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claiming the plaintiff did not honor its contracts with the defendants, was involving others in its disputes with the defendants, and did not pay its debts when due
Summary of this case from Nissan v. Abe's Paint & Body, Inc.Opinion
No. 3:94-CV-0088-R.
September 30, 2004
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This diversity action involves claims surrounding a contract between the plaintiff Insiders Edge, Inc. ( "Insiders Edge") and the defendant Institutional Research Services, Inc. (" IRS"). Also named as defendants are Raymond A. Hill, III (" Hill"), Suzanne Pruitt (" Pruitt") and PCS Securities, Inc. (" PCS").
The case also involves a counterclaim filed by the defendant IRS against Insiders Edge, Edge Securities, Inc. ("Edge"), Richard Horowitz (" Horowitz"), Nancy Horowitz (" N. Horowitz"), and Robert Horowitz ( "R. Horowitz").
The case was tried to the Court and these are the Findings of Fact and Conclusions of Law — as well as the credibility determinations concerning the witnesses who testified during the trial — under Rule 52 of the Federal Rules of Civil Procedure.
I. FINDINGS OF FACT
1. Insiders Edge is a small, privately-held, family-owned corporation founded in 1982. The shareholders of Insiders Edge are Richard Horowitz and his wife, Nancy Horowitz, who reside in Dallas, Texas. Richard Horowitz was well known in the industry in which Insiders Edge does business, and the Insiders Edge name was closely associated with Richard Horowitz.
2. Institutional Research Services, Inc., is a corporation, whose President and sole shareholder was at all times relevant to this action, Raymond A. Hill.
3. PCS Securities, Inc., is a brokerage firm owned by Hill and Suzanne Pruitt. Pruitt served as PCS's President at all times relevant to this action. Hill has served as a director of PCS at all times relevant to this action.
4. Edge Securities, Inc., is a securities brokerage firm owned by Nancy Horowitz. Since its inception, Robert Horowitz has been the President of Edge.
5. Insiders Edge's line of business, among other things, was to perform and conduct "niche research" on corporations whose stock was publicly traded concerning a variety of matters that institutional investors often consider in making investment decisions. Insiders Edge also drafted, edited, printed, published, and mailed monthly the result of this research in a document called " The Insiders Edge." Money managers of institutional investors who paid to receive The Insiders Edge were commonly called " Users." Insiders Edge's services to Users also included scheduled telephone conferences during each month to analyze and discuss the research and frequent "out calls." Additionally, a number of Users made many unscheduled calls to Insiders Edge throughout each month for more specific discussions and analysis.
6. Payment by Users for Insiders Edge's service was usually through an independent securities brokerage firm (" Broker"). An invoice was submitted to the Broker for the benefit of the User. The User paid the Broker by generating commissions on its trades. The Broker paid Insiders Edge on the invoice with some of the commissions. The remainder of the commissions were revenues for the Broker. This method of payment was known in the industry as "soft dollar payment." Payments could also be made in cash, without the use of a Broker.
Credibility of The Witnesses
7. Richard Horowitz and Nancy Horowitz were very credible witnesses, both with respect to the liability issues and the damages sought by the plaintiff. Their son, Robert Horowitz, was also a very credible witness.
8. The defendant, Raymond A. Hill, was not a credible witness. He lied during his testimony during trial, he lied in his answers to the plaintiff's interrogatories, and he was repeatedly impeached on cross-examination by the plaintiff's attorney. The Court discounts his testimony entirely.
9. The defendant, Suzanne Pruitt, was a credible witness. The Court credits her testimony, except to the extent it is inconsistent with these findings of fact.
10. The Court also credits the testimony of Robert Petrella, except to the extent that his testimony was contrary to these findings of fact.
Fraud in the 1989 Agreement
11. By 1988, Insiders Edge had an agreement (The "I/E-Autranet Agreement") with a Broker named Autranet. Pursuant to the I/E-Autranet agreement, Autranet was to market the Insiders Edge service to Users. Autranet, however, lacked the personnel to accomplish its marketing obligations. Accordingly, Autranet introduced Insiders Edge to Raymond Hill and requested that Insiders Edge allow Hill and IRS to perform its marketing obligations. Insiders Edge agreed. Thus, Hill and IRS became Insiders Edge's marketing agent beginning in the fourth quarter of 1988.
12. In 1989, IRS/Hill desired to become Insiders Edge's exclusive marketing representative. To induce Insiders Edge to enter into an exclusive marketing agreement with IRS and its agents, Hill and Robert Petrella "("Petrella"), represented to Insiders Edge that IRS, through the personal sales efforts of Hill and Petrella, would add new Users to the Insiders Edge service at the rate of approximately 60 per year and would aggressively market the Insiders Edge service on a worldwide basis. At the time they made these representations, Hill and Petrella knew such representations were false and that they had no intention of fulfilling these promises.
13. At the time of these negotiations, Hill owned a 49% share of PCS, one of Autranet's competitors, and effectively shared control of PCS with Pruitt. Hill and Pruitt had plans to expand PCS's business by ultimately moving Insiders Edge's brokerage business from Autranet to PCS.
14. Although Hill and IRS knew, or should have known, that Insiders Edge would consider Hill's relationship to PCS, the extent of such relationship, and Hill's plans to expand PCS's business to be material to its decision to enter into the 1989 Agreement, at no time during these negotiations did Hill and IRS disclose Hill's relationship to PCS to Insiders Edge.
15. In reliance upon these false promises — and without knowledge of Hill's relationship with PCS — Insiders Edge entered into a written agreement ("the 1989 Agreement") with IRS effective July 1989. Pursuant to the 1989 Agreement, IRS became the exclusive marketing agent for Insiders Edge.
16. As a result of the fraud practiced by IRS and Hill, Insiders Edge suffered damages in the amount of $1,087,500.00.
Breaches of the 1989 Agreement
17. Following execution of the 1989 Agreement, IRS did not use its best efforts to market Insiders Edge services. Rather than the personal, aggressive efforts of Hill and Petrella as promised, IRS marketed Insiders Edge services almost exclusively three entry-level salesmen. Moreover, IRS did not aggressively market Insiders Edge services worldwide. Accordingly, after 2-1/2 years under the 1989 Agreement, IRS had added less than 5 new clients for Insiders Edge.
18. If IRS had used its best efforts to market the Insiders Edge service, Insiders Edge would have earned at least an additional $1,456,650.00 net income.
19. Despite demand by Insiders Edge, IRS also failed to provide an accounting to Insiders Edge for all of the cash monies that IRS collected from Users for the Insiders Edge service subscriptions.
20. IRS collected at least $40,000.00 from Users for the Insiders Edge services — and Insiders Edge was entitled to receive 60.5% of this amount. IRS not only refused to remit this amount to Insiders Edge, it actually utilized these proceeds for its own benefit.
