Opinion
CIVIL NO. A-98-CA-770 JRN.
April 4, 2001.
SEALED REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
This Court submits this Report and Recommendation to the United States District Court pursuant to 28 U.S.C. § 636(b) and Rule 1 of Appendix C of the Local Court Rules of the United States District Court for the Western District of Texas, Local Rules for the Assignment of Duties to United States Magistrate Judges, as amended, effective January 1, 1994.
I. Background
This is a suit filed by Staktek Corporation against Samsung Electronics Co., Ltd. ("SEC") and Samsung Semiconductor, Inc. ("SSI") alleging a series of state law claims. Before the Court are eight motions filed by both parties for partial summary judgment. The motions at issue are:
The Court will refer to SEC and SSI jointly as "Samsung" throughout this report.
1. Samsung's Motion for Partial Summary Judgment on Staktek's Breach of Contract Claim Dual Die (Dual Die is not stacking technology) (Clerk's Doc. Nos. 12; 293);
2. Staktek's Motion for Partial Summary Judgment Determining Whether Dual Die is Stacking Technology (Clerk's Doc. No. 306);
3. Staktek's Motion for Partial Summary Judgment Dismissing Samsung's Counterclaims (Clerk's Doc. No. 292);
4. Samsung's Motion for Partial Summary Judgment on Staktek's Claim of Libel and Slander (Clerk's Doc. No. 299);
5. Samsung's Motion for Partial Summary Judgment on Fraud Based on Samsung's Intent not to Abide by the Agreement (Clerk's Doc. No. 295);
6. Samsung's Motion for Partial Summary Judgment on Staktek's Claim of Fraud Based on Pre-Contractual Negotiations (Clerk's Doc. No. 297); and
7. Samsung's Motion for Partial Summary Judgment on Staktek's Fraud Claim Based on Press Release (Clerk's Doc. No. 301)
8. Staktek's Motion to Strike Affirmative Defense of Breach of Contract (Clerk's Doc. No. 327).
In its May 1, 2000 Sealed Order and Report and Recommendation, the Court also reserved ¶ 9 of Samsung's Emergency Motion to Strike and Supplement to Their Motion to Exclude Potential Evidence or Alternatively Motion for Continuance and to Their Motion to Exclude the Expert Testimony of Askins, Boone, Cady, and Saucedo (Clerk's Doc. No. 377) to be ruled on in conjunction with Samsung's motion for summary judgment on the libel and slander claims.
II. The Parties' Cross Motions on Staktek's "Dual Die" Breach of Contract Claim.
Samsung moves for partial summary judgment with respect to Staktek's breach of contract claim as it relates to Samsung's "dual die" technology (Clerk's Docket Nos. 12 293). Samsung requests that this Court rule that Samsung's development of the dual die technology does not constitute a breach of the Agreement. For its part, Staktek has also moved for summary judgment with respect to this issue, alleging that Samsung's dual die module is "stacking technology," and thus Samsung's development of the dual die device violates ¶ 4 of the parties' November 5, 1997 Agreement, which prohibits Samsung from "manufactur[ing] or offer[ing] for sale any stacking technology using plastic encapsulated memory products other than Staktek's stacking technology."Samsung manufactures plastic encapsulated dynamic random access memory (DRAM) products, or "packaged memory chips," which are used as memory for computers. A packaged memory chip has three components: (1) the "die," which is the individual integrated circuit; (2) the plastic encapsulation which surrounds and protects the silicon die; and (3) the leads, which permit the package to be connected to a circuit board. In 1998, Samsung developed a "dual die" technology. It is undisputed that Samsung's "dual die" memory module consists of two DRAM die that are joined both physically and electronically, and then encapsulated in a single plastic package. Thus, the dual die module is a single plastic encapsulation of two die. The issue presented by the cross motions for summary judgment on this point is whether such a dual die module is "stacking technology" as defined by the parties' Agreement.
Staktek argues that the dual die technology is "stacking technology" as that term is used in ¶ 4 of the Agreement. As the Court has ruled in a prior Report and Recommendation, the Agreement specifically defines "stacking technology" as "modules of tightly joined groups of two or more packaged integrated circuits." See January 20, 2000 Sealed Report and Recommendation of the United States Magistrate Judge at 6 (Clerk's Doc. No. 246), adopted by District Court on February 23, 2000 (Clerk's Doc. No. 275). Staktek's argument is that the dual die module consists of two die within a single plastic encapsulation that are "tightly joined," and it therefore constitutes stacking technology. Samsung responds that this interpretation ignores the fact that "tightly joined" modifies the phrase "groups of two or more packaged integrated circuits." Agreement at 1 (emphasis added). Samsung contends that the plain language of the Agreement defines "stacking technology" to only include joining packaged integrated circuits, and does not include joining two unpackaged or "raw" die.
Staktek attempts to avoid Samsung's argument by making the surprising claim that the definition of "stacking technology" in the Agreement "is not and was not intended to be a complete definition of all existing or possible stacking technology." Staktek's Response to Samsung's Renewed Motion for Partial Summary Judgment (Clerk's Docket No. 371) at 15-16. Staktek argues that the description of stacking technology in the Agreement is "essentially a broadly expressed description of the stacking technology Staktek uses in its primary commercial applications." Id. Staktek contends that at the time the Agreement was executed it intended that the Agreement would prevent Samsung from manufacturing "any" stacking technology, not just the stacking of individually packaged integrated circuits. This argument is surprising because it is inconsistent with several prior pleadings Staktek has filed in this case. For example, in Staktek's Response to Samsung's Motion for Summary Judgment on the Shrink TSOP claim filed on December 15, 1999 (Clerk's Docket No. 195), Staktek stated that "the parties broadly defined `stacking technology' to mean `tightly joined groups of two or more packaged integrated circuits'" and that "[i]t remained a broad definition covering all forms of creating `tightly joined groups of two or more packaged integrated circuits.'" See id. at p. 9, 15. Further, in the briefing on this very motion, Staktek stated hat "`Stacking technology' was defined in the first `whereas' clause of the Agreement as `modules of tightly joined groups of two or more packaged integrated circuits.'" Memorandum in Support of Plaintiff Staktek Corp.'s Motion for Partial Summary Judgment (Clerk's Doc. No. 320) at 3.
The Agreement is not ambiguous on this point. The Agreement clearly defines "stacking technology" only once, and it contains no language stating that this definition is applicable to some parts of the Agreement but not to others, as Staktek now urges. If such a limitation were intended, it could have been, and would have been, stated. When the same words are used throughout a contract, those words are to be given the same meaning in each instance where they are used. Matador Petroleum Co. v. St. Paul Surplus Lines Ins. Co., 174 F.3d 653, 657-58 (5th Cir. 1999); National Ropes, Inc. v. National Driving Serv., Inc., 513 F.2d 53, 58 (5th Cir. 1975). This would seem to be particularly true when the contract actually defines the phrase, as is the case here. Staktek's attempt to have the Court interpret "stacking technology" to sometimes mean exactly what the Agreement defines it to mean, but other times to mean something else (e.g., in ¶ 4) is inconsistent with the plain language of the Agreement and with principles of contract construction. As the Court as stated before, Staktek's alleged intent regarding the definition of stacking technology is irrelevant in light of the clear and unambiguous definition of "stacking technology" contained in the Agreement. In the absence of ambiguity, "the writing alone will be deemed to express the intention of the parties, and objective intent rather than subjective intent controls." Burns v. Exxon Corp., 158 F.3d 336, 340 (5th Cir. 1998) (citing Sun Oil Co. (Del.) v. Madeley, 626 S.W.2d 726, 728 (Tex. 1982)).
