Opinion
No. 04-06-00783-CV
Delivered and Filed: March 26, 2008.
Appealed from the 216th Judicial District Court, Bandera County, Texas, Trial Court No. 8045-01, Honorable Stephen B. Ables, Judge Presiding.
Affirmed.
Sitting: KAREN ANGELINI, Justice, REBECCA SIMMONS, Justice, STEVEN C. HILBIG, Justice.
MEMORANDUM OPINION
Robert Peter Berg d/b/a Silverdales Collectible Fine Jewelry d/b/a Bob Berg Buckles, ("Berg") sued his former wife, Joanna Dorothy Berg d/b/a Hy O Silver (now known as Joanna Symons) alleging Symons violated the property division set forth in their divorce decree. Berg also sued for conversion, interference with business opportunities, and fraud. Symons moved for dismissal on the grounds of res judicata and collateral estoppel. After conducting a hearing, the trial court dismissed Berg's suit. The trial court also assessed attorney's fees against Berg. Berg appeals. Finding no error, we affirm.
Factual and Procedural Background
During the time Berg and Symons were married, they owned and operated businesses engaged in making and selling silver belt buckles and jewelry. When the couple divorced in March of 2000, a portion of the property division awarded Berg as his sole and separate property:
The business known as Bob Berg Buckles, including but not limited to all fixtures, inventory, cash, receivables, accounts, goods, and supplies; and all rights and privileges, past, present, or future, arising out of or in connection with the operation of the business.
The business known as Silverdales and/or Silverdale, including but not limited to all fixtures, inventory, cash, receivables, accounts, goods, and supplies; and all rights and privileges, past, present, or future, arising out of or in connection with the operation of the business.
The decree awarded Symons as her sole and separate property:
The business known as Hy O Silver, including but not limited to all furniture, fixtures, machinery, equipment, inventory, cash, receivables, accounts, goods, and supplies; all personal property used in connection with the operation of the business; and all rights and privileges, past, present, or future, arising out of or in connection with the operation of the business.
In August 2000, a few months after the divorce decree was entered, Berg filed suit in state court alleging Symons violated the property division in the divorce decree by opening a rival business and conspiring to deprive him of his business property. He also alleged conversion, interference with business opportunities, and fraud.
On July 18, 2003, while the state court suit was still pending, Berg filed a similar lawsuit in the United States District Court for the Southern District of Texas. In his Plaintiff's Original Complaint filed in federal court, Berg alleged that certain of his jewelry designs were protected by copyrights. He further alleged that Symons and her business, Hy O Silver, were selling counterfeit products using Berg's equipment and material, and that she was advertising those products on the internet causing confusion in the marketplace as to the source of the products. Thus, Berg sued for copyright infringement as well as for federal Lanham Act violations, Texas Antidilution Act violations, common law trademark infringement and unfair competition, false advertising, and for injunctive relief and damages.
In February 2004, while the federal case was still pending, Berg filed his Plaintiff's Third Amended Original Petition in state court. In that pleading, Berg's specific allegations as to Symons's violation of the property division in the divorce decree state:
Immediately following the divorce, [Symons] opened a rival business and embarked upon a course of action to deprive [Berg] of his business property and to ruin him financially by diverting opportunities and defrauding potential customers by representing that he was no longer working. [Symons] has appropriated and utilized properties and assets set aside to [Berg] in the Decree of Divorce, causing damage to [Berg] and his business, and unjustly enriching [Symons] and her business. Specifically, she has appropriated and utilized the intellectual property rights unique to [Berg] and his business when such rights were set aside to him in Paragraph H-6 of the Divorce Decree. These actions constitute separate, continuing torts over and above violations of the property division in the divorce decree.
On September 30, 2005, following a bench trial, the federal court entered a sixty-one-page Memorandum and Opinion Setting Out Findings of Fact and Conclusions of Law. The Memorandum and Opinion sets out in great detail the background of the parties, including their respective businesses and the property division contained within the divorce decree. On October 14, 2005, the federal court signed a Final Judgment awarding Berg $80,000 in statutory damages for copyright infringement but denying all other claims.