21. Insiders Edge suffered damages in the total amount of $1,480,850.00 as a result of IRS's breaches of the 1989 Agreement.
Breaches of the 1992 Agreement
22. The 1989 Agreement expired by its own terms on December 31, 1991. At that time, IRS and Hill began pressuring Insiders Edge to enter into a new marketing agreement. IRS sent Insiders Edge a proposed contract which provided that IRS would be Insiders Edge's exclusive marketing agent and IRS would have exclusive authority to designate the Broker to handle trades associated with the Insiders Edge service subscriptions. Insiders Edge refused to execute this agreement.
23. By October 1992, no agreement had been reached. Then, while negotiations were ongoing, IRS filed a lawsuit against Insiders Edge in the State Court in New York. IRS and Hill also made misrepresentations regarding Insiders Edge to one of Insiders Edge's important Brokers and threatened to make similar misrepresentations to other important business contacts of Insiders Edge.
24. Following these actions by IRS, and after extensive negotiations on December 17, 1992, the parties entered into a new written agreement (the "1992 Agreement"). Under this Agreement, IRS's right to market the Insiders Edge service was restricted only for renewals and only to thirty certain, specifically identified Users (the "IRS Users") — which would necessarily reduce over time. The agreement further provided that Insiders Edge had the right to designate a suggested Broker and that IRS had the obligation to use its best efforts to encourage Users to renew the Insiders Edge service through the Broker designated by Insiders Edge.
25. In late November of 1993, acting under the terms of the 1992 Agreement, Insiders Edge selected Edge Securities as the "suggested designated Broker" for 1994 renewals.
26. Because of the conflict of interest that Hill and other representative of IRS had — in that they had financial incentives to promote the business of PCS as a Broker — IRS objected to Edge becoming the designated Broker. IRS then anticipatorily breached the 1992 Agreement by advising Insiders Edge that — unless Edge guaranteed IRS "up front" payment of its renewal fees — IRS intended to contact Users and advise them to renew their Insiders Edge service subscriptions for 1994 using the same Broker as the User had identified in 1993. Under the 1992 Agreement, IRS had no right to insist upon being paid "up front."
27. Despite Insiders Edge's selection of Edge Securities, IRS then materially breached the 1992 Agreement (i) by telling Users that they could renew the Insiders Edge service with whichever Broker they used in 1993, (ii) by failing to encourage the use of Edge to any User, and (ii) by telling Users, when asked, that they should not and could not use Edge.
28. IRS further materially breached the 1992 Agreement by deleting Insiders Edge's signature block from the Dual Invoices required by that Agreement — and by sending out such redacted invoices for Insiders Edge services without Insiders Edge's approval, thereby inducing such Brokers to improperly remit monies to IRS.
29. IRS further materially breached the 1992 Agreement by suggesting to Users that they use PCS as a Broker — despite the fact that Insiders Edge had not approved PCS to be an authorized Broker for 1994 renewals.
30. Insiders Edge reasonably incurred damages by having to repair the relationships damaged by IRS's actions and to mitigate the damages suffered by Insiders Edge — which caused Insiders Edge additional damages in the amount of $638,871.00.
31. Insiders Edge also lost revenue from six Users as a result of the wrongful actions of IRS — which proximately caused Insiders Edge to lose revenues in the amount of $202,686.00.
32. As the result of IRS's breaches of the 1992 Agreement, Insiders Edge suffered damages in the total amount of $841,557.00.
Breaches of Fiduciary Duty
33. IRS and Hill breached their fiduciary duties to Insiders Edge by failing to disclose Hill's relationship to PCS prior to the execution of the 1989 Agreement.
34. IRS and Hill breached their fiduciary duties to Insiders Edge by failing to disclose and by concealing, during the term of the 1989 Agreement, the extent of Hill's involvement in and control over PCS.
35. IRS and Hill breached their fiduciary duties to Insiders Edge by failing to properly and fully account to Insiders Edge for the monies IRS and Hill collected with respect to the Insiders Edge service.
36. IRS and Hill breached their fiduciary duties to Insiders Edge by utilizing funds rightfully belonging to Insiders Edge for their own benefit.
37. IRS and Hill also breached their fiduciary duties to Insiders Edge by failing to encourage Edge as the designated Broker as instructed by Insiders Edge.
38. Insiders Edge suffered damages in the total amount of $1,953,257.00 as a proximate result of IRS's and Hill's breaches of their fiduciary duties.
Libel, Slander, Business Disparagement
39. IRS, Hill, Pruitt, and PCS ("the IRS Defendants") published to third parties statements which expressly and impliedly indicated that Insiders Edge had breached its contract with IRS, that Insiders Edge was drawing the Users and Brokers into its disputes with IRS, and that Insiders Edge was refusing to pay its just debts when due (the "Derogatory Statements").
40. Because of the industry's close association of Horowitz's name with Insiders Edge's business, the third parties to whom these Derogatory Statements were made understood that these statements referred to Horowitz.
41. These Derogatory Statements were false.
42. The IRS Defendants were not justified in making these Derogatory Statements.
43. The IRS Defendants made the Derogatory Statements with actual malice.
44. As a proximate result of Derogatory Statements, Insiders Edge and Horowitz suffered actual and special damages in the amount of $50,000.
Tortious Interference with Existing and Prospective Business Relationships
45. Insiders Edge had contractual relationships with IRS and Edge — and these contracts were known to the IRS Defendants at all material times.
46. With respect to the 1989 Agreement, Hill, Pruitt, and PCS were aware that IRS had an obligation to Insiders Edge (i) to use its best efforts to market Insiders Edge services to Users worldwide, (ii) to fully account to Insiders Edge for all monies due for Insiders Edge services, and (iii) to fully disclose Hill's conflict of interest. Hill, Pruitt, and PCS, however, induced IRS to breach these contractual obligations — intending to dissuade Autranet from exercising its option to renew Autranet's right to Insiders Edge's exclusive Broker — and thereby open the door to PCS to ultimately become Insiders Edge's Broker and increase PCS's business and, ultimately, the value of Hill's and Pruitt's ownership of PCS. Hill, Pruitt, and PCS knew that Insiders Edge would be harmed by IRS's breaches.
47. With respect to the 1992 Agreement, Hill, Pruitt, and PCS were aware of IRS's contractual obligations to Insiders Edge under the 1992 Agreement. Hill, Pruitt, and PCS, however, caused IRS to materially breach the 1992 Agreement by, among other things, (i) failing to encourage Edge to Users, (ii) sending redacted invoices in an attempt to improperly collect monies for Insiders Edge services, and (iii) attempting to renew Users' subscriptions to the Insiders Edge service for 1994 through PCS.
48. With respect to Edge, the IRS Defendants were also aware that Insiders Edge had a contract with Edge whereby Edge would operate as Insiders Edge's Broker for the Insiders Edge services marketed to Users. These actions by defendants interfered with this relationship and prevented Edge from serving as Insiders Edge's Broker for certain 1994 renewals.