In its January 21, 2000 Report and Recommendation at 7, the Court, citing Shelton v. Exxon Corp., 921 F.2d 595, 603 (5th Cir. 1991), noted that "the circumstances surrounding the execution of this contract were that `these were sophisticated parties with able counsel on both sides.' Moreover, the fact that the parties were engaged in litigation at the time they executed the Agreement, and were represented by counsel, suggests that they chose their words carefully with knowledge that the Agreement would be construed based upon those words." To avoid repetition, the Court will not restate the principles of contract interpretation that were discussed in the prior Report and Recommendation, and incorporates those herein by reference.
Moreover, Staktek does not tell the Court how it is to define "stacking technology" if the phrase is to be given some meaning other than that set out in the Agreement, and it is further silent about how the Court would arrive at any such meaning.
With regard to the merits of the disputed interpretation of the term, the Court finds that the only reasonable meaning of "tightly joined groups of two or more packaged integrated circuits" requires that the modules actually contain two or more individually packaged chips, and that placing two raw die in one package is not within the parties' definition of "stacking technology." Reading the definition otherwise would give no meaning to the term "packaged," and thus would be inconsistent with the principles of contract interpretation that the Court give meaning to all of the words in a contract if possible. See, e.g., Tennessee Gas Pipeline Co. v. Fed. Energy Reg. Comm'n, 17 F.3d 98, 103 (5th Cir. 1994) (applying Texas law). Samsung's dual die module consists of two raw die in a single plastic encapsulation and therefore cannot be classified as a group of two or more packaged integrated circuits. Since Samsung's dual die module consists of a single plastic encapsulation, it is not "stacking technology" as the parties defined that term. The Agreement, specifically ¶ 4, only prohibits Samsung from manufacturing or offering for sale products that are "stacking technology," and the Court therefore finds that Samsung did not breach the Agreement by developing dual die technology.
In reaching this conclusion, the Court has been mindful of the fact that Chief Judge Nowlin made statements at the hearing on Staktek's motion for preliminary injunction that are inconsistent with this result. Understandably, Staktek has relied heavily on those comments, and this Court was not quick to reach a conclusion that was different from that reached by the District Court at the preliminary injunction proceeding. Nevertheless, it is the considered judgment of this Court given the full development of these issues — something the District Court did not have the benefit of at the preliminary injunction hearing — that the unambiguous language of the Agreement mandates the conclusion reached above. Notably, the "purpose of a preliminary injunction is merely to preserve the relative positions of the parties until a trial on the merits can be held." University of Texas v. Camenisch,101 S.Ct. 1830, 1834 (1981). Because a preliminary injunction is customarily granted on the basis of procedures that are less formal and evidence that is less complete than in a trial on the merits, the findings of fact and conclusions of law made by a court granting a preliminary injunction are not binding at the trial on the merits. Id.
Based upon the foregoing, the Magistrate Court RECOMMENDS that the District Court GRANT Samsung's Motion for Partial Summary Judgment on Staktek's Breach of Contract Claim Dual Die (Dual Die is not stacking technology) (Clerk's Doc. Nos. 12; 293) and DENY Staktek's Motion for Partial Summary Judgment Determining Whether Dual Die is Stacking Technology (Clerk's Doc. No. 306).
III. Staktek's Motion for Partial Summary Judgment Dismissing Samsung's Counterclaims
Staktek moves for Partial Summary Judgment with respect to Samsung's counterclaims and affirmative defenses. (Clerk's Doc. No. 292). Staktek argues that it is entitled to summary judgment on these counterclaims and affirmative defenses because: (1) Samsung is not entitled to any relief it has requested in Count I of its counterclaim because Staktek made no promises, warranties, or representations in the November 1997 Agreement concerning quality; (2) Samsung's request for recission in Counts I and II of Samsung's counterclaims should be dismissed because Samsung cannot restore Staktek to the status quo; (3) all of Samsung's counterclaims and affirmative defenses based on mistake should be dismissed because Samsung cannot show any mistakes as to material facts; and (4) whatever is left in Count II should be dismissed as redundant.
A. Count I of Samsung's Counterclaim
Under the terms of the parties' November 1997 Agreement, Samsung is prohibited from manufacturing or selling any "stacking technology" other than Staktek's products. Agreement at ¶ 4. Thus, in the event that a Samsung customer desires to purchase stacked packages directly from Samsung, the Agreement provides that "Staktek agrees to provide Samsung with stacked packages for sale, to the customer at most favored pricing and access to product terms." Id. at ~ 3. In Count I of its Counterclaim, Samsung alleges that Staktek materially breached the terms of the November 1997 Agreement by selling Samsung stacked TSOP's with significant defects.
Staktek argues that Samsung is not entitled to any of the relief it has requested in this counterclaim because Staktek made no promises, warranties, or representations concerning quality in the November 1997 Agreement. Staktek contends that Samsung "confuses the difference between the November 1997 Agreement, which spells out the general commercial relationship between the parties, with the individual contracts for the sale of goods represented by Samsung's specific orders for stacked products and Staktek's acceptance of those orders." Staktek insists that the only promises as to quality are contained in these specific purchase orders, which are not the subject of this lawsuit.
Samsung counters that although the Agreement does not contain any promises, warranties, or representations concerning the quality of the stacked TSOP's, there is an implied warranty in the Agreement and in the individual purchase orders concerning the quality of the stacked TSOP's. Samsung argues that the stacked TSOP's are "goods" under the Texas Business and Commerce Code and that therefore Samsung "enjoys the codified implied warranties that require Staktek to provide Samsung with goods that are fit for ordinary use." Samsung alternatively argues that Samsung enjoys a warranty that requires Staktek to provide Samsung with products suitable for Samsung's particular use.
Chapter 2 of the Texas Uniform Commercial Code (UCC) applies only to contracts involving the sale of goods. TEX. BUS. COM. CODE ANN. § 2.102 (Vernon 1994); Walker v. Sears, Roebuck Co., 853 F.2d 355, 359 (5th Cir. 1988). Staktek argues that the November 1997 Agreement was not a contract for the sale of goods under the UCC because the Agreement was a "hybrid contract" involving a mixture of goods and services. The Texas Supreme Court has held that when a contract involves the sale of both services and materials, "the question [of whether Chapter 2 of the Code governs the transaction] becomes whether the dominant factor or `essence' of the transaction is the sale of the materials or services." G-W-L, Inc. v. Robichaux, 643 S.W.2d 392, 394 (Tex. 1982), overruled on other grounds by Melody Home Mfg. Co. v. Barnes, 741 S.W.2d 349 (Tex. 1987). The Court finds that it does not have to decide whether the dominant factor of the instant hybrid contract was the sale of goods, because Staktek has conceded that the individual purchase orders entered into by the parties are contracts for the "sale of goods." Accordingly, the implied warranties under the Samsung's counterclaim meets these elements. Although Samsung could theoretically have pled more specifically by stating that Staktek breached the individual purchase orders, the Court finds that Texas Business and Commerce Code apply to the individual purchase agreements in the case at bar.
Staktek argues that Samsung has elected to sue only under the November 1997 Agreement and has therefore failed to plead sufficiently a breach of an implied warranty based upon the individual purchase orders. The Court finds that Samsung's counterclaim is sufficient to have put Staktek on notice that the claim was directed at the underlying individual purchase orders through which Samsung purchased thousands of stacked TSOPs from Staktek. Pursuant to Rule 8(a) of the Federal Rules of Civil Procedure, a complaint will be deemed inadequate only if it fails to (1) provide notice of circumstances which give rise to the claim, or (2) set forth sufficient information to outline the elements of the claim or permit inferences to be drawn that these elements exist. Beanal v. Freeport-McMoran, Inc., 197 F.3d 161, 164 (5th Cir. 1999). The Court finds that the pleading is sufficient to meet the requirements of Rule 8. If Staktek believes that the counterclaim is ambiguous, it should have filed a Rule 12(e) motion for a more definite statement. See id. ("If a complaint is ambiguous or does not contain sufficient information to allow a responsive pleading to be framed, the proper remedy is a motion for a more definite statement under Rule 12(e)").