Although the federal court case had been resolved, the state court action continued. Thus, on April 27, 2006, Symons filed in the state court action a motion to dismiss on the grounds of res judicata and collateral estoppel, alleging that Berg's claims were finally and fully litigated in the federal court proceeding. Berg filed a response, and the trial court conducted a hearing. On August 7, 2006, the trial court entered an order dismissing Berg's state court action on res judicata and collateral estoppel grounds. The trial court later conducted a hearing on attorney's fees and ordered Berg to pay Symons attorney's fees in the nature of a sanction based on Berg's filing of repetitive legal actions on the same issues in order to harass Symons. Berg appeals both the dismissal order and the order awarding attorney's fees.
Res Judicata
Berg contends the doctrine of res judicata does not bar his state court action because the state court and federal court actions are not based on the same claims. He points out that the federal court only resolved federal law issues and specific state law matters such as common law trademark infringement, unfair competition, and false advertising. Berg contends the state court action, on the other hand, is based solely on causes of action provided for by state law relating to enforcement of the parties' divorce decree. In fact, according to Berg, the federal court "most probably lacked subject matter jurisdiction to address the issues regarding enforcement of the Final Decree of Divorce." Symons asserts the record shows that Berg's causes of action in federal and state court are based on the same nucleus of operative facts and, therefore, the doctrine of res judicata bars the state court action.
When the first lawsuit is decided in federal court, federal law will control whether res judicata bars a subsequent state court action. San Antonio ISD v. McKinney, 936 S.W.2d 279, 281 (Tex. 1996); Diaz v. San Antonio Prof'l Fire Fighters Ass'n, 185 S.W.3d 37, 42 (Tex.App.-San Antonio 2005, no pet.). Under federal law, res judicata will apply if: (1) the parties in both lawsuits are identical; (2) the prior judgment was rendered by a court of competent jurisdiction; (3) there is a final judgment on the merits; and (4) the same cause of action is involved in both cases. McKinney, 936 S.W.2d at 281. The test for determining the fourth requirement is whether the two actions are based on the same nucleus of operative facts. Diaz, 185 S.W.3d at 42. However, even if all of these requirements are met, res judicata will not apply if the federal court lacked jurisdiction over the omitted state law claims, or possessed jurisdiction but would have, in its discretion, clearly declined to exercise that jurisdiction. McKinney, 936 S.W.2d at 281.
There is no dispute that the first three requirements are satisfied here. Therefore, we address only whether the same cause of action is involved in both cases. A review of the record shows that the two actions are, in fact, based on the same nucleus of operative facts. First of all, in his Plaintiff's Original Complaint filed in the federal court action Berg alleged that Symons sold counterfeit products using Berg's equipment and designs and that she advertised the products on the Hy O Silver website and in other media. Secondly, Berg's Proposed Findings of Fact and Conclusions of Law, which he submitted in the federal court action, refer in great detail to the parties' divorce decree. Also included are Symons's alleged actions in engaging in unfair practices after the divorce, including misrepresentations she made to Berg's customers; taking possession of Berg's telephone numbers; registering Berg's internet URL's; misappropriating Berg's name, designs, and "signature look"; using Berg's equipment, designs, artwork, artwork computer files and Berg's materials; and using funds for a contract for rodeo buckles. Thirdly, the federal court's Memorandum and Opinion likewise references in detailed and lengthy fashion the parties' divorce decree and the property division contained therein. The federal court set forth Symons's contentions regarding her jewelry business during and after the divorce in which she maintained she had an implied license to continue making and selling the jewelry designs based on the divorce agreement. Berg argued, however, that such a license would be contrary to the express terms of the divorce decree. In finding that Symons did not possess an implied license to use Berg's designs, the federal court considered the divorce decree's award of "rights and privileges" to Berg and the fact that the parties intended to make a final distribution of all property to show an intent that Berg would exercise exclusive control over the intellectual property of Bob Berg Buckles. The federal court then found that Symons had infringed certain of Berg's copyrights and assessed a statutory penalty of $80,000. In addressing the false advertising claim, the federal court considered Berg's claims that Symons falsely advertised in a letter that Berg was out of business, advertised Hy O Silver as a successor to Bob Berg Buckles, and wrongfully assumed the telephone numbers used by Bob Berg Buckles and Silverdales before the divorce. The federal court also recognized that several website domain names that had been registered to Bob Berg Buckles and Silverdales before the divorce were directed to the Hy O Silver website after the divorce. The federal court found, however, that Symons was not liable for false advertising.