49. The IRS Defendants contacted Brokers and Users and made the Derogatory Statements described above.
50. There was a reasonable probability that Edge would renew the six Users of Insiders Edge service who later cancelled, along with other Users who did not cancel.
51. In making the Derogatory Statements, the IRS Defendants acted willfully and intentionally.
52. None of the IRS Defendants were legally justified by legitimate business interests or needs to make the Derogatory Statements.
53. The IRS Defendants made the Derogatory Statements in bad faith.
54. The IRS Defendants knew, or should have known, that such actions — together with their misrepresentations to the Users that the Users could expect to receive the Insiders Edge service in 1994 on the same terms as had applied in 1993 — would cause Users to become confused and angry, and that Users would therefore be likely to not renew their subscriptions to Insiders Edge service, or that Insiders Edge would be required to expend additional time and effort to pacify these Users in an attempt to retain their business.
55. The IRS Defendants' action, in fact, caused six Users to refuse to renew their subscriptions to the Insiders Edge service and caused Insiders Edge to have to expend additional time and efforts to retain other Users for the Insiders Edge service.
56. As a proximate result of the IRS Defendants' interference with Insiders Edge's existing business relationships, Insiders Edge suffered actual damages in the amount of $841,557.00.
57. As a proximate result of the IRS Defendants' interference with Insiders Edge's prospective business relationships, Insiders Edge suffered damages in the amount of $841,557.00.
Conspiracy
58. Each of the IRS Defendants agreed to a plan or course of action to secure the exclusive right to market and broker Insiders Edge's business to Users by improper means.
59. In pursuit of their conspiracy, the IRS Defendants took the following overt acts:
a. Attempting in October 1992 to acquire both brokerage profits and marketing fees to which the IRS Defendants were not entitled — by having Pruitt, acting individually and as President of PCS — contact a User, Columbia Management, and renew a term of service which would expire at the end of November 1992. Unbeknownst to Insiders Edge, and without its approval or consent, PCS and Pruitt were offering terms and conditions not approved by Insiders Edge. In addition, PCS had not been authorized by Insiders Edge to act as its distributor for the Columbia business. Insiders Edge first learned of this unauthorized renewal when a check dated October 21, 1992, arrived from PCS. That check was immediately returned uncashed to PCS;
b. Causing, in late October 1992, an attorney representing IRS and Hill, John Zulack, to misrepresent Insiders Edge's position to Lehman Brothers — including referencing Lehman Brothers to a contract he knew to be bogus. As a result of the misrepresentations by IRS/Hill to Lehman Brothers, that important brokerage relationship of Insiders Edge was placed in jeopardy;
c. Threatening to contact other Brokers of Insiders Edge with similar misrepresentations regarding Insiders Edge;
d. Causing Pruitt, individually and in her capacity as the President of PCS, to contact Insiders Edge in Texas in December 1993 and state that PCS would give Insiders Edge more bonus money if Insiders Edge continued to use PCS as its intermediary Broker;
e. Causing IRS, commencing in December 1993, to send out misleading letters and redacted invoices to Brokers for the Insiders Edge service without the approval of Insiders Edge — and to follow up such invoices by having conversations with the recipients to induce the Brokers to issue improper checks;
f. Committing Insiders Edge to provide its 1994 services to Users through PCS against the express stated desire and will of Insiders Edge;
g. Causing PCS to mail statements to Users soliciting the purchase of Insiders Edge services for 1994, which PCS was expressly not authorized to solicit;
h. Having and causing communications with Users regarding Insiders Edge services that were intended to, and which have damaged the goodwill and credibility of Insiders Edge with Users, and offering them renewal terms for 1994 which were expressly not authorized by Insiders Edge;
i. Subsequently forcing Insiders Edge to go to the same Users and expend time and energy trying to rectify and repair the goodwill of Insiders Edge and to properly renew the Users then and in the future;
j. Causing IRS's counsel to send to Brokers the January 11, 1994, letters which contained some of the Derogatory Statements;
k. Communicating through IRS's agents and IRS's counsel, with a number of Brokers on January 11, 1994, and not disclosing to the Brokers that Insiders Edge had terminated IRS — and misrepresenting the facts to the Brokers, including the statement that IRS had not received a response from Insiders Edge, concerning the dispute; and
l. Causing PCS and Pruitt, acting in her individual capacity, to make unauthorized contacts with U.S. Trust and Society Bank (Ameritrust), as confirmed by PCS in a January 18, 1994, letter to Insiders Edge's counsel.Punitive Damages
60. The IRS Defendants each acted with malice or with reckless disregard to the rights of Insiders Edge and Horowitz in committing each and all of the above-described acts.
Insiders Edge Parties' Defenses
61. Insiders Edge, Inc., Edge Securities, Inc., Richard Horowitz, Nancy Horowitz, and Robert Horowitz (the "Insiders Edge Parties") did not tortuously interfere with IRS's existing business relationships.
62. The Insiders Edge Parties did not tortuously interfere with IRS's prospective business relationships.
63. All of the actions of the Insiders Edge Parties were justified by their own legitimate business interests and were taken in good faith. Moreover, Insiders Edge possessed an equal or superior right in the subject matter of the contract to which it is alleged to have interfered.
64. In this regard, Insiders Edge had a contractual right to have Users renew their contracts for Insiders Edge services on authorized terms and to have Edge encouraged as the Broker to the Users. When IRS materially breached its contractual obligations to obtain renewals on authorized terms and to otherwise fulfill its contractual obligations, Insiders Edge was justified in its action in contacting the Users to obtain the renewals on proper terms. Insiders Edge's actions did not go beyond the standards of fair play.
65. The Insiders Edge Parties did not conspire to freeze IRS out of the Insiders Edge renewal process, or to ruin IRS's relationships with financial institutions or Insiders Edge's subscribers or their broker-dealers, or to unfairly expropriate the IRS client base, market credibility or goodwill.
66. The Insiders Edge Parties have not secured an undue advantage to the detriment of IRS, and they did not fraudulently induce IRS to enter into the 1992 Agreement.
67. The Insiders Edge Parties did not act willfully or wantonly to injure and damage IRS.
68. Insiders Edge did not materially breach the 1992 Agreement prior to the time IRS materially breached this agreement.
Attorneys' Fees
69. Insiders Edge presented its demands to IRS more than 30 days prior to the trial of this matter, which IRS did not honor.
70. Insiders Edge retained the services of an attorney and it is entitled to recover reasonable and necessary attorneys' fees in connection with this matter. The Court directs Insiders Edge to file a motion for attorneys' fees stating the amount of attorneys' fees and expenses incurred in this matter within sixty (60) days of entry of these Findings of Fact and Conclusions of Law.