Under the Texas Business and Commerce Code, "a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind." TEX. BUS. COM. CODE ANN. § 2.314(a) (Vernon 1994). "An implied warranty is a representation about the implied quality or suitability of a product that the law implies and imports into a contract, "in view of all facts and circumstances attending the transaction, including the nature of the property, terms of the agreement, and trade usages.'" American Tobacco Co, Inc. v. Grinnell, 951 S.W.2d 420, 435 (Tex. 1997) (quoting Donelson v. Fairmont Foods Co., 252 S.W.2d 796, 799 (Tex.Civ.App.-Waco 1952, writ ref'd n.r.e.)). Samsung argues that the defective stacked TSOP's were not merchantable because they were not fit for the ordinary purpose for which they are used. In addition, Samsung argues that the stacked TSOP's were not fit for their specific use in Samsung's DIMMs, as is required by § 2.315 of the Texas Business and Commerce of Code. Staktek does not dispute that Samsung has alleged facts sufficient to get to the jury on these issues, if a contract for the sale of goods had been adequately pled as the basis for the claim.
The Court finds that the purchase orders under which the stacked TSOPs were sold to Samsung are contracts for the sale of goods, and therefore the implied warranties of merchantability and fitness for a particular purpose apply to the sales. Samsung has alleged sufficient facts with regard to Count I of its Counterclaim to raise a fact question regarding whether Staktek's products complied with these implied warranties. Accordingly, the Magistrate Court RECOMMENDS that the District Court DENY Staktek's Motion for Partial Summary Judgment with respect to Counterclaim I.
Staktek filed a subsequent motion moving the Court to strike Samsung's affirmative defense of breach of contract based on the same arguments. (Clerk's Doc. No. 327). Because the Court recommends the District Court deny Staktek's motion regarding Samsung's breach of contract counterclaim, the Court also RECOMMENDS the Court DENY Staktek's motion to strike Samsung's affirmative defense for the same reasons set forth above.
B. Count II of Samsung's Counterclaim
Staktek's summary judgment motion with regard to Count II of Samsung's Counterclaim, and with regard to the affirmative defenses of mistake, spends a great deal of time discussing the availability of the remedy of recission, and whether Staktek can be returned to the position it was in prior to the execution of the Agreement. The Court need not reach any of these issues, however, as the claims of mistake and recission were made in the alternative to Samsung's claim that the manufacture and sale of its "dual die" device is permitted by the Agreement. In that the Court has recommended the granting of summary judgment in favor of Samsung on that claim, the Court need not reach Samsung's alternative mistake claims, as those claims are now moot (or will be in the event that the District Court adopts this Court's recommendation with regard to the dual die issue). Accordingly, the Court RECOMMENDS that the District Court deny Staktek's motion for summary judgment as to ~ 31 of Count II of the Counterclaim, as well as to the affirmative defenses of mutual and unilateral mistake, as moot.
The result is the same as to ¶ 29 of Count II, as that claim is also an alternative claim to Samsung's contention that the "dual die" device is permitted by the Agreement. Similarly, the parties agree that the Court will not have to address ¶¶ 32 and 33 of Count II of the Counterclaim because of its previous ruling on the Press Release issue. See January 21, 2000 Sealed Report and Recommendation of the United States Magistrate Judge (Clerk's Doc. No. 246), adopted by the District Court on February 23, 2000 (Clerk's Doc. No. 275).
Paragraph 30 of Count II of the Counterclaim seeks a declaration that Samsung has not "otherwise violated any term of the 1997 Agreement." Staktek argues that this counterclaim is redundant because it is based on the identical facts at issue in Staktek's breach of contract claim. The Court agrees with Staktek that this counterclaim is redundant of Staktek's breach of contract action. "[W]hen a party to a contract seeks a declaration of the contract's meaning, another party's counterclaim seeking to enforce the contact is `repetitious and unnecessary.'" Tenneco Inc. v. Saxony Bar Tube, Inc., 776 F.2d 1375, 1379 (7th Cir. 1985) (quoting Green Bay Packaging, Inc. v. Hoganson Associates, Inc., 362 F. Supp. 78 (N.D.Ill. 1973)). Thus, summary judgment should be granted to Staktek on ¶ 30 of Samsung's Counterclaim as it is redundant of the claims already contained within the parties' copious pleadings. Therefore, the Magistrate Court RECOMMENDS that the District Court GRANT the Motion for Summary Judgment with respect to ¶ 30 of the Counterclaim.
Although Samsung concedes that there is "some overlap" in its counterclaim, it nevertheless argues that its counterclaim is not redundant because it "seeks a declaration that various products such as dual die "FLASH" products, and the sale of other products that include two die in one package which are not of the same function do not violate the terms of the Agreement." Samsung, however, fails to note that it has already pled this exact statement in Paragraph 29 of Counterclaim II (which this Court has denied as moot). The declaration sought in Paragraph 30 is much broader than the narrow relief requested in Paragraph 29. Accordingly, the Court finds that Samsung's argument is without merit.
In summary, the Magistrate Court RECOMMENDS that the District Court DENY IN PART and GRANT IN PART Staktek's Staktek's Motion for Partial Summary Judgment on Samsung's Counterclaims (Clerk's Doc. No. 292). The Magistrate Court RECOMMENDS that the District Court GRANT Staktek's Motion for Partial Summary Judgment with respect to Paragraph 30 of Count II of the Counterclaim, and FURTHER RECOMMENDS that the District Court DENY Staktek's Motion for Partial Summary Judgment with respect to all of Samsung's remaining counterclaims and affirmative defenses.
IV. Motion for Partial Summary Judgment on Staktek's Claims of Libel and Slander
In its First Amended Complaint, Staktek alleges that Samsung defamed it by making a myriad of statements it claims impugns its business reputation. In its Motion for Partial Summary Judgment on Staktek's Claims of Libel and Slander (Clerk's Doc. No. 299) and its Memorandum in Support (Clerk's Doc. No. 312), Samsung moves the Court to dismiss Staktek's claims of libel and slander as the majority of the evidence upon which Staktek relies is inadmissible.
Before the Court addresses the merits of this claim, it must first address Samsung's complaint regarding Staktek's new assertion that it was slandered by statements from Samsung regarding Staktek's credit. In ¶ 9 of its Emergency Motion to Strike and Supplement to their Motion to Exclude or Alternatively for a Continuance and to their Motion to Exclude the "Expert" Testimony of Askins, Boone, Cady and Saucedo (Clerk's Doc. No. 377), Samsung moves to exclude the claim that Samsung made statements that Staktek "could not pay its bills." Samsung complains that this statement is outside the scope of Staktek's defamation pleadings, which plead that "Samsung has made false, defamatory statements about Staktek's quality and its capacity to meet the needs of customers." Staktek's Second Supplemental Complaint, pg. 3 (emphasis added). The Court agrees. Because Staktek has only pled that Samsung defamed Staktek with statements regarding quality and capacity, it may not now add new areas of defamation past the deadline to amend its pleadings. Accordingly, with respect to the motion for partial summary judgment on defamation, the Court will not consider the allegation that Samsung told customers Staktek could not pay its bills, as this claim is outside the scope of the pleadings.
This is not intended to be a ruling on the admissibility of this statement, as it would be premature to make that ruling, and such a ruling should be up to the trial judge. Theoretically, the statement may be relevant to Staktek's damage case on its credit limits breach of contract claim.