We next examine the state court action and compare the nucleus of operative facts that were submitted and considered in the federal court with those that were presented in state court. In his Third Amended Original Petition filed in state court, Berg set forth the portions of the parties' divorce decree that awarded Bob Berg Buckles and Silverdales to him. He then alleges that after the divorce
[Symon] opened a rival business and embarked upon a course of action to deprive [Berg] of his business property and to ruin him financially by diverting opportunities and defrauding potential customers by representing that he was no longer working. [Symon] has appropriated and utilized properties and assets set aside to [Berg] in the Decree of Divorce, causing damage to [Berg] and his business, and unjustly enriching [Symon] and her business. Specifically, she has appropriated and utilized the intellectual property rights unique to [Berg] and his business when such rights were set aside to him in Paragraph H-6 of the Divorce Decree. These actions constitute separate, continuing torts over and above violations of the property division in the divorce decree.
At the hearing on the motion to dismiss in state court, the trial judge asked Berg's attorney numerous times to explain to the court what he was asking the state court to do that the federal court did not or could not address. Counsel responded, essentially, by stating that he was asking the court to enforce the property provisions of the divorce decree. The trial court then asked
What specifically, what asset is it that was awarded to your client, Mr. Berg, that Mrs. Berg used to damage your client that doesn't involve copyright issues and doesn't — and wasn't addressed by the [federal] court as being something that was owned by one or the other?
Berg's attorney responded that Symons used Berg's customer lists, phone numbers, federal express accounts, contracts with rodeos, websites, and sent out a letter saying Bob Berg Buckles is no longer in business. These are all issues, however, that were presented to and considered by the federal court. Comparing the federal court action to the state court action, we conclude that both involved the same nucleus of operative facts and thus res judicata precludes the state court action.
Berg further argues that the doctrine of res judicata is not applicable because the federal court "most probably lacked subject matter jurisdiction to address the issues regarding enforcement of the Final Decree of Divorce even if it wanted to," citing Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375 (1994). Kokkonen, however, was a case in which the Supreme Court held that the federal court lacked jurisdiction over a claim for breach of a settlement agreement, part of the consideration for which was dismissal of an earlier federal suit involving the alleged breach of an agency agreement. Id. at 381. The Supreme Court further found the doctrine of ancillary jurisdiction not applicable because the facts regarding the alleged breach of the settlement agreement were separate from the facts to be determined in the underlying suit. Id. Thus, Kokkonen is distinguishable from this case, which involves the property division in a divorce decree that one party — Berg — is attempting to enforce under both federal and state law and that involves proof of facts that are not at all dissimilar.
In determining whether the federal court here could exercise jurisdiction over the pertinent issues, we first note that "the court which granted the divorce does not have exclusive jurisdiction to hear a suit brought to enforce the property settlement agreement entered into upon divorce." Underhill v. Underhill, 614 S.W.2d 178, 180 (Tex.Civ.App.-Houston [14th Dist.] 1981, writ ref'd n.r.e.); In re Barnett, No. 04-05-00608-CV, 2005 WL 2138369, at *1 (Tex.App.-San Antonio, Sept. 7, 2005, orig. proceeding) (following Underhill). Thus, the issue is whether the federal court in the first action would clearly not have had jurisdiction to entertain the omitted state law theory or ground (or, having jurisdiction, would clearly have declined to exercise it as a matter of discretion). If this is the case, then a second action in a competent court presenting the omitted theory or ground should not be precluded. See Eagle Prop., Ltd. v. Scharbauer, 807 S.W.2d 714 (Tex. 1990); Jeanes v. Henderson, 688 S.W.2d 100, 104 n. 4 (Tex. 1985).
The Texas Supreme Court initially presumes the federal judge would have adjudicated the state law claims. See Mohamed v. Exxon Corp., 796 S.W.2d 751, 756 (Tex.App.-Houston [14th Dist.] 1990, writ denied) (interpreting Jeanes opinion). Only if the federal judge would have "clearly" declined to exercise pendent jurisdiction is preclusion inappropriate. Id. Here, there is no dispute that the federal court had jurisdiction over both the federal and state law claims asserted by Berg. And, the federal court actually adjudicated all the state-related claims brought by Berg against Symons. Thus, there is no indication the federal court would have declined jurisdiction, and we presume the federal court would have exercised its discretion, to consider all state-law claims arising from the same nucleus of facts as the federal claims. Consequently, we conclude Berg's state court action is barred by the doctrine of res judicata.