71. All conclusions of law deemed findings of fact are so incorporated.
II. CONCLUSIONS OF LAW
Jurisdiction Over Pruitt1. The Court has personal jurisdiction over Pruitt. First, Pruitt waived any objection to this Court's jurisdiction over her by failing to raise the issue in her first responsive pleading. Fed.R.Civ.P. 12(h)(1); Manchester Knitted Fashions, Inc. v. Amalgamated Cotton Garment and Allied Ind. Fund, 967 F.2nd 688, 691 (1st Cir. 1992). Second, under the facts of this case, the exercise of jurisdiction over Pruitt comports with due process.
2. The Texas long-arm statute reaches as far as federal constitutional requirements of due process permit; thus, this Court needs only to determine whether exercise of personal jurisdiction satisfies constitutional due process requirements.Command-Aire Corp. v. Ontario Mechanical Sales and Serv., Inc., 963 F.2d 90, 93 (5th Cir. 1992); Dominion Gas Ventures, Inc. v. N.L.S., Inc., 889 F. Supp. 265, 267 (N.D. Tex. 1995).
3. Constitutional due process has two components: (i) the defendant purposefully must have established minimum contacts with the forum state, invoking the benefits and protections of that states's laws and, therefore, reasonably could anticipate being haled into court there; and (ii) the exercise of personal jurisdiction under the circumstances must not offend traditional notions of fair play and substantial justice. Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102, 107 S. Ct. 1026, 94 L.Ed.2d 92 (1987).
4. Minimum contacts may result in either specific or general jurisdiction. Command-Aire, 963 F.2d at 94. Under specific jurisdiction, the Court may exercise jurisdiction over a nonresident defendant if such defendant (1) purposefully directs her activities at residents of the forum state, and (2) the plaintiff's claims arise out of the defendant's purposeful acts within the forum. Dominion Gas, 889 F. Supp. at 268.
5. In the present case, Pruitt purposefully and knowingly participated in the conspiracy to usurp Insiders Edge's right to designate the Broker(s) to handle the trades associated with the Insiders Edge service subscriptions and to thereby build PCS's business at Insiders Edge's expense. Many of Pruitt's overt actions in connection with this conspiracy were made during telephone conversations with Insiders Edge while Insiders Edge was located in Texas. Moreover, Pruitt plainly knew that the harm to Insiders Edge from all her actions would occur in Texas. Thus, because Insiders Edge's claims arise out of Pruitt's actions directed to Insiders Edge in Texas, this Court has specific jurisdiction over her.
Venue of Causes of Action re: 1989 Agreement
6. Venue of Insiders Edge's causes of action under the 1989 Agreement is proper. Pruitt, PCS, and Hill were not parties to the 1989 Agreement and therefore lack standing to challenge venue based upon the forum selection claims in the 1989 Agreement.See Camp v. Gress, 250 U.S. 308, 39 S. Ct. 478, 481, 63 L.Ed. 997 (1919); 15 Wright, Miller and Cooper, Federal Practice and Procedure § 3807 (1986). Moreover, IRS, Hill, and PCS waived any objection to venue by failing to raise such objection in their first defensive pleadings. Fed.R.Civ.P. 12(h)(1); Albany Ins. Co. v. Almacenodora Somex, S.A., 5 F.3d 907, 909 (5th Cir. 1993). Because Insiders Edge's First Amended Complaint raised causes of action based upon the 1989 Agreement, Insiders Edge's filing of its Second Amended Complaint did not operate to revive the previously waived objection. Gilmore v. Shearson/American Exp. Inc., 811 F.2d 108, 112 (2d Cir. 1987); Pratt v. Rowland, 769 F. Supp. 1128, 1132 (N.D. Cal. 1991) (defense of improper venue which defendant waived by failure to timely assert was not resurrected by plaintiffs' filing of an amended complaint). Finally, IRS waived any venue objection by being the party first to raise issues with respect to the 1989 Agreement in its First Counterclaim filed in January 1994. See Wright, Miller and Kane, Federal Practice and Procedure § 1416 at 123 (1990); Joseph Bancroft Sons Co. v. M. Lowenstein Sons, Inc., 50 F.R.D. 415, 420 (D. Del. 1970) (where defendant asserted counterclaim, he waived objection to venue with respect to plaintiff's responsive claims).
Choice of Law on Fraud Claim
7. Texas law applies to Insiders Edge's cause of action for fraud. In this regard, this Court must apply the Texas conflict of laws doctrine in deciding which law to apply to the claims raised in this action. Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S. Ct. 817, 822, 82 L.Ed. 1188 (1939); Kucel v. Walter E. Heller Co., 813 F.2d 67, 73 (5th Cir. 1987). With respect to tort claims, Texas courts have adopted the "most significant relationship" test formulated in the Restatement (Second) of Conflict of Laws § 145 (1971). Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 420 (Tex. 1984). Quality rather than quantity is paramount when applying the test. Gutierrez v. Collins, 583 S.W.2d 312, 318 (Tex. 1979).
8. The Restatement (Second) Conflicts (1971) Section 145, which has been adopted by Texas courts, provides:
(1) The rights and liabilities of the parties with respect to an issue in tort are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the occurrence and the parties under the principles stated in the § 6.
(2) contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include:
(a) the place where the injury occurred,
(b) the place where the conduct causing the injury occurred,
(c) the domicile, residence, nationality, place of incorporation and place of business of the parties, and
(d) the place where the relationship, if any, between the parties is centered.
These contacts are to be evaluated according to the relative importance with respect to a particular issue.
Restatement (Second) of Conflicts (1971), as quoted in Motorola, Inc. v. Hitachi, Ltd., 750 F. Supp. 1319, 1325 (W.D. Tex.)vacated, 923 F.2d 868 (1990).
9. With respect to Insiders Edge's fraud claim, the place where the injuries occurred is clearly and undisputedly Texas, where Insiders Edge is located. The place where the conduct causing the injuries occurred also includes Texas because the misrepresentations were made over the telephone to Insiders Edge, which was located in Texas as the time and, at least in one instance, made in person by representatives of IRS who traveled to Texas to meet with representatives of Insiders Edge. The place where the parties' relationship is centered is also in Texas. Insiders Edge is and always has been located in Texas. The product that was to be marketed worldwide by IRS is developed and prepared in Dallas, Texas. The actual delivery of the product that was to be marketed by IRS worldwide originated from Texas. Insiders Edge's product included a written report that was prepared in Texas and sent from Texas to customers both in Texas and throughout the nation and included conducting phone calls which were also generated from Dallas, Texas. Moreover, while IRS's office is located in New York, its marketing efforts were to be worldwide and were to involve personal contacts outside the State of New York, including contacts in the State of Texas.
10. Of the four factors cited in Section 145 of the Restatement, the only factor to significantly involve the State of New York is number three, (i.e., domicile, residence, nationality, place of incorporation and place of business of the parties) since IRS offices in New York. That factor, however, equally involves Texas, the locale of Insiders Edge.