A. The Claims at Issue.
At the hearing on the summary judgment motions, the Court requested that the parties file simple pleadings setting out the precise statements that are the basis of the defamation claim. It followed this oral order up with a written order dated April 17, 2000. Despite what the Court thought was a relatively clear request for a list of the statements that are being sued upon in the defamation claim, the Court received from Samsung a difficult-to-comprehend and very complicated list of the various times Staktek had asserted in its briefs and other pleadings that certain statements were defamatory. Because Staktek had understandably referred to the same defamatory statements in different places (e.g. in interrogatory responses, pleadings, briefs), the list contained 44 entries, many of which referred to the same statements multiple times. Staktek did not help matters when it responded, because it simply "red-lined" Samsung's list and used the same confusing format. Because having a usable list of the statements at issue here is essential to ruling on this motion, the Court was forced to prepare its own list of the statements. The list is as follows:
No. Statement Declarant Evidence 1 E-mails from Samsung to Staktek Yeong Ho Kang Ex. 7 to Staktek's complaining there was soldering problem Response that complicated DIMM manufacture. The problem was later found to be with Samsung's solder paste and process; but, in the meantime, E-mails indicate Samsung told customers the problem was with Staktek. 2 Samsung representatives told Benchmark Unidentified Unidentified representatives Staktek was experiencing quality problems 3 Nathan Pulling, a client of Nathan Nathan Pilling Expert report Brookwood told him Staktek has "serious (Brookwood's quality and yield problems with its client) told Nathan production process." Brookwood, Staktek's Expert 4 Samsung received e-mails in August of Unidentified Unidentified 1998 believed to be from NEC that DIMM delivery was delayed. Samsung presumably blamed Staktek 5 Edgar Perez of Hewlett Packard-Puerto Unidentified person Transcribed Rico left a voice mail with Askins that told Perez who told voicemail; Ex. D someone with Hewlett Packard-San Jose Askins to Samsung's told him Staktek was experiencing quality motion and capacity problems 6 Ron Cohen of Compaq told Askins Unidentified person Samsung told him Staktek was told Cohen who told experiencing quality and capacity problems Askins 7 Infineon representative told Askins Unidentified Samsung told him Staktek was Samsung employee experiencing quality and capacity unidentified problems told Infineon employee who told Askins 8 Elvin Suh of samsung told IBM Staktek Elvin Suh Suh's deposition, had a problem if their parts cycled Ex. A to 0 to 100 degrees Celsius over 1000 times Samsung's motion 9 Staktek's switch from Uniframe to Marketing brochure Ex. B to Flexframe was to improve stacking quality Samsung's motion 10 Jason Merron told HP that Samsung could Jason Merron, Ex. C to not provide DIMMS because of Staktek's Samsung-UK Samsung's motion low yield 11 Ben Hur of Samsung told IBM that Ben Hur Hur's deposition, capacitative loading for stacked products Ex. N to was three times higher than for monolithic Samsung's motion parts 12 Ben Hur was told to promote monolithic Ben Hur Hur's deposition, devices over stacked devices Ex. N to Samsung's motion 13 Ted Ko of Samsung told his expert teams Unidentified Unidentified that the 512 Mb DIMM was delayed due to quality problems with Staktek and presumably passed along to end customers 14 Nick Schwartzman of Samsung contacted Nick Schwartzman Unidentified Dense-Pac and told them he was concerned with Staktek's quality 15 Schwartzman told his salesmen to contact Nick Schwartzman Unidentified their customers, particularly Compaq, and tell them Staktek did not have the capacity to meet their needs and propose Dense-Pac as an alternative 16 Samsung blamed Staktek for failing to Unidentified Unidentified qualify its 256 and 512 DIMM with Compaq 17 Samsung told Compaq its 256 monolithic Tom Koenig Koenig deposition components were better than Staktek's stacked components 18 Samsung removed Staktek's 256 stacked Roadmap Ex. 11 to Staktek's based DIMM from its "roadmap" response 19 Samsung says stacked modules have Ben Hur Exs. 12 14 to "excess capacitance" and "bad thermal Staktek's response characteristics" 20 Samsung told its customers Staktek didn't Cal Harriman Exs. 16 17 to pay its bills Rob German Staktek's response Nick Schwartzman 21 Jason Merron said DIMM delivery delay Jason Merron Ex. 21 to Staktek's was due to high fallout of Staktek's response stacks The Court will use this list throughout this section of the Report and Recommendation, and will refer to particular statements by their number as listed above.B. Basic Principles.
Slander is a defamatory statement that is orally communicated or published to a third person without legal excuse. Randall's Food Markets, Inc. v. Johnson, 891 S.W.2d 640, 646 (Tex. 1995). Libel is a written defamatory statement which:
tends to injure a living person's reputation and thereby expose the person to public hatred, contempt or ridicule, or financial injury or to impeach any person's honesty, integrity, virtue, or reputation or to publish the natural defects of anyone and thereby expose the person to public hatred, ridicule, or financial injury.
TEX.CIV.PRAC. REM. CODE § 73.001. A statement is defamatory if it tends to harm the reputation of a person or to lower the person in the estimation of the community or to deter third persons from associating or dealing with him or her, or tends to expose the person to public hatred, contempt, or ridicule. Hardwick v. Houston Lighting Power Co., 881 S.W.2d 195, 197 (Tex.App.-Corpus Christi 1994, writ dism'd w.o.j).
Staktek asserts that this is a "private/private" case, that is, that it is a private plaintiff (as opposed to a public figure), and that the speech at issue was not a matter of public concern. Samsung does not dispute this characterization. Cases involving private figures and non-public speech do not raise Constitutional issues, and therefore no minimum standard of fault is applicable. Snead v. Redland Aggregates, Ltd., 998 F.2d 1325, 1334 (5th Cir. 1993). Accordingly, the Court will review this matter under common law standards.
C. Corporate Standing to Sue for Defamation.
Samsung argues Staktek's defamation claim should be construed as a claim of business disparagement because the claims involve injury to Staktek's business and not its reputation. Hurlbut v. Gulf Atlantic Life Ins. Co., 749 S.W.2d 762, 766 (Tex. 1987). Samsung notes there is disagreement between the courts as to whether a corporation is a proper party to a defamation suit at all. See Newspapers, Inc. v. Matthews, 339 S.W.2d 890 (Tex. 1960) (holding the proper party in a defamation suit is the owner of the business.) However, soon after the Newspapers decision, the Supreme Court revisited the issue and held that the same the argument made by Samsung here misinterprets the holding of Newspapers. See General Motors Acceptance Corp. v. Howard, 487 S.W.2d 708, 712 (Tex. 1972) (Newspapers "did not hold that a corporation cannot be libeled. On the contrary the opinion specifically recognized that a corporation, as distinguished from a business, may be libeled."). The opinion itself clearly states that the proper party to a defamation suit is the owner of the business, whether the owner is an individual or a corporation. Newspapers, 339 S.W.2d at 289. Moreover, the Fifth Circuit has permitted a corporate party to pursue a libel claim separate and apart from a business disparagement claim. Brown v. Petrolite Corporation, Inc., 965 F.2d 38, 43 n. 4 (5th Cir. 1992) (citing Hurlbut).
D. Hearsay as a Basis for the Defamation Claim.
Samsung objects to much of Staktek's defamation claim because Samsung contends that Staktek has no evidence other than hearsay to demonstrate that certain alleged statements were even made by Samsung. A defamation claim must be supported by admissible evidence. Donahue v. Melrose Hotel, 1997 WL 148012 at *2 (N.D.Tex. 1997). Neither hearsay statements nor statements from unidentified sources can support a defamation claim. Wells v. Shop Rite Foods, Inc., 474 F.2d 838, 839 (5th Cir. 1973); Westfall v. GTE North, Inc., 956 F. Supp. 707, 713 (N.D.Tex. 1996). See also Patton v. United Parcel Serv., Inc., 910 F. Supp. 1250 (S.D.Tex. 1995) (testimony that friends told plaintiff they had heard allegedly defamatory comments is inadmissible hearsay).
Pursuant to the Court's request, the parties filed a list of the 44 statements upon which the defamation claim is based. (Clerk's Doc. Nos. 404 and 408). The Court has undertaken the laborious task of examining each of these statements to determine if they can form the basis for a defamation claim, and has concluded that several statements upon which Staktek bases its defamation claim are inadmissible hearsay.
