BMC Software, Inc. v. Int'l Bus. Machs. Corp.

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BMC SOFTWARE, INC., Plaintiff, v. INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant.

Civil Action No. H-17-2254

United States District Court, S.D. Texas, Houston Division

August 9, 2022

MEMORANDUM OPINION &amp ORDER

Gray H. Miller Senior United States District Judge

Pending before the court is IBM's motion to amend judgment. Dkt 772. After reviewing the motion, BMC's response (Dkt 776), IBM's reply (Dkt. 780), and the applicable law, the court is of the opinion that the motion should be GRANTED IN PART and DENIED IN PART.

I. Background

The court assumes familiarity with the underlying facts of the case, and recounts only facts necessary to give a general overview for purposes of the instant motion. On May 30, 2022, the court entered its Findings of Fact and Conclusions of Law and a Final Judgment in this case. Dkts. 756, 757. Concluding that BMC prevailed on its breach of section 5.4 claim and fraudulent inducement claim, the court awarded BMC $717,739,615.00 in direct damages and $717,739,615.00 in punitive damages. Dkt. 756 ¶¶ 206, 214.

II. Legal Standard

IBM brings its motion to amend judgment under Federal Rules of Civil Procedure 52(b), 59(a), and 59(e). Dkt. 772 at 9. For the court to grant IBM the relief it seeks under Rule 52(b), 59(a), or 59(e), IBM must show that the court committed a “manifest error of law or fact.” See, e.g., Pounds v. Katy Indep. Sch. Dist., 730 F.Supp.2d 636, 641 (S.D. Tex. 2010) (Rosenthal, J.) (“[T]o alter or amend the judgment under Rule 59(e), [the moving party] ‘must clearly establish either a manifest error of law or fact.'”) (quoting Rosenzweig v. Azurix Corp., 332 F.3d 854, 86364 (5th Cir. 2003)); Cooper v. Ocwen Loan Servicing, LLC, No. 3:14-CV-2795-N, 2016 WL 4440485, at *2 (N.D. Tex. July 29, 2016) (“Rule 52(b)'s purpose is, generally, to correct manifest errors of law or fact.”) (quotation marks omitted), report and recommendation adopted, No. 3:14-CV-2795-N, 2016 WL 4429248 (N.D. Tex. Aug. 22, 2016); Hicks v. R.H. Lending, Inc., No. 3:18-CV-0586-D, 2020 WL 2065637, at *1 (N.D. Tex. Apr. 29, 2020) (“A motion for a new trial in a nonjury case . . . should be based upon a manifest error of law or mistake of fact, and a judgment should not be set aside except for substantial reasons.”) (quoting Isystems v. Spark Networks Ltd., No. 3:08-CV-1175-N, 2015 WL 13469855, at *1 (N.D. Tex. Jan. 13, 2015)).

But--critically, for this case--“a party may not use a motion under Rule 52(b), 59(a), or 59(e) to repeat previous arguments or raise arguments that could, and should, have been raised at trial.” Equistar Chems., L.P. v. Indeck Power Equip. Co., No. CV H-19-3757, 2021 WL 2270212, at *1 (S.D. Tex. June 3, 2021) (Rosenthal, C.J.); see also T. B. ex rel. Bell v. Nw. Indep. Sch. Dist., 980 F.3d 1047, 1051 (5th Cir. 2020) (stating a Rule 59(e) motion “cannot be used to raise arguments which could, and should, have been made before the judgment issued”) (internal quotations omitted); Templet v. HydroChem Inc., 367 F.3d 473, 478-79 (5th Cir. 2004) (stating a Rule 59(e) motion “is not the proper vehicle for rehashing evidence, legal theories, or arguments that could have been offered or raised before the entry of judgment”); Cooper, 2016 WL 4440485, at *2 (stating a Rule 52(b) motion “should not be employed . . . to re-litigate old issues, to advance new theories, or to secure a rehearing on the merits”).

III. Analysis

Contrary to the Fifth Circuit's clear instruction, IBM uses its motion to rehash the very arguments that the court previously rejected. See Templet, 367 F.3d at 478-79. IBM asserts that the court committed manifest errors of law because (1) section 5.4 of the 2015 Outsourcing Attachment between IBM and BMC (the “ 2015 OA”) is an unenforceable restrictive covenant; (2) the court's damage award for breach was incorrectly determined because there was no causation, the license prices the court relied on were incorrect, and the award is a windfall; (3) BMC's fraud claim is barred by New York law; (4) BMC's fraud claim is contrary to established Texas law; (5) the punitive damages award violates the 2008 Master Licensing Agreement's (“MLA”) punitive damages waiver provision contained in § 9; (6) the punitive damages are barred by Texas law in the absence of aggravating circumstances apart from the underlying wrongful act; (7) the punitive damages award violates due process under Texas state and federal constitutional law; and (8) the court used the wrong interest rate for the post-judgment interest award. The court addresses each of IBM's complaints in turn.