11. Moreover, "the contacts are to be evaluated according to their relative importance with respect to a particular issue."Motorola, at 1325. Clearly, when addressing a claim of fraud under the 1989 Agreement, the most important contact should be the place of the injury, since that is what is being redressed. That place is undisputedly the State of Texas. Breaches of Fiduciary Duty
While it is true that the 1989 Agreement contains a provision that New York law should apply to "this agreement and any disputes arising from the transactions with regard to this agreement," such clause does not establish that New York law should be applied to Insiders Edge's tort claims. The court inCaton v. Leach Corp., 896 F.2d 939 (5th Cir. 1990), addressed a similar situation. There, the court held that the parties' narrowly drawn choice of law clause did not address the entirety of the parties' relationship and therefore applied the most significant relationship test to determine which law to apply.
12. As Insiders Edge's agent, IRS and Hill owed fiduciary duties to Insiders Edge. Lee v. Wal-Mart Stores, Inc., 943 F.2d 554, 558 n. 7 (5th Cir. 1991), opin. corrected, 951 F.2d 54 (5th Cir. 1992); Cristallina v. Christie, Manson Woods Intern'l, Inc., 117 A.D.2d 284, 502 N.Y.S.2d 165, 173 (N.Y.A.D. 1 Dept. 1986).
13. Given Hill and IRS's position as Insiders Edge's fiduciary, Hill and IRS had a duty to disclose Hill's relationship with PCS prior to execution of the 1989 Agreement and to fully disclose Hill's expanded relationship after the execution of the 1989 Agreement. Kinzbach Tool Co. v. Corbett-Wallace Corp., 160 S.W.2d 509, 514 (Tex. 1942) (one occupying a fiduciary relationship to another must measure his conduct by high equitable standards and is bound to disclose to his principal all material facts coming to his knowledge which affect the transaction upon which he represents the principal.) See also City of Fort Worth v. Pippen, 439 S.W.2d 660, 665 (Tex. 1969) (agent owes duty of loyalty and duty to make full disclosure); Cristallina, 502 N.Y.S.2d at 171 (agent has a duty to act in the utmost good faith and in the interest of its principal throughout their relationship and is subject to a duty to give his principal information which is relevant to the affairs entrusted to him and which, as the agent has notice, the principal would desire to have).
14. Hill and IRS breached their fiduciary duty to Insiders Edge by failing to disclose to Insiders Edge Hill's relationship to PCS and Hill's plans to expand PCS's business prior to the execution of the 1989 Agreement.
15. Hill and IRS also breached their fiduciary duty to Insiders Edge by failing to disclose to Insiders Edge the full extent of Hill's relationship to PCS during the term of the 1992 Agreement.
16. Hill and IRS also breached their fiduciary duty to Insiders Edge by failing to account to Insiders Edge for all monies received by IRS for the Insiders Edge services. Douglas v. Aztec Petroleum Corp., 695 S.W.2d 312, 319 (Tex.App.-Tyler 1985, no writ).
17. Hill and IRS also breached their fiduciary duty to Insiders Edge by knowingly failing to encourage Edge to Users as the Broker to handle the trades associated with their renewal of the Insiders Edge service subscription.
18. Insiders Edge is therefore entitled to judgment against Hill and IRS, jointly and severally, for damages in the amount of $1,111,700.00 for breaches of their fiduciary duties in connection with the 1989 Agreement and $841,557.00 for breaches of their fiduciary duties in connection with the 1992 Agreement. Fraud in the 1989 Agreement
19. Hill and IRS induced Insiders Edge to enter into the 1989 Agreement by fraud. To establish fraud, the plaintiff must prove that (1) the defendant made a false material representation that consisted of either a positive untrue statement of material fact, concealment of a material fact, or nondisclosure of a material fact that the defendant had a duty to disclose; (2) the defendant knew that material representation was false or made it recklessly without any knowledge of its truth; (3) the defendant made the false material representation with intent that it should be acted upon by the plaintiff; (4) the plaintiff acted in reliance thereon; and (5) the plaintiff suffered an injury. Norman v. Apache Corp., 19 F.3d 1017, 1022 (5th Cir. 1994); Ruebeck v. Hunt, 171 S.W.2d 895, 896 (Tex. Comm'n App. 1943), aff'd, 176 S.W.2d 738 (Tex. 1944).
20. IRS's and Hill's breaches of their fiduciary duty to Insiders Edge also constitute fraud on Insiders Edge. Stum v. Stum, 845 S.W.2d 407, 415 (Tex.App.-Fort Worth 1992, no writ).
21. As noted above, Insiders Edge has established each of these elements in the present case with respect to the promises IRS and Hill made to personally market Insiders Edge services worldwide and to obtain five new Users of the Insiders Edge service per month, and the omission to fully advise Insiders Edge of Hill's relationship to PCS.
22. Insiders Edge is thus entitled to judgment against IRS and Hill, jointly and severally, for damages in the amount of $1,087,500.00 on Insiders Edge's fraud claim.
Breaches of the 1989 Agreement
23. Implied as a term in the 1989 Agreement was an obligation on the part of IRS to use its best efforts to promote the sale of Insiders Edge's research product. In this connection, courts will imply a duty on the part of an exclusive licensee to use its best efforts to exploit the subject matter of the license where such a covenant is essential as a matter of equity to give meaning and effort to the contract as a whole. Vacuum Concrete Corp. v. American Mach. Foundry Co., 321 F. Supp. 771, 772 (S.D.N.Y. 1971). The seminal case isWood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88, 118 N.E.214 (1971). There, the defendant, a fashion designer, gave the plaintiff an exclusive contract to market the defendant's designs. The court implied an obligation to exploit the designs, although there was not an express obligation to do so in the contract, because defendant's sole revenue from the grant of the exclusive agency was to be derived from the plaintiff's sales of the clothes designed by defendant, and defendant was thus at the plaintiff's mercy. Id. at 215. See also Popkin v. National Ben. Life Ins. Co., 711 F. Supp. 1194, 1202 (S.D.N.Y. 1989);Cristallina v. Christie, Manson Woods Intern'l, Inc., 117 A.D.2d 284, 502 N.Y.S.2d 165, 173 (N.Y.A.D. 1 Dept. 1986) (sales agent has an implied good-faith obligation to use his best effort to promote the principal's product); Griffin Evans Cosmetic Marketing, Inc. v. Madeleine Mono Ltd., 73 A.D.2d 957, 424 N.Y.S.2d 269, 270 (N.Y.A.D. 2 Dept., 1980) (same).