The parties have listed every instance where a defamatory statement is alleged; therefore, some of the statements in their comprehensive list are repetitious. As noted above, the Court has complied its own list eliminating the repetitive statements. The Court will reference the statements as they are numbered in the Court's chart.
For example, in his expert report Nathan Brookwood relates that in casual conversation with a client, Nathan Pulling, he was told Staktek had serious quality and yield problems with production. (Statement 3.) He states Pulling told him that the source of the information was Samsung. However, in his deposition Brookwood testified he did not remember the conversation with accuracy; he does not remember whether the alleged defamation was directed at quality or yield or both; he does not know who made the statement; and he did not personally hear the alleged defamatory statement. (Samsung's motion for partial summary judgment, Ex. O, at 126-129). In Brookwood's words, his memory of the conversation is "fuzzy." Id.
Bill Askins, Staktek's Vice-President of Sales and Marketing, testified that Edgar Perez of Hewlitt Packard-Puerto Rico, left him a voice mail message that an unidentified person from Hewlitt Packard-San Jose told him Samsung was unable to deliver DIMMS and that Samsung was blaming Staktek. (Statement 5.) Askins also testified that an unidentified Infineon sales representative told him that Samsung told Infineon that Staktek was having quality control problems. (Statement 7.) However, Askins cannot determine whether the report of quality problems to Infineon is a direct or indirect report and cannot identify the source.
Staktek further alleges that Samsung told Roger Nosel of Benchmark that Staktek was having capacity problems (Statement 2), and told Ron Cohen of Compaq that Staktek was having quality problems. (Statement 6.) Staktek alleges that certain Samsung E-mails reflect Samsung received complaints, believed to be from NEC, regarding delayed DIMM deliveries which Staktek asserts Samsung blamed on Staktek. (Statement 4.) Finally, Staktek alleges that a Samsung employee (Ted Ko) told his employees the delay in offering the 512Mb DIMM was due to Staktek, and presumably relayed the information to Samsung customers. (Statement 13.)
With the exception of the Ko statement, none of these statements can affirmatively be attributed to a Samsung employee; and, all of the statements, including the Ko statement, are inadmissible hearsay. Staktek's reliance on Armco, Inc. v. Armco Burglar Alarm Co., 693 F.2d 1155 (5th Cir. 1982) for the admissibility of the statements is misplaced. Armco was a trademark infringement case where hearsay statements from customers stating that they thought the parties were the same company were admitted as exceptions to the hearsay rule. The Fifth Circuit held that the trial court did not commit reversible error by admitting the statements because they were not offered to prove the two companies were actually the same, but rather to establish that there was a likelihood of confusion regarding the company names, an element of the infringement claim. Here, Staktek must establish that Samsung made the statements alleged to be defamatory, which thus requires evidence of a communication by Samsung to a third party. To prove that statements were in fact made, Staktek cannot rely on hearsay statements, for the statements are offered to prove that Samsung said "x" to a third party, which is at least part of the "truth of the matter asserted" in the hearsay statements at issue. As noted above, Texas law does not permit a libel or slander claim to be proven by hearsay statements. Wells, 474 F.2d at 839. The E-mails suffer from the additional infirmity that the source cannot be concretely identified ("believed to be from NEC"). Furthermore, the E-mails and the Ko statement are too speculative to establish defamation ("Samsung presumably blamed Staktek").
Accordingly, the Court recommends the District Court GRANT summary judgment as to that portion of Staktek's defamation claim which relies on any of the alleged statements set out in the Table of Statements, items 2-7 and 13, as the only evidence to prove that Samsung made those statements is inadmissible hearsay.
E. Are the Statements Capable of a Defamatory Meaning?
The question of whether statements are capable of defamatory meaning is initially a question of law for the court. Simmons v. Ware, 920 S.W.2d 438, 443 (Tex.App.-Amarillo 1996, no writ). In making this determination, the alleged defamatory statements must be viewed as a whole, in light of the context in which they were made, and in which a person of ordinary intelligence would understand them. Shearson Lehman Hutton, Inc. v. Tucker, 806 S.W.2d 914, 920 (Tex.App.-Corpus Christi 1991, writ dism'd w.o.j.).
Having reviewed all of the statements, the Court finds that two of the non-hearsay statements are not capable of defamatory meaning. First, Staktek alleges that Samsung's public statements that Staktek switched from Uniframe to Flexframe "to improve the stacking process" was an intimation that Staktek's process was deficient in some manner and needed improvement. (Statement 9.) Second, Staktek alleges that Samsung removed 256 Mb stacked — based DIMMS off of its roadmap, implying Samsung lacked confidence in Staktek's product. (Statement 18.)
The Court finds that neither of these statements is capable of a defamatory meaning. In all industry, and especially in the computer industry, products continue to be improved upon on a daily basis. Staktek does not dispute that it switched to Flexframe because it was more efficient, which in ordinary parlance, is an improvement. That Samsung notified its customers Staktek was improving its stacking process, for whatever reason, is not a defamatory statement. Similarly, the removal of the 256 Mb stacked-based DIMM from the roadmap is not a "statement," much less a statement capable of a defamatory meaning.
Accordingly, the Court recommends the District Court GRANT Samsung's motion for summary judgment as to Statements 9 and 18.
F. Defamation Per Se.
Samsung also points out in its motion that Staktek has been unable to demonstrate any actual damage suffered as a result of the alleged defamation. In response, Staktek offers no proof of any actual damage, but rather asserts that "a reasonable jury could conclude that Samsung's statements are one source of concerns about reliability and capacity." Staktek's Response to Samsung's Motion for Partial Summary Judgment on Defamation Claims (Clerk's Doc. No. 373) at 13 n. 10. Texas law requires proof of actual damages for either libel or slander unless the words were defamatory per se. See, e.g., Knox v. Taylor, 992 S.W.2d 40, 50 (Tex.App.-Houston [14th Dist.] 1999, no pet.) (libel); Shearson, 806 S.W.2d at 921 (slander). Staktek's argument concerning damages is not summary judgment proof that Staktek suffered the sort of damages required by Texas law for a libel or slander claim. Staktek's lack of any evidence of actual damages prohibits it from pursuing either its libel or slander claims, therefore, unless it can demonstrate that the statements constitute defamation per se.
Staktek asserts in its brief that the requirement of actual damages does not apply to cases of written defamation (i.e., libel). Staktek's Response to Samsung's Motion for Partial Summary Judgment on Defamation Claims (Clerk's Doc. No. 373) at 11. The case Staktek cites for this proposition, however, does not state this. See Snead, 998 F.2d at 1334 (holding that damages were presumed because case involved libel per se). Indeed, the fact that Texas cases such as Knox discuss libel per se contradicts Staktek's claim that proof of libel is sufficient to obtain presumed damages.
Texas law provides that "[l]ibel per se means the written or printed words are so obviously hurtful to the person aggrieved that they require no proof of their injurious character to make them actionable." Knox, 992 S.W.2d at 50 (citations omitted). In applying this standard, Texas cases require proof that the statement involves the imputation of serious misconduct or impropriety (such as the commission of a crime), or that the statement affects a person injuriously in his office, profession, or occupation. Kelly v. Diocese of Corpus Christi, 832 S.W.2d 88, 94 (Tex.App.-Corpus Christi 1992, writ dism'd w.o.j.). See also Knox, 992 S.W.2d at 50 ("[d]efamation is actionable per se if it injures a person in his office, business, profession, or occupation).
There is no dispute in the record that none of the statements potentially at issue accuse Staktek of criminal conduct or a similarly serious impropriety. Thus, whether the statements are defamatory per se is dependent upon whether the statements can be considered to have "injure[d] a person injuriously in his office, business, profession, or occupation." Knox, 992 S.W.2d at 50. It is unclear from Texas caselaw how this standard is applied when the plaintiff in the defamation suit is a corporation. As noted previously, Texas law clearly allows a corporation to sue for libel and slander in the alternative to business disparagement. It would seem that literal application of the "injurious to his business" standard to a case in which the plaintiff is a corporation complaining of statements about its products would always result in a conclusion that the statements were defamatory per se, given that statements about a business' products are always going to be potentially injurious to the corporation's business. Application of the per se rule in this manner would thus seem to make all cases of business disparagement also cases of libel or slander per se, which would seem to make the actual damage element of business disparagement meaningless.