A. Section 5.4 Is Not an Unenforceable Restrictive Covenant

IBM argues that section 5.4, as applied, is an unenforceable restrictive covenant. Dkt. 772. BMC asserts that IBM's challenge “has been made many times before and IBM does not identify any basis for Rule 52 or 59 relief.” Dkt. 776. The court agrees with BMC. The court previously held that section 5.4 is not an unenforceable restrictive covenant, see Dkt. 756 ¶¶ 181-84, and IBM has not convinced the court that this ruling is a manifest error of law.

Restrictive covenants, or anticompetitive agreements, enjoy a long and rich common law history.^[1] See BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 388, 712 N.E.2d 1220 (1999) (noting that reported cases upholding some forms of restrictive covenants date back 300 years). Three factors govern the court's assessment of contractual restraints on trade agreed to between businesses: (1) the presence of a legitimate business interest; (2) the reasonableness of the restriction's scope; and (3) the hardship on the restricted party. Calico Cottage, Inc. v. TNB, Inc., No. 11-CV-0336 (DLI) (MDG), 2014 WL 4828774, at *5 (E.D.N.Y. Sept. 29, 2014). In applying these factors, some courts have invalidated restrictive covenants where a reasonable nexus is lacking between the conduct they proscribe and the conduct challenged in court. See, e.g., Freedom Mortg. Corp. v. Tschernia, No. 20-CV-1206 (AJN), 2021 WL 1163807, at *4 (S.D.N.Y. Mar. 26, 2021) (invalidating an “exceptionally broad” post-employment restrictive covenant of indefinite length covering any commercial or residential mortgage business in the entire United States that did not implicate plaintiff's “legitimate interest in the enjoyment of the goodwill it purchased” from company where employee was a shareholder).

The court found that section 5.4 advanced a legitimate business interest by preventing IBM from leveraging its role as an IT outsourcer and using BMC's software for free to unfairly compete against BMC in the software business.^[2] Dkt. 756 ¶ 183. IBM does not challenge the court's finding; instead, it claims the court found that the “covenant's purported legitimate purpose was . . . to preclude unfair competition and misappropriation of BMC's confidential information.” Dkt. 772 at 11. On that premise, IBM reasons that 5.4's legitimate “purpose is not implicated” by IBM's breach “given the Court's holdings on unfair competition and misappropriation” regarding BMC's trade secrets claims. Dkt. 772.

But IBM's argument rests on a dubious characterization of the court's finding and a faulty premise to boot. The court did not conclude that the covenant's legitimate purpose was to preclude conduct that would amount to an “unfair competition” claim or “misappropriation of . . . confidential information” claim, as IBM suggests. Dkt. 772 (noting that BMC failed to prove unfair competition or trade secrets misappropriation). Rather, the court concluded that the covenant was “designed to prevent giving IBM an unfair advantage when competing with BMC in the software business.” Dkt. 756 ¶ 183 (emphasis added). This mischaracterization notwithstanding, IBM's premise that the court's dismissal of BMC's common law unfair competition and trade secrets claims annuls any finding of “unfair advantage” is wrong, as not all unfair advantages in business will constitute unfair competition or misappropriation of trade secrets. Equally wrong is IBM's assertion that a reasonable nexus is lacking between the court's factual findings and the covenant's purpose. As the court previously explained, IBM, as an IT outsourcer, enjoyed free access to the inner workings of BMC's software, enabling it to “acquire unique knowledge about how a competitor's software operates on a mutual customer's mainframe system” that could benefit its “software” development business. Dkt. 756 ¶ 183 (emphasis added). Leveraging the familiarity with AT&T's mainframe needs and the intimate knowledge of BMC's mainframe software it gained as an IT outsourcer for “no fee,” IBM transitioned AT&T to IBM's software during Project Swallowtail. See id. This conduct squarely implicates section 5.4's legitimate purpose of preventing IBM from applying the “unfair advantage” it secured as an IT outsourcer “when competing with BMC in the software business.” See id. Accordingly, the court concludes, once more, that section 5.4 is not an unenforceable restrictive covenant.

B. IBM's Breach Resulted in over $717 Million in Direct Damages

IBM brings a bevy of objections based on the court's breach-of-contract damages findings.

Dkt. 772. BMC asserts that all of the arguments are “repeat arguments” that are “procedurally improper and should not be considered” as the damages flow directly from the 2015 OA. Dkt. 776. While the court agrees that IBM is mostly rehashing previous arguments, it will briefly consider each objection.

1. Causation

First IBM claims that “the Court manifestly erred in holding that IBM's purported breach of § 5.4 caused BMC's damages.” Id. at 12. Specifically, IBM argues that “[c]ausation requires proof by a preponderance of the evidence that it is ‘reasonably certain' that IBM would have paid BMC $718...