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Stallion Oilfield Services Ltd. v. Gravity Oilfield Services, LLC

Court of Appeals of Texas, Eleventh District

December 19, 2019

STALLION OILFIELD SERVICES LTD. AND MICHAEL BROWN, Appellants
v.
GRAVITY OILFIELD SERVICES, LLC, Appellee

          On Appeal from the 385th District Court Midland County, Texas Trial Court Cause No. CV55423

          Panel consists of: Bailey, C.J., Stretcher, J., and Wright, S.C.J. [6]

          OPINION

          JOHN M. BAILEY CHIEF JUSTICE.

         This suit arises from Michael Brown's decision to resign from his employment with Gravity Oilfield Services, LLC and accept employment with Stallion Oilfield Services Ltd., one of Gravity's direct competitors. Gravity sued and alleged that Brown breached a noncompete, nondisclosure, and nonsolicitation agreement and that Stallion tortiously interfered with that agreement when it hired Brown. Appellants filed a motion to dismiss Gravity's claims pursuant to the Texas Citizens Participation Act, Tex. Civ. Prac. & Rem. Code Ann. §§ 27.001-.011 (West 2015) (the TCPA).[1] The trial court denied the motion to dismiss, found that the motion was frivolous and intended to delay, and awarded Gravity the reasonable attorney's fees that it incurred to respond to the motion.

         In their first two issues, Appellants assert that the trial court erred when it denied the motion to dismiss (1) because Appellants established that the TCPA applies to Gravity's claims and (2) because Gravity failed to establish by clear and specific evidence a prima facie case for each essential element of the claims. In two additional issues, Appellants challenge the trial court's award of attorney's fees to Gravity and failure to award attorney's fees and sanctions to them. We affirm that portion of the trial court's order in which it denied Appellants' motion to dismiss, but reverse that portion of the trial court's order in which it awarded attorney's fees to Gravity.

         Background

         Gravity is an oilfield service company that assists its customers "in running their oil wells continuously." Among other services, Gravity's Power Generation and Rental Solutions division rents natural gas power generators to customers. According to Chad Wolf, Vice President, Power Generation and Rental Solutions, Gravity "pioneered the natural gas power generator rental market in the Permian [B]asin" and spent six years and over $120 million to develop the specifications and "add on products" for its natural gas power generators as well as the market for the generators.

          Gravity's predecessor, Light Tower Rentals, Ltd., hired Brown in March 2007. Light Tower Rentals, Ltd. became Light Tower Rentals, Inc. in January 2008 and, in turn, Light Tower Rentals, Inc. became Light Tower Rentals, LLC in February 2017 (the three Light Tower Rentals entities are referred to collectively as LTR). While employed by LTR, Brown was promoted from Shop Foreman, to Regional Manager Northeast, to Corporate Maintenance Manager, and finally to Product Line Manager of Contracted Generation Services.

         At LTR, Brown was involved in writing the policy governing the maintenance of engine-driven equipment. Brown interfaced with customers about the rental of the generators and worked with vendors and other employees of LTR to develop and improve the line of natural gas power generators that LTR rented to its customers. Brown also contributed to the development of an electrical maintenance panel that allowed a generator to be taken out of service without interrupting the operation of other generators that were attached to it.

         In 2016, LTR Group Holdings LLC (LTRGH) was the indirect corporate parent of LTR.[2] Through a December 23, 2016 Unit Option Agreement (the 2016 Agreement), LTRGH awarded Brown an option to acquire Class C Units in LTRGH. The 2016 Agreement was subject to LTRGH's 2016 Incentive Equity Plan (the 2016 Plan) and incorporated the definitions in the 2016 Plan. As relevant here, the 2016 Plan defined a "subsidiary" of LTRGH as an entity that was owned or controlled, directly or indirectly, by LTRGH, one or more of LTRGH's subsidiaries, or a combination thereof.