24. The 1989 Agreement gave IRS the exclusive right to market the Insiders Edge service worldwide. In this connection, paragraph 4(a) of the 1989 Agreement defines "IRS Users" to mean "all users . . . who receive the Insiders Edge service . . . during the Period of Representation (whether introduced by IRS or not). Paragraph 4(f) requires Insiders Edge to refer all inquiries or leads regarding potential sales of the Insiders Edge service to IRS. Finally, paragraphs 4(d) and 6(a) require Insiders Edge to pay IRS the agreed upon marketing fee for all sales of the Insiders Edge service during the term of the agreement. These provisions effectively preclude Insiders Edge from contracting with any other marketer during this period. IRS thus had an obligation to use its best effort in marketing Insiders Edge services.
25. IRS breached the 1989 Agreement by failing to make its best efforts to market the Insiders Edge service. Griffin, 424 N.Y.S.2d at 270 (failure to use best efforts to promote principal's product constitutes a breach of contract).
26. IRS further breached the 1989 Agreement because IRS and Hill, as Insiders Edge's agents, breached their fiduciary duty to Insiders Edge as set forth above. Cristallina, 502 N.Y.S.2d at 171 (breach of fiduciary duty constitutes a breach of the agency contract).
27. IRS further breached the 1989 Agreement by failing to fully account to Insiders Edge for all monies collected by IRS for the Insiders Edge service. In this regard, the 1989 Agreement provides:
5. Service Income. Service Income shall be the total amount of compensation paid by IRS Users for [Insiders Edge's] Services, whether the compensation is paid in cash, in commissions or other consideration. . . .
* * *
6. Compensation
* * *
(d) [Insiders Edge] and IRS shall receive their Pro Rata Share of all Service Income other than compensation paid in commissions to a broker-dealer, regardless if the Service Income is paid initially to [Insiders Edge], IRS or a third party.
* * *
8. Books and Records. Each party agrees that it will keep accurate and complete records and books of account showing all income it receives relating to this agreement. Each party or its representative, shall have the right at all reasonable times to inspect and make copies of the books and records of the other party . . . IRS was thus required to account to Insiders Edge for all monies it received for Insiders Edge services. IRS failed to account for or pay Insiders Edge its 60.5% share of $40,000.00 IRS received for Insiders Edge services.
28. Insiders Edge is thus entitled to judgment against IRS in the amount of $1,480,850.00 in damages for IRS's breaches of the 1989 Agreement.
Breaches of the 1992 Agreement
29. IRS breached the 1992 Agreement by (1) failing to encourage Users to use Edge as the suggested designated Broker as provided for in paragraph 5; (2) offering Users renewal terms for 1994 which were expressly not authorized by Insiders Edge; and (3) redacting the Insiders Edge-IRS Dual Invoices provided for in the 1992 Agreement by removing the Insiders Edge signature block and thereby misleading third-party recipients into making unauthorized payments to IRS.
30. Each of these breaches was material. In this connection, a material breach is one that goes to the essence of the contract.Ennis v. Interstate Distributors, Inc., 598 S.W.2d 903, 906 (Tex.Civ.App.-Dallas 1980, no writ). Here, Interstate Edge's right to control the suggested designated Broker and to have its services marketed on the terms and conditions it set forth was essential to Insiders Edge's decision to enter into the 1992 Agreement. The importance placed by Insiders Edge on these rights was evident. First, in connection with the negotiation of the 1989 Agreement, Insiders Edge refused to relinquish control of the designation of the Broker to handle trades associated with Insiders Edge's service subscriptions absent IRS acquiring a substantial number of new Users and increasing Insiders Edge's existing revenues significantly. Second, during the negotiations prior to the execution of the 1992 Agreement, Insiders Edge refused to agree to a provision allowing IRS the right to designate the Broker but instead, explicitly kept that right to itself. Third, Insiders Edge insisted upon a provision in the 1992 Agreement stating that all renewals were to be made on terms/conditions and pricing established by Insiders Edge and further established the Dual Invoicing system in an effort to police IRS's activities and to ensure that the Insiders Edge service would be renewed on terms and conditions dictated by Insiders Edge, not IRS. [See 1992 Agreement ¶¶ 2 and 4]. Fourth, Insiders Edge had insisted upon the Freedom of Action clause which clarifies that Insiders Edge is authorized to contact its own Users, including those also identified as IRS Users, in connection with new offerings such as Edge. [See 1992 Agreement ¶ 6] Finally, Insiders Edge had a substantial and legitimate interest in seeking for itself and its affiliates additional substantial percentages from the overall available revenue generated by the sales of the Insiders Edge service.
31. Insiders Edge did not breach the 1992 Agreement by failing to require that Edge pay IRS its marketing fee in cash as soon as the User confirmed the renewal of the Insiders Edge service subscription. The 1992 Agreement did not obligate Insiders Edge to ensure that the suggested Broker pay IRS its marketing fee at any particular time, much less on the "up front" basis IRS was demanding.
32. IRS therefore apparently requests that the Court rewrite the parties' agreement by implying a term which the parties plainly intended to omit. The Court is not at liberty to do so.
33. In this connection, the court in Kutka v. Temporaries, Inc., 568 F. Supp. 1527, 1535 (S.D. Tex. 1983), stated:
In order for a court to read additional provisions into a contract, the implication must clearly arise from the language used, to be indispensable to effectuate the intent of the parties. It must appear that the implication was so clearly contemplated by the parties that they deemed it unnecessary to express it. Danciger Oil Refining Co. v. Powell, 137 Tex. 484, 154 S.W.2d 632 (1941); Calvin v. Koltermann, Inc. v. Underream Piling Co., 563 S.W.2d 950 (Tex.Civ.App. — San Antonio 1977, writ ref'd n.r.e.); Kingsley v. Western Natural Gas Co., 393 S.W.2d 345 (Tex.Civ.App.-Houston 1965, writ ref'd n.r.e.). The contract must stand as written, unless to do so would do violence to the manner in which the intent of the parties is expressed in the instrument as a whole. Stalcup [v. Eastham], 330 S.W.2d [237], 239 [ (Tex.Civ.App.-El Paso 1959, writ ref'd n.r.e.)] Id. at 1535.
34. Nothing in the 1992 Agreement implies that the parties intended Insiders Edge to have the obligation IRS now seeks to impose. Nor is such obligation indispensable to effectuate the intent of the parties. As the evidence indicates, based upon an effective rate of interest, the timing of IRS's receipt of its commissions is not material. Moreover, the parties clearly contemplated whether to include a provision requiring Insiders Edge to guarantee IRS "up front" payments and chose to exclude it from the final writing. The parties also included in the 1992 Agreement an integration clause stating that the parties' entire agreement is set forth in the written document.
35. Instead, the express provisions of the 1992 Agreement indicate that no such term was intended by the parties. In this connection, paragraph 5 of the agreement provides that "IRS readily accepts the fact of Insiders Edge's right to `suggest designated brokers'" and contains no limitation on who Insiders Edge may designate. To now rewrite the contract to add a provision that the Broker Insiders Edge chooses must pay IRS "up front" would restrict Insiders Edge's choices to only Brokers who would agree to this condition. There is no evidence that the parties intended such result.
