Blackstone Med., Inc. v. Phx. Surgicals, L. L.C.

470 S.W.3d 636

Blackstone Medical, Inc. d/b/a Orthofix Spinal Implants, Appellant

v.Phoenix Surgicals, L.L.C., Appellee

No. 05–13–00870–CV

Court of Appeals of Texas, Dallas.

Opinion Filed July 22, 2015.

Meghan George, Brian J. Hurst, Jay Forrest Utley, Eugenie Robichaux, Dallas, TX, for appellants.

Gregory Ave, Jason L. Wren, Dallas, TX, for appellees.

Before Justices Bridges, Lang, and Lang -Miers

OPINION

Opinion by Justice Lang

Blackstone Medical, Inc. d/b/a Orthofix Spinal Implants appeals the trial court's final judgment incorporating the jury verdict and award of $705,232.80 in damages in favor of Phoenix Surgicals, L.L.C. In three issues, Orthofix argues the trial court erred when it denied Orthofix's motions for directed verdict and judgment notwithstanding the verdict because: (1) the statute of frauds precluded, as a matter of law, Phoenix's claims for breach of contract due to wrongful termination of the agreement and promissory estoppel; (2) the trial court applied an improper measure of damages and there is “no evidence to prove recoverable damages” under the correct measure of damages; and (3) the evidence is legally insufficient to support Phoenix's claim for promissory estoppel as to the expense of hiring of a sales “specialist.”

Phoenix filed a cross-appeal. In its sole issue on cross-appeal, Phoenix argues the trial court erred, as a matter of law, when it awarded Phoenix attorneys' fees in an amount less than what Phoenix requested.

We conclude the trial court did not err when it denied Orthofix's motion for a directed verdict and motion for judgment notwithstanding the verdict on Phoenix's claims for breach of contract due to wrongful termination and promissory estoppel. Also, we conclude the trial court did not err when it declined to award Phoenix all of the requested attorneys' fees. The trial court's final judgment is affirmed.

I. FACTUAL AND PROCEDURAL BACKGROUND

Orthofix is a manufacturer and supplier of spinal implants, orthopedics, and biologics-related medical products. Phoenix is an independent, multi-line distributor of medical products, including spinal implant devices. In March 2009, Orthofix and Phoenix executed a sales representative agreement. That agreement was effective from February 1, 2009 to December 31, 2011, with automatic renewal for additional one-year periods. Section 5(J) of the agreement prohibited Phoenix from selling undisclosed competing products:

J. During the Term of this Agreement, and except for those products identified in Exhibit C hereto (“Disclosure of Competitive Products Carried by Representative”), Representative shall not, without the prior written consent of Company, solicit sales of any product competitive with or similar to any of the Products, nor act as distributor, representative, agent, dealer or otherwise on behalf of any manufacturer of any such competitive or similar product. Representative shall keep the Company informed of all other companies or business establishments whose merchandise the Representative represents. In the event Company adds a new Product to this Agreement which competes with a third party product being carried or offered by Representative, Representative agrees to not renew its representation of such third party with respect to the competitive product upon the expiration or termination of such representation without obtaining the written consent of the Company.

In addition, section 9 contained provisions addressing the early termination of the agreement:

9. TERMINATION

A. Termination for Cause. The following actions by or events involving [Phoenix] shall each constitute a material breach of this Agreement and give [Orthofix] an immediate right, but not obligation, to terminate this Agreement for cause:

....

5. Any material breach of obligations under this Agreement, including, but not limited to any violation of the provisions of Section 5;

....

B. Termination without Cause. Company may terminate this Agreement without cause by providing thirty (30) days' written notice to [Phoenix]. In the event of termination without cause by [Orthofix], [Orthofix] shall pay to [Phoenix] a lump sum amount equal to the average monthly commission received by [Phoenix] during the previous six (6) months for each month that would have remained during the Term of this Agreement or one (1) year, whichever is shorter.

During the contractual relationship, Phoenix distributed and sold products manufactured by Orthofix's competitors and Phoenix fully disclosed its sales activities to Orthofix. Also, during the contractual relationship, Orthofix and Phoenix discussed Phoenix hiring a “sales specialist” to exclusively sell Orthofix's Trinity® Evolution™ biologics product in the Boston area. Orthofix and Phoenix discussed sharing the cost of Phoenix hiring this “sales specialist” for the first six months of employment. Based on this understanding, Phoenix hired a “sales specialist,” Cheri Malo, and paid her salary.