The Court's research has not located any Texas cases directly addressing whether statements injurious to a corporation's business are defamatory per se when the corporation is the plaintiff. The Texas case closest on point that the Court located is the Knox v. Taylor case. There, the plaintiffs were Standard Managing General Agency, Inc. and its owner, Stacy Taylor. The jury found in favor of SMGA and Taylor on a claim of libel, and on appeal, the court of appeals found that a memo accusing SMGA and Taylor of what it termed "bad business practices" was "injurious to Taylor's business and profession," thereby supporting the conclusion that the statements were libel per se. Knox, 992 S.W.2d at 51. Although the quoted statement only referred to Taylor, both Taylor and SMGA were plaintiffs, and the per se finding was applied to Taylor and the corporation in the opinion.
The Court did locate cases outside of Texas in which corporate plaintiffs' libel claims were considered defamation per se based upon the fact the statements tended to defame the corporation in its business. See Quality Granite Constr. Co., Inc. v. Hurst-Rosche Engineers, Inc., 632 N.E.2d 1139 (Ill.App. 1994) (finding that a letter accusing the corporate plaintiff of an inability to perform and a lack of ability in its contractual undertaking was defamatory per se); and Imperial Dev. Inc. v. Seaboard Surety Co., 518 N.W.2d 623 (Minn.App. 1994) (stating that for speech to be defamatory per se against a corporation, "it must tend to injure the credit, property, or business of the corporation," and finding that a statement that the plaintiff regularly breaches contracts was defamation per se).
Based on the above, the Court concludes that under Texas law if defamatory statements are made against a corporation, they are defamatory per se if they tend to injure the corporation in its business. As noted, all of the statements complained of by Staktek address Staktek's business. Accordingly, the Court RECOMMENDS that the District Court find that the statements, if proven to otherwise be actionable, are defamatory per se, and Staktek is not required to admit evidence of actual damages from these statements, as damages may be presumed by the jury.
G. The Defense of Truth.
Truth is an absolute defense to defamation. Brown v. Petrolite Corp. 965 F.2d 38 (5th Cir. 1992). Samsung argues that Staktek admitted to having had quality and capacity problems, so if the Court determines the statements were defamatory, the statements are not actionable because they were true. Samsung points to several pieces of evidence to support its truth defense. First, in Board Minutes from March, 1999, Staktek reported that business is booming and the company is expected to face capacity limitations in the second quarter. (Samsung's motion for partial summary judgment, Ex. S). Furthermore, Staktek's President, James Cady once admitted to a quality problem and apologized for the "lapse in [Staktek's] outgoing quality." (Samsung's motion for partial summary judgment, Ex. U; Ex. V). Samsung argues these admissions prove that any statements regarding Staktek's quality and capacity were actually true. Staktek on the other hand contends that the statements in the Board Minutes and in Mr. Cady's E-mail refer to isolated incidents, and are not evidence of an admission to quality control problems in general.
While Mr. Cady's E-mail and the Board meeting minutes do appear to address a longer period of time than an isolated incident, the summary judgment evidence does not conclusively link these statements to the specific allegations of defamation Staktek makes here. Rather, a fact issue exists as to whether statements by Samsung, if any were made, regarding Staktek's quality or capacity were true. Summary judgment on this issue is therefore not appropriate.
H. Qualified Privilege
"Voluntary communications, in addition to communications in response to a request, are privileged if the relationship between the parties is such that it is within generally accepted standards of decent conduct to furnish the information for the protection of the recipient." Burch v. Coca-Cola Co., 119 F.3d 305, 323-324 (5th Cir. 1997) citing Pioneer Concrete of Texas v. Allen, 858 S.W.2d 47, 49 (Tex.App.-Houston [14th Dist] 1993, writ denied). A qualified privilege applies to information given to persons interested in the trade and commercial standing of another at the time the information is given. Mitre v. La Plaza Mall, 857 S.W.2d 752 (Tex.App.-Corpus Christi 1993, writ denied). In La Plaza the Court held the Mall had a qualified privilege to inform its stores of suspected counterfeiters. Staktek relies on the related case of Mitre v. Brooks Fashion Stores, Inc., 840 S.W.2d 612 (Tex.App.-Corpus Christi 1992, writ denied) to support its contention that a qualified privilege did not apply to Samsung's statements. In Brooks, the Court held the privilege did not extend to the individual store's placing the notice in a conspicuous place where other customers could see it. Brooks is inapposite, however, as Brooks' customers did not have a commercial interest in the information. Here, the persons to whom the information was allegedly conveyed were Samsung's customers or potential customers, and they therefore had a commercial interest in information regarding any problems with the product or its component parts.
When a qualified privilege applies, the privilege may nonetheless be lost if the statement was made with "malice." Randalls, 891 S.W.2d at 646. Unlike its more commonly-understood meaning, in this context "malice" requires a showing that the declarant acted with knowledge of, or in reckless disregard to, the falsity of the statement. Id. Staktek has presented evidence sufficient to create a fact issue regarding whether Samsung relayed information that it should have known was not true, and the question of malice is thus for the jury to determine.
I. Summary of Recommendation on Defamation Claims.
For all of these reasons, the Court RECOMMENDS that the District Court GRANT IN PART AND DENY IN PART Samsung's Motion for Partial Summary Judgment on Staktek's Claims of Libel and Slander (Clerk's Doc. No. 299). Specifically, the Court RECOMMENDS that the District GRANT the motion as to Statement Nos. 2-7, and 13 because the only evidence that the statements were made is inadmissible hearsay, and as to Statement Nos. 9 and 18, as those statements are not capable of a defamatory meaning. The Court FURTHER RECOMMENDS that the District Court GRANT the motion as to the applicability of the defense of qualified immunity, and require that in order to recover for defamation, Staktek demonstrate that the statements were made with malice (i.e., either with knowledge or in reckless disregard of their falsity). The Court FURTHER RECOMMENDS that the District Court DENY all other aspects of Samsung's motion.
If adopted in full, this RECOMMENDATION would leave for trial on Staktek's defamation claim the questions of: (1) whether Statements 1, 8, 10-12, 14-17, and 19-21 were made by Samsung to third parties; (2) whether the statements were substantially true; and (3) whether the statements were made with knowledge of or with reckless disregard for their falsity. No proof of actual damages would be required, as damages could be presumed, assuming the District Court adopts the recommendation regarding the statements being defamatory per se.
V. The Fraud Claims.
Samsung has filed three summary judgment motions attacking Staktek's fraud cause of action. The first motion is directed to whether Samsung committed fraud by executing the Agreement with the intent to breach it by developing the dual die device. The second motion addresses whether the statements contained in the press release can support a fraud claim. The final motion relates to whether two distinct statements made in pre-contractual negotiations can be bases for the fraud claim.
A. Samsung's Motion for Partial Summary Judgment on Fraud Based on Samsung's Intent not to Abide by the Agreement (Clerk's Doc. No. 295).
The Court understands this motion to be directed at that portion of Staktek's fraud claim, contained in ¶¶ I-III V of Staktek's First Amended Supplemental Complaint (Clerk's Doc. No. 58), alleging that Samsung committed fraud by signing the Agreement when Samsung had the intention of developing the dual die device. Elsewhere in this report, the Court has concluded that Samsung's dual die device is not "stacking technology," and thus the Agreement does not prohibit its manufacture or development. Based on this conclusion Samsung's development of the dual die device did not breach the Agreement. Accordingly, even if Statkek's assertion that Samsung intended to develop and market dual die technology at the time it signed the Agreement is taken as true, as a matter of law this conduct would not be proof that Samsung signed an Agreement which it did not intend to honor. The Court therefore RECOMMENDS the District Court GRANT Samsung's Motion for Partial Summary Judgment on Fraud Based on Samsung's Intent not to Abide by the Agreement (Clerk's Doc. No. 295).