36. Nor may IRS imply an "up front" payment obligation from the parties' conduct with respect to the 1993 renewals. First, there is no evidence that Insiders Edge guaranteed in 1993 that IRS would be paid its commissions by the Brokers at any certain time. Thus, the mere fact that IRS received its payments from Brokers in 1993 shortly after confirmation of the User's renewal, does not establish that Insiders Edge somehow had an obligation to ensure the timing of such payments in the future. Second, even if Insiders Edge somehow ensured IRS's receipt of "up front" for 1993 renewals, Insiders Edge is not bound to ensure continuation of such timing absent a contractual provision requiring it to do so. See Sun Oil Co. v. Madeley, 626 S.W.2d 726, 734 (Tex. 1981) (holding lessor's conduct in making payments to which lessees were not entitled under their agreement did not create a right for the lessees to continue receiving such payments in perpetuity).
37. For each of the foregoing reasons, IRS may not now attempt to alter the terms of the 1992 Agreement or insert terms that the parties omitted from their written agreement. See Smith v. Smith, 794 S.W.2d 823, 827-28 (Tex.App.-Dallas 1990, no writ) (where integration clause existed, court refused to allow party to add terms to a contract that were not there when the contract was executed because it would impermissibly create a new contract between the parties).
38. Thus, when IRS materially breached the 1992 Agreement, Insiders Edge had the right to terminate the agreement without further obligation to IRS.
39. Insiders Edge is entitled to judgment against IRS for damages for IRS's breaches of the 1992 Agreement in the total amount of $841,557.00.
Libel and Slander
40. Libel is:
[A] defamation expressed in written . . . form that . . . tends to injure a living persons' reputation and thereby expose the person to public . . . ridicule, or financial injury or to impeach any person's honesty, integrity, virtue or reputation. . . . Tex. Civ. Prac. Rem. Code § 73.001. Slander is defamatory statement orally communicated or published to a third person without legal excuse. Halbert v. City of Sherman, Tex., 33 F.3d 526, 530 (5th Cir. 1994).
41. The Derogatory Statements constitute libel and slander per se because they expressly or impliedly state that Insiders Edge does not honor its contracts or pay its bills as they become due.See Sanders v. Hall, 55 S.W. 594, 595 (Tex.Civ.App. 1899, writ denied); Burton v. O'Niell, 25 S.W. 1013, 1014 (Tex.Civ.App.-Fort Worth 1894, no writ) (letters, sent in open envelopes and read by others, that had endorsed on them words referring to debt collection agency, held libelous per se).
42. A statement is made with actual malice, if it is made with knowledge of its falsity or with reckless disregard for its falsity. New York Times v. Sullivan, 376 U.S. 254, 84 S. Ct. 710, 11 L.Ed.2d 686 (1964); Snead v. Redland Aggregates Ltd., 998 F.2d. 1325, 1332 n. 9, (5th Cir. 1993). The existence of actual malice may be demonstrated in numerous ways and any competent evidence, either direct or circumstantial, will support a finding of actual malice. Herbert v. Lando, 441 U.S. 153, 165 n. 12 (1979).
43. For example, in Brown v. Perolite Corp., 965 F.2d 38 (5th Cir. 1992), the court held that evidence that a party was losing business to the plaintiff and was thus compelled to develop a strategy to rebut the plaintiff's success and then made statements which it should have known were false, established that the defendant had acted with actual malice.
44. Here, Hill and Pruitt knew that if Insiders Edge were allowed to designate Edge as the Broker, PCS would lose business. When their efforts to dissuade Insiders Edge from using Edge with financial incentives failed, they defamed Insiders Edge to the Users and Brokers in an effort to dissuade the Users and Brokers from using Edge and to pressure Insiders Edge into continuing to allow PCS to offer Insiders Edge service to Users. The IRS Defendants knew the Derogatory Statements were false. The evidence is further sufficient to support the finding that the IRS Defendants acted with actual malice.
45. As noted above, Insiders Edge and Horowitz have proved each of the elements of their libel and slander claims. Insiders Edge and Horowitz are therefore entitled to judgment against the IRS Defendants, jointly and severally, for damages proximately suffered in the amount of $50,000.00 on their claims for libel and slander.
46. To establish a claim for business disparagement, Insiders Edge must prove that the defendant published disparaging words about Insiders Edge which were false, made with malice and without privilege, and that Insiders Edge suffered special damages. Hurlbut v. Gulf Atlantic Life Ins. Co., 749 S.W.2d 762, 766 (Tex. 1987). The disparaging words need not be actionable as defamation. Gulf Atlantic Life Ins. Co. v. Hurlbut, 696 S.W.2d 83, 96 (Tex.App.-Dallas, 1985), rev'd on other grounds, 749 S.W. 2d 762 (Tex. 1987).
47. As noted above, Insiders Edge has established each of the elements of this cause of action. Insiders Edge is therefore entitled to judgment against the IRS Defendants, jointly and severally, for damages it proximately suffered in the amount of $50,000.00 on its claim for business disparagement.
Tortious Interference with Business Relationships
48. To establish a claim for tortious interference with business relationships, a plaintiff must prove (1) the existence of a contract subject to interference; (2) willful and intentional interference with that contract; (3) the intentional interference was a proximate cause of plaintiff's damages; and (4) actual damage or loss occurred. Wardlaw v. Inland Container Corp., 76 F.3d 1372, 1375 (5th Cir. 1996);Potomac Ins. Co. v. Peppers, 890 F. Supp. 634, 642 (S.D. Tex. 1995); Victoria Bank Trust Co. v. Brady, 811 S.W.2d 931, 939 (Tex. 1991); Armendariz v. Mora, 553 S.W.2d 400, 404 (Tex.Civ.App.-El Paso 1977, writ ref'd n.r.e.).
49. The intentional act of interference may be met by showing that the interfering party had actual knowledge of the existence of a contract and of the plaintiff's interest in such contract or that the interfering party had knowledge of such facts and circumstances that would lead a reasonable person to believe in the existence of such contract. Potomac, 890 F. Supp. at 643.
50. Malice is not an element of the plaintiff's prima facie case. See Sterner v. Marathon Oil Co., 767 S.W.2d 686, 690 (Tex. 1989) (holding that the absence of malice is an affirmative defense that must be pled and proven by the defendant).
51. As noted above, Insiders Edge has established each of these elements. Insiders Edge is thus entitled to judgment against the IRS Defendants, jointly and severally, for damages it proximately suffered as a result of the wrongful actions in the amount of $841,557.00 on Insiders Edge's tortious interference with business relationship claim.