On August 26, 2010, Orthofix sent Phoenix a letter terminating their agreement. That letter stated, in part:

It has come to our attention that Phoenix Surgicals, LLC[,] has been actively soliciting sales of competitive products in violation of the terms of the above-referenced agreement. In light of Phoenix's material breach of its obligations, Blackstone hereby terminates the agreement for cause, effective immediately.

The agreement states that “Phoenix shall not, without the prior written Consent of Blackstone, solicit sales of any product competitive with or similar to any of the Products, nor act as distributor, representative, agent, dealer or otherwise on behalf of any manufacturer of any such competitive or similar product.” Nevertheless, Phoenix has been actively soliciting sales of competitive products manufactured by at least the following Blackstone competitors: Lanx, Orthovita, Spine Wave, Spinology, U.S. Spine, and Vertiflex. Such activity constitutes a material breach of the agreement.

(Footnotes omitted.)

On September 14, 2012, Phoenix filed its second amended petition, asserting several claims, including one for breach of contract due to wrongful termination.¹ Phoenix alleged, in part:

Notwithstanding Orthofix's contentions to the contrary, [Orthofix's] termination of the [a]greement was done without cause or justification. Despite Phoenix having fulfilled all conditions precedent, Orthofix breached the [a]greement by wrongfully and improperly terminating [Phoenix] without justification or cause. As a result, Orthofix has proximately caused, and continues to cause, Phoenix direct and consequential damages ...

The crux of Phoenix's wrongful termination claim was that Orthofix breached the agreement when it claimed it was terminating the agreement “with cause” because “Phoenix had been soliciting the sales of products of Orthofix's competitors” in violation of the agreement's exclusivity provision. Phoenix asserted that Orthofix terminated the agreement “without cause,” in part, because Orthofix was fully aware that Phoenix was selling competitor's products and waived enforcement of the exclusivity provision prohibiting the sale of competitor's products. In its prayer for relief, Phoenix sought all actual, compensatory, and consequential damages, and a declaration that it was entitled to the lump sum payment due under the parties' agreement as a result of a termination of the agreement without cause. On October 23, 2012, Phoenix filed a supplement to its second amended petition, adding the affirmative counter-defenses of estoppel and waiver with respect to its claim for breach of contract due to wrongful termination.

On January 6, 2012, Orthofix's filed its first amended answer and counterclaim, generally denying the allegations and asserting the affirmative defenses of failure to state a claim on which relief may be granted, the claims are barred by the statute of frauds, the doctrine of merger, and the parol evidence rule, Phoenix suffered no compensable damages, justification, and Phoenix's claims are barred by its own inequitable conduct.² Also, Orthofix specifically denied acting with malice, and that its conduct or intent justified the submission of a jury question on exemplary damages. Further, Orthofix asserted a counterclaim for breach of contract, alleging Phoenix breached the agreement by initiating litigation in Connecticut. Orthofix sought attorneys' fees on its breach of contract counterclaim.

On January 11, 2013, the trial court granted, in part, and denied, in part, Orthofix's motions for traditional and no-evidence summary judgment, ordering that Phoenix take nothing on some of its claims.³ However, the trial court denied the motions as to Phoenix's claims for breach of contract due to wrongful termination, breach of contract for unpaid commissions, and request for declaratory judgment. Also, on January 11, 2013, the trial court denied, in its entirety, Phoenix's motion for partial summary judgment on its claims for breach of contract, promissory estoppel, and declaratory judgment based on Phoenix's assertion that Orthofix wrongfully terminated the agreement.

Although Phoenix sought all actual, compensatory, and consequential damages in its second amended petition, on February 5, 2013, during a pretrial hearing, Phoenix stated, on the record, it was not submitting lost sales and profits as a measure of damages. Instead, Phoenix stated it was seeking the “liquidated damages” provided for in section 9(B) of the agreement. Orthofix responded that the provision was not a liquidated damages provision, but a contractual penalty, and the only available measure of damages was lost profits. The trial court declined to rule whether the provision was a liquidated damages provision or penalty during the pretrial hearing.

On February 8, 2013, after the close of the presentation of all evidence, Orthofix filed its motion for directed verdict. On February 11, 2013, after a hearing, the trial court signed an order granting a directed verdict as to...