         In the 2016 Agreement, Brown agreed to certain nondisclosure, noncompete, and nonsolicitation provisions. As relevant here, Brown generally agreed (1) that he would not disclose or use for his or another person's benefit the confidential information of LTRGH, its subsidiaries, or its affiliates; (2) that he would not work for a competitor of LTRGH, its subsidiaries, or its affiliates for a period of one year after the termination of his employment; and (3) that, for a period of one year after the termination of his employment, he would not solicit suppliers, customers, or "other business relation[s]" of LTRGH, its subsidiaries, or its affiliates to cease doing business with those companies. Brown also agreed that, if he breached the 2016 Agreement, "[LTRGH] or any of its Subsidiaries shall have the right to enforce" the restrictive covenants. Brown and LTRGH's Chief Financial Officer, Keith Muncy, signed the 2016 Agreement.

         Beginning in 2016, LTR was part of a major corporate restructuring. In "early" 2017, LTRI Holdings, LP and LTRGH merged, and LTRI Holdings acquired a majority of the voting equity securities in LTRGH, such that LTR became a subsidiary of LTRI Holdings. The merger plan provided that any outstanding option issued pursuant to the 2016 Plan would be converted into an option to purchase units in LTRI Holdings without any action by the holder of the option. Therefore, Brown's option to purchase common units of LTRGH was converted into an option to purchase common units in LTRI Holdings.

         On January 30, 2017, Brown signed a "[LTRGH] 2016 Incentive Equity Plan Participant Acknowledgment and Consent." Brown "acknowledge[d] and agree[d]" that, pursuant to the merger plan, his option to purchase units in LTRGH issued pursuant to the 2016 Plan would be converted into an option to purchase units in LTRI Holdings pursuant to LTRI Holdings' 2017 Incentive Equity Plan (the 2017 Plan). The acknowledgement and consent provided that "[t]he LTRI Holdings Option shall be subject to the same terms and conditions, including as to vesting, as were applicable to" the LTRGH option. Brown "consent[ed] to the foregoing terms and accept[ed]" the LTRI Holdings option.

          Attached to the Acknowledgement and Consent was a Unit Option Agreement Pursuant to the 2017 Plan (the 2017 Agreement). The 2017 Agreement acknowledges that Brown's option to purchase units in LTRGH had been converted into an option to purchase units in LTRI Holdings and that the option to purchase units of LTRI Holdings was subject to "the following terms and conditions." Those "terms and conditions" include the same restrictive covenants as in the 2016 Agreement. The 2017 Agreement was subject to the 2017 Plan and incorporated the definitions in the 2017 Plan. The definition of "subsidiary" in the 2017 Plan is identical to the definition in the 2016 Plan.

         In March 2018, LTR and other entities merged with Globe Energy Services, LLC. The surviving entity was renamed Gravity Oilfield Services, LLC. After March 26, 2018, Brown was employed by Gravity as the Director of Power Services for its Power Generation and Rental Solutions division. Brown had the same responsibilities at Gravity as he had had as the Product Line Manager of Contracted Generation Services at LTR.

         In August 2018, Stallion approached Brown about possible employment in a new division that would rent natural gas power generators to oil and gas customers. Stallion wanted Brown to develop a division that would provide the same services within the same industry for the same types of customers as Gravity did. Because Brown believed that the 2017 Agreement contained restrictions on his activities if he terminated his employment with Gravity, he provided a copy of that agreement to Stallion. Stallion forwarded the 2017 Agreement to its counsel for review.

         Brown subsequently questioned Gravity's in-house counsel about whether Gravity had "actively pursued" any employee who had left the company and, based on that discussion, informed Stallion that Gravity did not have a history of enforcing covenants not to compete. Brown also informed Stallion that he did not believe that Stallion would "take enough market share during the 1st year to constitute any action against Stallion." Based on that information, Stallion "reevaluate[d] the risk assessment" of hiring Brown. Stallion ultimately offered Brown the position of Director of Power Solutions.