Collateral Estoppel
Berg also contends his state court action is not barred by the doctrine of collateral estoppel. The elements of collateral estoppel are: (1) the facts sought to be litigated in the second action were fully and fairly litigated in the first action; (2) these facts were essential to the judgment in the first action, and (3) the parties who litigated the issue in the first action were cast as adversaries. Eagle Prop. Ltd. v. Scharbauer, 807 S.W.2d 714, 721 (Tex. 1990). Here, the matters involved in the state court action, which concerned interpreting the parties' rights under the property division of the divorce decree and whether Symons's actions regarding the parties' respective businesses were actionable, were fully and fairly litigated and were essential to the federal court's judgment, which dealt with issues of copyright, trademark infringement, false advertising, and unfair competition. Thus, collateral estoppel is a bar to the state court action.
Attorney's Fees
After the trial court granted Symons's motion to dismiss on the grounds of res judicata and collateral estoppel, Symons filed a Motion to Assess Award of Attorneys' Fees. In that motion, Symons requested "reasonable and necessary attorney's fees and costs incurred in defending Berg's groundless and frivolous claims." After conducting a hearing on attorney's fees, during which Symons's counsel presented an affidavit to prove attorney's fees incurred, the trial court entered an Order requiring Berg to pay Symons's attorney's fees. The trial court also entered Findings of Fact and Conclusions of Law in which the court found that Berg engaged in a pattern of litigious behavior for the improper purpose of harassing Symons, he continued this suit despite his knowledge that the claims he brought were simultaneously being presented to and decided by the federal court, the federal court found that Berg filed repetitive legal actions consistent with his harassment of Symons, Berg's actions were an abuse of the court system, and he acted in bad faith.
We review the trial court's imposition of sanctions under an abuse of discretion standard. See Greene v. Young, 174 S.W.3d 291, 297 (Tex.App.-Houston [1st Dist.] 2005, pet. denied). Berg contends the trial court erred in granting attorney's fees because there is no statutory or common law basis for granting attorney's fees, and there were no pleadings on file pursuant to any rule or statute upon which sanctions could be imposed. Berg further argues that the evidence to support the award of attorney's fees was lacking in that the only evidence was an affidavit executed by Symons's attorney unaccompanied by supporting documentation.
A trial court's power to sanction for abuse of the legal process is not limited to that specifically conveyed in rules and statutes. Metzger v. Sebek, 892 S.W.2d 20, 50 (Tex.App.-Houston [1st Dist.] 1994, writ denied). Such a power may be implicit in a particular rule or statute, id., and trial courts have inherent power to sanction to the extent necessary to deter, alleviate, and counteract bad faith abuse of the judicial process, Williams v. Akzo Nobel Chem., Inc., 999 S.W.2d 836, 843 (Tex.App.-Tyler 1999, no pet.). Therefore, we disagree with Berg's argument that the trial court erred in assessing sanctions in the form of attorney's fees.
As to Berg's argument that the evidence is insufficient to support the award of attorney's fees, a review of the reporter's record from the hearing shows that Symons's attorney provided an affidavit on attorney's fees in which he testified that his fees were $37,682, resulting from 233.45 hours of work. Symons's attorney also testified at the hearing and was cross-examined by Berg's attorney regarding the amount of work he put into the case. The trial court then awarded, in the nature of a sanction, $25,000 in attorney's fees for trial; $10,000 for an appeal to the court of appeals; and $5,000 for an appeal to the Texas Supreme Court. Berg has cited no authority demonstrating any further documentation is required for the trial court to award such an amount as a sanction against Berg for filing a groundless and frivolous claim. Therefore, we find no abuse of discretion.
CONCLUSION
We conclude that the trial court did not err in dismissing Berg's state law claims under the doctrines of res judicata and collateral estoppel. Further, the trial court did not err in assessing attorney's fees as a sanction. We affirm the trial court's judgment.