B. Samsung's Motion for Partial Summary Judgment on Staktek's Fraud Claim Based on Press Release (Clerk's Doc. No. 301).
In this motion, directed at ~ IV of Staktek's First Amended Supplemental Complaint, Samsung argues that because the Court has concluded that the press release attached to the Agreement does not create contractual obligations, it also cannot form the basis for a fraud claim. The press release quotes Samsung's Senior Vice President and General Manager as saying: "We intend to jointly make the Staktek technology an industry standard." The press release further states that the "[t]he two companies will work together to design new packages for future generations of semiconductor memory products." Samsung is correct that this Court has held that the press release does not create contractual obligations. It is another question entirely, however, whether the statements contained within the press release, and Samsung's agreement to endorse those statements, could have fraudulently induced Staktek to execute the Agreement.
While the press release does not by itself create contractual obligations, the parties do address it in the body of the Agreement. In ¶ 2 of the Agreement, the parties stated that the "intention of the parties is to use the press release to convince the large original equipment manufacturers that Samsung has embraced Staktek's stacking technology," and also "to facilitate the parties['] joint sales efforts which will be to enhance the sale of both Samsung's memory products . . . and Staktek's stacking technology."
A jury could determine that by agreeing to endorse the press release, Samsung was telling the world that it intended to do certain things (e.g., make Staktek's technology an "industry standard"), and further a jury could determine that Staktek was justified in relying on Samsung's statements in the press release when Staktek chose to execute the Agreement. If a jury determined that Staktek was induced to execute the Agreement because of, inter alia, the statements contained within the press release, and if Staktek can further prove that Samsung did not intend to do the things it stated in the press release, then Staktek has a valid claim of fraudulent inducement. The Court rejects Samsung's arguments that Staktek's reliance on the statements of the press release was not justifiable. Indeed, given Samsung's direct statement in ~ 2 of the Agreement of its intentions with regard to the press release, a jury could find that Staktek was fully justified in relying on those statements in entering into the Agreement.
Samsung contends that the statements of the press release such as "work together" and "industry standard" are not statements of fact but marketing "puffery," and are too vague to be the basis of a fraud claim. A fraud action must be based on a statement of fact that admits of being adjudged true or false in a way that admits of empirical verification. Presidio Enterprises, Inc. v. Warner Bros. Distrib. Corp., 784 F.2d 674 (5th Cir. 1986) (promotional statement by film distributing company soliciting investments that its film would be a "blockbuster" was not actionable as fraud because term was vague and indefinable as used in this context). The Court does not agree that the well-negotiated statements of the press release are "vague and indefinable," and accordingly the Presidio Enterprises case is not pertinent.
Finally, Samsung contends that there is no evidence that it did not intend to in fact carry out those things it stated it intended to do in the press release. To the contrary, the record reflects that there is evidence from which a jury could conclude that Samsung did not have the requisite intention at the time the statements were made. For example, Staktek discovered several internal E-mails from Samsung demonstrating that: (1) within weeks of signing the Agreement, Samsung was concerned that the industry might well determine that Staktek's product was the "preferred solution" in certain market segments, which would be bad for Samsung and discussing how Samsung should deal with this problem; (2) Samsung did not refer a large OEM customer to Staktek within days of the Agreement being signed; and (3) Samsung intentionally priced its DIMMs made with Staktek's products higher to bring them into price parity with the DIMMs manufactured with Samsung's monolithic chips. Further, the evidence shows that Samsung did not put Staktek's products on its marketing "roadmap" until ordered to do so by the Court as part of the preliminary injunction. This evidence is more than sufficient to demonstrate a fact question regarding whether Samsung intended to carry out those matters which the press release stated it intended to carry out.
Ex. 25 to Staktek's Consolidated Response to Samsung's Motions for Partial Summary Judgment Dismissing Parts of Staktek's Fraud Claims (Clerk's Doc. No. 370) at p. SMS0000907.
Ex. 14 to Staktek's Consolidated Response to Samsung's Motions for Partial Summary Judgment Dismissing Parts of Staktek's Fraud Claims (Clerk's Doc. No. 370)
Ex. 18 to Staktek's Consolidated Response to Samsung's Motions for Partial Summary Judgment Dismissing Parts of Staktek's Fraud Claims (Clerk's Doc. No. 370).
Accordingly, the Court RECOMMENDS that the District Court DENY Samsung's Motion for Partial Summary Judgment on Staktek's Fraud Claim Based on Press Release (Clerk's Doc. No. 301).
C. Samsung's Motion for Partial Summary Judgment on Staktek's Claim of Fraud Based on Pre-Contractual Negotiations (Clerk's Doc. No. 297).
In Samsung's third and final summary judgment motion directed at fraud claims, Samsung focuses on that portion of Staktek's fraud claim which is based on two classes of statements made by Samsung during the negotiations leading up to the Agreement. First, Staktek contends that Samsung assured it in the negotiations that Samsung "did not intend any harmful competition," but in fact after signing the Agreement, Samsung introduced or attempted to introduce products that competed with Staktek. See First Amended Supplemental Complaint (Clerk's Doc. No. 58) at ~ V, and Staktek's Answers to Samsung's Second Interrogatories at No. 13(a), (b). Second, Staktek complains that Samsung made numerous statements regarding its intention to work with Staktek to jointly market Staktek's products, but in fact never did so. See generally First Amended Supplemental Complaint (Clerk's Doc. No. 58) at ~ IV, and Staktek's Answers to Samsung's Second Interrogatories at No. 13(c).
1. Pleading Sufficiency
First, Samsung contends that these two claims are not pled with particularity in Staktek's complaint, as required by FED. R. CIV. P. 9(b). FED. R. CIV. P. 9(b) states in its entirety:
(b) Fraud, Mistake, Condition of the Mind. In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.
See also Unimobil 84, Inc. v. Spurney, 797 F.2d 214, 217 (5th Cir. 1986) ("To state a cause of action for fraud, however, requires a plaintiff to allege with particularity the defendant's acts which the plaintiff contends amount to fraud."); Askanase v. Fatjo, 148 F.R.D. 570, 574 (S.D.Tex. 1993) ("The allegations should allege the nature of the fraud, some details, a brief sketch of how the fraudulent scheme operated, when and where it occurred, and the participants.").
Rule 9(b) does not render Rule 8's general requirement of notice pleading entirely inapplicable to allegations of fraud. The two rules must be read in conjunction with each other, keeping in mind the intent of particularized pleading is simply to inform the defendant of the "circumstances" surrounding the claim or the "who, what, when, and where" of the fraud claim. Wright Miller, FEDERAL PRACTICE PROCEDURE § 1297 at pg. 590. Rule 9(b) requires a plaintiff to plead the "circumstances," not the "facts" of a fraud claim. Although courts have warned against applying this distinction rigidly as that belies the general spirit of flexibility of the Federal Rules, it is an instructional guideline for courts to follow in analyzing compliance with Rule 9(b). Id. § 1298 at pgs. 623-626. Accordingly, Staktek is not required to plead every evidentiary fact supporting its fraud claim, but rather must only give adequate notice to Samsung of the "who, what, when, where, and how" of the claim to enable Samsung to prepare a responsive pleading. The evidentiary support of that claim can be developed through the discovery process. The Court finds that the First Amended Supplemental Complaint, in conjunction with the detailed interrogatory responses, meets the requirements of Rule 9(b).
For example, the second sentence of Rule 9(b) allows a party to plead generally malice, intent, and knowledge.