         On November 16, 2018, Brown submitted his resignation to Gravity. Even though he specifically represented to Gravity that he had not made a decision about his future employment, Brown had already accepted employment with Stallion. Brown began working for Stallion in early December. In January 2019, Stallion purchased ten of the same model of natural gas power generators used by Gravity from one of Gravity's vendors. Stallion also ordered additional generators from another of Gravity's vendors and requested that the vendor install a control panel on the generators that was very similar to the panel that Brown helped develop at Gravity.

         Over the next several months, Brown had discussions with potential customers for Stallion's natural gas power generators. Some of these companies were Gravity's customers. In April 2019, one of Gravity's customers replaced two natural gas power generators rented from Gravity with two natural gas power generators rented from Stallion.

         After it learned that Brown was involved in starting a division at Stallion to rent natural gas power generators, Gravity advised Stallion of Brown's noncompete agreement and asked that Stallion "cease utilizing" Brown in any manner that violated the terms of the noncompete agreement. After Stallion failed to respond, Gravity sued Brown for breach of the 2016 Agreement and Stallion for tortiously interfering with that agreement. Appellants filed a motion to dismiss Gravity's claims pursuant to the TCPA. Gravity amended its petition and alleged that Brown breached both the 2016 and the 2017 Agreements and that Stallion tortiously interfered with both agreements. Gravity also filed a lengthy response to the motion to dismiss.

          The trial court denied Appellants' motion to dismiss without specifying the basis for its ruling. It also found that the motion was frivolous and intended for delay, awarded Gravity the attorney's fees and costs that it incurred to respond to the motion, and ordered Gravity's attorney to file an affidavit of the attorney's fees incurred.

         The TCPA

         The TCPA protects citizens from retaliatory lawsuits meant to intimidate or silence them on matters of public concern. Dallas Morning News, Inc. v. Hall, 579 S.W.3d 370, 376 (Tex. 2019); In re Lipsky, 460 S.W.3d 579, 584 (Tex. 2015) (orig. proceeding). The stated purpose of the TCPA is to "encourage and safeguard the constitutional rights of persons to petition, speak freely, associate freely, and otherwise participate in government to the maximum extent permitted by law and, at the same time, protect the rights of a person to file meritorious lawsuits for demonstrable injury." Civ. Prac. & Rem. § 27.002; see also ExxonMobil Pipeline Co. v. Coleman, 512 S.W.3d 895, 898 (Tex. 2017) (per curiam). We construe the TCPA "liberally to effectuate its purpose and intent fully." Civ. Prac. & Rem. § 27.011(b); see also State ex rel. Best v. Harper, 562 S.W.3d 1, 11 (Tex. 2018).

         The TCPA provides a procedure to expedite the dismissal of a "legal action" that appears to stifle the nonmovant's exercise of the rights protected by the statute. Youngkin v. Hines, 546 S.W.3d 675, 679 (Tex. 2018); see also Civ. Prac. & Rem. §§ 27.003(a), .005(b). The movant bears the initial burden to show by a preponderance of the evidence that the legal action is based on, related to, or in response to the movant's exercise of the right of free speech, the right of association, or the right to petition. Civ. Prac. & Rem. §§ 27.003(a), .005(b); Youngkin, 546 S.W.3d at 679. If the movant makes this showing, the burden shifts to the nonmovant to establish by clear and specific evidence a prima facie case for each essential element of the claim in question. Civ. Prac. & Rem. § 27.005(c); Youngkin, 546 S.W.3d at 679. Even when the nonmovant satisfies this burden, the trial court must dismiss the legal action if the movant "establishes by a preponderance of the evidence each essential element of a valid defense to the nonmovant's claim." Civ. Prac. & Rem. § 27.005(d); see also Youngkin, 546 S.W.3d at 679-80.

         We review de novo whether the parties satisfied their respective burdens as set out in the TCPA. Hall, 579 S.W.3d at 377. When we conduct this review, we consider the pleadings and the supporting evidence in the light most favorable to the nonmovant. ETC Tex. Pipeline, Ltd. v. Addison Exploration & Dev., LLC, 582 S.W.3d 823, 832 (Tex. App.-Eastland 2019, pet. filed); Robert B. James, DDS, Inc. v. Elkins, 553 ...


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