Tortious Interference with Prospective Business Relationships
52. To establish a claim for tortious interference with prospective business relationships, a plaintiff must prove (1) there was a reasonable probability that the plaintiff would enter into a contract but for the defendant's interference; (2) the defendant acted intentionally and improperly; (3) lack of privilege or justification by defendant to do the act; and (4) the interference resulted in actual harm or damage to the plaintiff. Lone Star Steel Co. v. Wahl, 636 S.W.2d 217, 222 (Tex.App.-Texarkana 1982, no writ).
53. As noted above, Insiders Edge has established each of these elements. Insiders Edge is thus entitled to judgment against the IRS Defendants, jointly and severally, for damages it proximately suffered as a result of the wrongful actions of the IRS Defendants in the amount of $841,557.00. Insiders Edge's tortious interference with prospective business relationship claim.
Conspiracy
54. The essential elements of civil conspiracy are (1) two or more persons; (2) an object to be accomplished; (3) a meeting of minds on the object or course of action; (4) one or more unlawful overt acts; and (5) damages as the proximate result. Massey v. Armco Steel Co., 652 S.W.2d 932, 934 (Tex. 1983).
55. As noted above, Insiders Edge has established each of these elements. Insiders Edge is therefore entitled to judgment against the IRS Defendants, jointly and severally, for the damages found above for fraud, breach of the 1989 Agreement and breach of the 1992 Agreement, breach of fiduciary duty, libel and slander, business disparagement, and tortious interference with existing and prospective business relationships.
Punitive Damages
56. The evidence is sufficient to support the finding that the IRS Defendants acted with both actual and common law malice in committing the tortious acts complained about by Insiders Edge and Horowitz. Insiders Edge and Horowitz are therefore entitled to judgment against IRS, Hill, Pruitt, and PCS for punitive damages in the amount of $3,000,000.00.
57. Insiders Edge is entitled to a declaratory judgement that: (a) IRS has materially breached and engaged in an anticipatory breach of the 1992 Agreement and Insiders Edge therefore lawfully terminated IRS's rights and role under the 1992 Agreement; and (b) Insiders Edge owes no sums to IRS pursuant to the 1992 Agreement, because of the IRS's prior material breaches and other acts and omissions and because of IRS's anticipatory repudiation and/or breaches of the 1992 Agreement and/or its breaches of fiduciary duty.
Insiders Edge Parties' Defense
58. IRS is barred from obtaining any equitable or injunctive relief by the doctrine of unclean hands and because it cannot return Insiders Edge to the status quo.
59. Insiders Edge did not breach the 1992 Agreement. First, Insiders Edge's letters dated December 1, 1993, did not breach the 1992 Agreement. IRS alleges that Insiders Edge was prohibited from contacting its own Users regarding the renewal of the Insiders Edge service. IRS's interpretation is not based upon the plain reading of the 1992 Agreement and ignores that Insiders Edge necessarily had contacts with the Users on a routine basis laying the groundwork to enable IRS to ultimately obtain the desired renewal.
60. The provision IRS contends prohibits Insiders Edge's contacts provides: "[IRS] is exclusively authorized to contact all IRS Users for the purpose of securing renewals to the [Insiders Edge] service." Under a plain reading of this provision, Insiders Edge is agreeing only to give IRS the exclusive right as against all other third party marketers to market the Insiders Edge service to these Users. It was not agreeing that it could not contact its own Users.
61. Insiders Edge's interpretation is further supported by paragraph 6 entitled "Freedom of Action Clarification." Paragraph 6 explains that Insiders Edge will be handling sales activities for IRS Users for "new offerings inside or outside [Insiders Edge] in which any Insiders Edge officer might be involved" and implied that Insiders Edge will necessarily be contacting the IRS Users regarding these new offerings. Edge is a new offering in which an Insiders Edge officer was involved. Insiders Edge was therefore expressly authorized to contact IRS Users to advise them of Edge. Moreover, the letters themselves plainly dispute IRS's claim that they constituted a contact for the purpose of securing a renewal, because they state that "[w]hen in the future you are contacted for renewal, we would appreciate your trying to help as outlined above." Also, any alleged breach of the 1992 Agreement by Insiders Edge prior to any material breaches by IRS were not material, as the letters complained about would have actually facilitated, not hindered, IRS's proper renewal of the Insiders Edge service for 1994.
62. IRS is barred by their own prior material breaches of the contract from collecting damages for any alleged breaches by Insiders Edge because of IRS's own breaches of fiduciary duty. In this connection, Section 467 of the Restatement of Agency provides:
An agent is entitled to no compensation for conduct which is disobedient or which is a breach of his duty of loyalty; if such conduct constitutes a wilful and deliberate breach of his contract of service, he is not entitled to compensation even for properly performed services for which no compensation is apportioned.See also Douglas v. Aztec Petroleum Corp., 695 S.W.2d 312, 319 (Tex.App.-Tyler 1985, no writ) (holding that denial of compensation due an agent under the principal agent contract is the proper legal consequence of the agent's wilful breach of his fiduciary duty).
63. Here, IRS wilfully and deliberately breached its contractual obligation to encourage Insiders Edge's suggested designated Broker to IRS Users. IRS's wilful disobedience vitiates any obligation Insiders Edge had to compensate IRS for its services under the 1992 Agreement.
64. Insiders Edge Parties did not tortiously interfere with IRS's existing business relationships.
65. Insiders Edge Parties did not tortiously interfere with IRS's prospective business relationships.
66. Moreover, Insiders Edge was legally justified to send the December 1, 1993, letters. As noted above, the Freedom of Action Clarification clause in the 1992 Agreement expressly authorizes Insiders Edge to contact IRS Users for new offerings such as Edge. Thus, because Insiders Edge had a legal right to make these contacts, even if IRS could demonstrate that such contacts somehow interfered with their existing and/or prospective contracts, Insiders Edge is nevertheless entitled to judgment in its favor on IRS's claims. See Wardlaw, 76 F.3d 1372, 1378 (5th Cir. 1996) (where trial court finds as a matter of law that the defendant had a legal right to take the complained of action, the defendant has conclusively established the justification defenseO.
67. The Insiders Edge Parties did not conspire to freeze IRS out of the Insiders Edge renewal process, ruin IRS's relationships with financial institutions or Insiders Edge Subscribers or their broker-dealers, or unfairly expropriate the IRS client base, market credibility, or goodwill.
68. The Insiders Edge Parties have not secured an undue advantage to the detriment of IRS.
69. The Insiders Edge Parties did not fraudulently induce IRS to enter into the 1992 Agreement.
70. The Insiders Edge Parties did not act willfully or wantonly to injure and damage IRS.
71. IRS is not entitled to any form of relief requested in the prayer contained in its Amended Counterclaim. Attorney Fees and Final Judgment
72. Insiders Edge is directed to file a Motion for Attorneys Fees stating the amount of attorneys' fees and expenses incurred in the trial of this matter within sixty (60) days from the date of entry of these Findings of Fact and Conclusions of Law. It is also directed to submit a Final Judgment in accordance with these Findings and Conclusions.
It is so ORDERED.