to explicitly tie its request for
attorneys' fees to the NDA and the Contract,  ensures that
Transverse can recover fees in the event that the Court finds
that Iowa law, which does not allow for a fee award unless
expressly provided for in the contract, controls the Supply
Contract. Tranverse argues that allowing this amendment is
fair because IWS was allowed to amend its Answer and
Counterclaim after the amendment deadline and “on the
eve of trial” to add claims for attorneys' fees
under the Civil Practice & Remedies Code for its breach
of contract and TTLA claims.
argues that Transverse has had nine years to amend its
Complaint to add claims for contractual v. statutory
attorneys' fees. Additionally, IWS asserts that
adding a claim for fees under the Supply Contract is futile,
as it does not provide for fees, and that adding a claim for
fees under the NDA is also futile, as Transverse was not
awarded damages pursuant to the NDA, and thereby does not
qualify as a “prevailing party.” IWS further
argues that amendment at this late date would prejudice IWS,
which would be forced to expend resources to address a legal
theory not previously presented. Additionally, IWS asserts
this is not a case of inadvertence or excusable neglect, as
Transverse has been on notice of its legal theory that Iowa
law applies to the substantive issue of the case, since IWS
filed its Second Amended Answer and Counterclaim. Dkt. No.
regard to Transverse's claim that a
“potential” change in Texas law requires this
Court to allow it to amend its Complaint, Transverse misreads
the law. Transverse cites to various cases in an effort to
support its argument. See Moch v. East Baton
Rouge Parish School Bd., 548 F.2d 594, 598 (5th Cir.),
cert. denied, 434 U.S. 859 (1977) (holding that an
intervening change in the law nullified the res judicata
effect of a prior decision); Mankes v. Vivid Seats
Ltd., 822 F.3d 1302, 1305 (Fed. Cir. 2016)) (holding
that when the governing legal standards have changed during
an appeal, the appellate court may vacate a determination
made under superseded standards and to remand for
consideration under the new standards); Dussouy v. Gulf
Coast Inv. Corp., 660 F.2d 594, 603-04 (5th Cir.1981)
(finding the district court abused its discretion in not
allowing a third motion to amend plaintiff's complaint
before trial). In the first two cases, the law actually
changed, and the courts acted accordingly. In this case,
Transverse fears a “potential” change in the
law-there has yet to be an actual change, and Transverse
fails to cite a Texas Supreme Court case showing any. The
third case is also not a case where there was an intervening
change in the law, merely a case where a plaintiff was
improperly disallowed a late amendment after the factual
circumstances of the case changed. Lastly, in Engel v.
Teleprompter Corp., 732 F.2d 1238, 1242 (5th Cir. 1984),
the Fifth Circuit, relying on Rule 54(c), held that it was
appropriate to award attorneys' fees to a prevailing
defendant after an appeal despite its failure to seek
attorneys' fees in its pleadings. Engel, rather than
relating to an intervening change in the law, was a special
case where the defendant's circumstances changed. This is
not the case here and this case does not support a need to
amend the Complaint at this juncture. Transverse's
argument that the Court should allow it to amend its
complaint because of an intervening change in the law is
types of reasons that might justify denial of permission to
amend a pleading include undue delay, bad faith or dilatory
motive on the part of the movant, repeated failure to cure
deficiencies by amendments previously allowed, undue
prejudice to the opposing party, and futility of the
amendment. A court may weigh in the movant's favor any
prejudice that will arise from denial of leave to amend.
E.g., Foman v. Davis, 371 U.S. at 182. In this case,
Transverse has chosen to claim attorneys' fees only under
the Texas Civil Practice & Remedies Code for the duration
of the case, despite the fact that the contractual language
upon which it now seeks to rely has been extant the entire
time. Transverse has not given a good reason for its prior
failure to plead a contractual basis for fees, other than it
seemingly believed that Texas law applied. This is not a new
issue. IWS has consistently asserted that Iowa law applies,
specifically to an award of attorneys' fees, so
Transverse has no excuse for failing to move to amend at an
earlier juncture. Additionally, this case has been tried
appealed, remanded, tried, appealed, and remanded again. The
only issue now before the court is the award of costs and
fees. Allowing amendment at this juncture would delay the
Court's consideration of the issue now before it, and
unduly prejudice IWS. Moreover, while perhaps not
“futile, ” the amendment is not necessary, as
Texas, and not Iowa law is applicable.
Court therefore RECOMMENDS that Transverse's Motion for
Leave to Amend Complaint (Dkt. No. 394) be DENIED WITHOUT
Transverse's Motion for Fees and Costs (Dkt. No.
arguing it is the prevailing party on its breach of the
Supply Contract and breach of the NDA claims, requests fees
of $2, 733.749.00 and costs in the amount of $140, 368.38.
Transverse argues that it is entitled to fees pursuant to
Texas Civil Practice & Remedies Code §§ 38.001
et seq, the NDA § 15, and Paragraph 19.2.2 of the Supply
Contract. Transverse argues that Texas law applies to its
claims for fees. IWS argues that Transverse is not entitled
to fees under the Supply Contract, because the contract is
governed by Iowa law, which does not provide for fees for
contract suits by statute. Under Iowa law, in order to
recover fees for breach, a contract must specifically provide
for a fee award by its express terms. Van Sloun v. Agans
Bros., Inc.,778 N.W.2d 174, 178 (Iowa 2010). Second,
IWS argues that transverse is not ...