2. The Promise of "No Harmful Competition."
During the negotiations leading to the execution of the Agreement, HK Lim of Samsung wrote to Carmen Burns, Staktek's CEO, stating that Samsung "intends no harmful competition" to Staktek. (Ex. C to Samsung's Motion for Partial Summary Judgment on Staktek's Claim of Fraud Based on Pre-Contractual Negotiations.) Mr. Burns testified in deposition that Avo Kanadjian of Samsung later clarified this statement to apply "across the board," and not simply to the specific means by which Staktek was then manufacturing its stacked packages. Staktek relies on these statement in support of its fraud cause of action. Samsung argues that these representations made prior to the final contract were merged into the final contract and cannot form the basis of a fraud claim, relying on Fisher Controls Int'l Inc., v. Gibbons, 911 S.W.2d 135 (Tex.App.-Houston [1st Dist] 1995, writ denied). In Fisher Controls Inc., 911 S.W.2d at 142, the court held that experienced executives represented by counsel should not be able to rely on pre-contractual promises that are inconsistent with the final contract to establish fraud. There, the plaintiff claimed the defendant represented their agreement would last for three years, but the actual contract clearly stated that it expired in one year.
With regard to the "no harmful competition" promise the case is the same. The protection from competition that Staktek received from the Agreement is spelled out in ¶ 4, which prohibits Samsung from manufacturing or selling any stacking technology other than Staktek's stacking technology. The parameters of the protection from competition were therefore set by the definition of "stacking technology." For Staktek to now claim that it relied on a promise broader than this, see, e.g., Feb. 9, 2000 Depo. of Carmen Burns at 344-45, is inconsistent with the terms of the Agreement that Staktek signed. As the Court has said before, the promise contained in the Agreement with regard to competition is that Samsung would not make or sell "stacking technology," not that it would not make or sell anything that might compete with Staktek's product. Accordingly, under Fisher Controls, Staktek cannot pursue a fraud claim based on the "no harmful competition" statements.
Mr. Burns testified that: "Mr. Lim came up with the words `no harmful competition,' although I've seen similar words to that before. When he came up with no harmful competition, the way he said it and the limited way he said it in that letter, I — I had sent back a letter basically saying we're not getting anywhere. This isn't going to fly. I don't remember the wording of it, but at that point Avo [Kanadjian] called me and he said I'd misunderstood what Mr. Lim had said when he said no harmful competition. He meant it across the board. He didn't just mean it in the limited way we're only doing manufacturing ourselves, and they're assuring us we would have no harmful competition."
3. The Joint Marketing Promises.
Staktek also alleges that Samsung promised to engage in joint marketing activities with it to promote Staktek's technology. There is little doubt that the Agreement contemplated that the parties would engage in joint marketing — ¶ 2 of the Agreement explicitly refers to "the parties' joint sales efforts," and the preamble to the Agreement refers to Samsung being "willing to develop their cooperative relationship for more successful business using the stacking technology." Staktek contends that despite these statements, Samsung never intended to perform any joint marketing with Staktek, and thus defrauded Staktek.
The elements of a fraud claim under Texas law are: (1) a material misrepresentation; (2) that was false when made; (3) the speaker knew it was false, or made it recklessly without knowledge of its truth and as a positive assertion; (4) the speaker made it with the intent that it should be acted upon; and, (5) the party acted in reliance and suffered injury as a result. Clardy Mfg. Co. v. Marine Midland Bus. Loans, 88 F.3d 347, 359 (5th Cir. 1996).
As a general rule, the failure to perform the terms of a contract is a breach of contract, not a tort. Crim Truck Tractor Co. v. Navistar Int'l Transportation Corp., 823 S.W.2d 591, 594 (Tex. 1992). However, where the claim of fraud is based upon a promise to do an act in the future, there can be an actionable fraud if the promise was made with the intention, design, and purpose of deceiving, and with no intention of performing the act. In order the establish fraud a plaintiff must prove the promise was false at the time it was made. Formosa Plastics Corp. U.S.A. v. Presidio Engineers and Contractors, Inc., 960 S.W.2d 41 (Tex. 1998). While a party's intent is determined at the time the party made the representation, it may be inferred from the party's subsequent acts after the representation is made. Spoljaric v. Percival Tours, Inc. 708 S.W.2d 432, 434 (Tex. 1986). Intent is a fact question uniquely within the realm of the trier of fact because it heavily depends upon the credibility of the witnesses and the weight to be given to their testimony. Id. While failure to perform standing alone is not evidence of the promissor's intent not to perform when the promise was made, that fact is a circumstance to be considered with other facts to establish intent. Id. Slight circumstantial evidence of fraud when considered with the breach of promise to perform, is sufficient to support a finding of fraudulent intent. Id.
To have a fraud claim based on the marketing statements that can survive summary judgment, therefore, Staktek must be able to demonstrate the existence of a fact question as to whether Samsung did not intend to engage in joint marketing at the time it made the statements referred to above, including the statements in ¶ 2 of the Agreement. The evidence set out above in the discussion of the motion concerning the press release is equally applicable to this issue, and demonstrates the existence of a fact question regarding whether Samsung intended to perform on its promise of joint sales efforts at the time the Agreement was executed. Because there is a fact question on this issue, summary judgment is inappropriate.
For the reasons set forth above, the Court RECOMMENDS that the District Court GRANT IN PART AND DENY IN PART Samsung's Motion for Partial Summary Judgment on Staktek's Claim of Fraud Based on Pre-Contractual Negotiations (Clerk's Doc. No. 297). Specifically, the Court RECOMMENDS that the District Court GRANT the motion as to the claims that Samsung promised it would not engage in "harmful competition;" and DENY the motion as to the claims that Samsung would engage in joint marketing activities with Staktek.
D. Summary of Recommendations as to Fraud Claims.
With regard to the three fraud motions, therefore, the Court RECOMMENDS that:
(1) The District Court GRANT Samsung's Motion for Partial Summary Judgment on Fraud Based on Samsung's Intent not to Abide by the Agreement (Clerk's Doc. No. 295).
(2) The District Court DENY Samsung's Motion for Partial Summary Judgment on Staktek's Fraud Claim Based on Press Release (Clerk's Doc. No. 301); and
(3) The District Court GRANT Samsung's Motion for Partial Summary Judgment on Staktek's Claim of Fraud Based on Pre-Contractual Negotiations (Clerk's Doc. No. 297) as to the claims that Samsung promised it would not engage in "harmful competition," and DENY that motion as to the claims that Samsung would engage in joint marketing activities with Staktek.
WARNINGS
The parties may file written objections to the recommendations made in this report. As agreed by the parties in open court, the objections, if any, must be made within seven (7) days from the date of receipt of this recommendation. A party filing objections must specifically identify those findings or recommendations to which objections are being made. The district court need not consider frivolous, conclusive, or general objections. See Battle v. U.S. Parole Commission, 834 F.2d 419, 421 (5th Cir. 1987); Nettles v. Wainwright; 677 F.2d 404, 410 n. 8 (5th Cir. 1982) (Unit B en banc).Failure to file written objections to the findings and recommendations contained in this report within the seven-day period shall bar an aggrieved party from receiving a de novo review by the district court of the findings and recommendations in this report, see 28 U.S.C. § 636(b)(1)(C), Thomas v. Arn, 474 U.S. 140, 150-53, (1985), Nettles v. Wainwright, 677 F.2d at 410; and shall bar an aggrieved party from attacking on appeal the factual findings accepted or adopted by the district court contained in this report, except upon grounds of clear error or manifest justice, see Douglass v. United Services Auto. Ass'n, 65 F.3d 452, 457 (5th Cir. 1995); Carter v. Collins, 918 F.2d 1198, 1203 (5th Cir. 1990); Nettles, 677 F.2d at 410. However, a failure to object does not limit the appellate court's review of legal conclusions made in this report. Douglass, 65 F.3d at 457; Hardin v. Wainwright, 678 F.2d 589, 591 (5th Cir. 1982); cf. Thomas v. Arn, 474 U.S. at 150-55; 106 S.Ct. at 472-75 (1985).