Hellmuth, Obata & Kassabaum, L.P. v. Efficiency Energy

HELLMUTH, OBATA & KASSABAUM, L.P., Plaintiff, v. EFFICIENCY ENERGY, L.L.C. and WILLIAM VOLKER, Defendants.

CIVIL ACTION H-14-2945

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

January 14, 2016

MEMORANDUM OPINION & ORDER

Pending before the court are (1) plaintiff Hellmuth, Obata & Kassabaum, L.P.'s ("HOK") motion for summary judgment on defendants' counterclaims (Dkt. 20); (2) defendants Efficiency Energy, L.L.C. ("EE") and William Volker's ("Volker") (collectively, "Defendants") motion for summary judgment (Dkt. 21); and (3) HOK's motion to strike Defendants' expert Julio Gonzalez (Dkt. 22). After considering the motions, responses, replies, and applicable law, the court is of the opinion that HOK's motion for summary judgment (Dkt. 20) should be GRANTED IN PART and DENIED IN PART; Defendants' motion for summary judgment (Dkt. 21) should be GRANTED; and HOK's motion to strike (Dkt. 22) should be DENIED. The court defers ruling on part of HOK's motion for summary judgment (Dkt. 20), pending supplemental briefing on Defendants' business disparagement and defamation counterclaims.

I. BACKGROUND

This case concerns the allocation of a tax deduction provided by section 179D of the Internal Revenue Code. See I.R.C. § 179D. Section 179D creates a tax deduction in favor of the owner of a commercial building that is placed in service during the taxable year and is certified as "energy efficient." Id. When the energy efficient commercial building is installed on property owned by a government entity, the deduction may be allocated to the person primarily responsible for designing the building, rather than to the owner of the building. Id. § 179D(d)(4). Before claiming the section 179D deduction, the designer must first obtain a written allocation of the section 179D deduction from the government entity. I.R.S. Notice 2008-40, 2008-1 C.B. 725.

EE is a consulting firm that specializes in coordinating tax incentives resulting from a government entity's construction of energy efficient buildings. Dkt. 21 at 1. In early 2011, employees of the Texas A&M University System introduced representatives of EE to representatives of the University of Texas at Austin ("UT"). Id. at 5. EE informed UT of section 179D and the opportunity for UT to "receive value" in exchange for the tax incentives generated by UT's energy efficient projects. Id. According to EE, a government entity can receive value by requesting a rebate of the contract price paid to the third party designer in exchange for allocating the section 179D tax deduction to that designer. Id.; see also Dkt. 3 at 12.

Around February 8, 2011, UT issued a "Request for Qualifications for Energy Policy Act Coordinator" to the public, seeking a firm to manage its efforts with respect to section 179D tax deductions. Dkt. 21 at 6. EE submitted a response to this request and subsequently entered into a contract with UT (the "EPAC") around April 11, 2011. Id. Under the EPAC, EE provides coordination services to UT regarding allocation of section 179D deductions, including identifying buildings that may qualify for the section 179D deduction, valuing the potential tax benefit, and negotiating with the designer. Id. at 6-7.

Around June of 2011, UT identified the Dell Pediatric Institute as a project that might qualify for a tax deduction under section 179D. Id. at 7. UT had previously entered into a contract with Hensel Phelps Construction Co. ("Hensel Phelps") to build the Dell Pediatric Institute. Id. HenselPhelps had contracted with plaintiff HOK, an architecture and design firm, to serve as the architect and engineer on the project. See Dkt. 23, Ex. 2.

In 2014, HOK requested an allocation letter from UT for the section 179D tax deduction associated with the Dell Pediatric Institute project. Dkt. 20 at 5. HOK's agent was directed to Defendants EE and Volker, EE's president, to negotiate the issuance of the allocation letter. Id. Defendants requested that HOK pay value in exchange for the allocation letter. Id.

HOK discussed Defendants' demand with Alliantgroup, LP ("Alliant"), a tax consulting firm that provides services to architects and other entities who qualify as "designers" under section 179D. Dkt. 24 at 3-4; Dkt. 24, Ex. F at 5-7. In response to Defendants' demand, Alliant drafted a letter on HOK's behalf (the "HOK letter"). Dkt. 24, Ex. F at 13-17. The HOK letter was revised by HOK's legal department and signed by HOK's Chief Financial Officer. Id. In August of 2014, Alliant sent Volker an email with the HOK letter attached. Dkt. 24 at 4. Among other things, the HOK letter stated that the rebate requested by Volker "would most likely constitute an illegal kickback in violation of state and federal law." Dkt. 24, Ex. E. The letter asked Volker to withdraw the request for a rebate and direct UT to issue the allocation letter. Id. EE forwarded the HOK letter to UT. Dkt. 24 at 4. Defendants sought additional information from HOK regarding the law supporting its illegal kickback allegations. Id. at 5.

Alliant advised HOK that it would likely need to pursue legal action to obtain the allocation letter without paying a rebate to UT. Dkt. 24, Ex. F at 7-9. On September 22, 2014, HOK filed this lawsuit in state court and brought claims for fraud, breach of fiduciary duty, conversion, business disparagement, and tortious interference with contract.¹ Dkt. 3. On October 16, 2014, Defendantsremoved the case to this court. Dkt. 1. In their answer, Defendants counterclaimed for declaratory judgment, business disparagement, defamation, and tortious interference with contract. Dkt. 16. On July 8, 2015, the court dismissed HOK's claims for fraud and breach of fiduciary duty. Dkt. 19.

HOK now moves for summary judgment of Defendants' counterclaims and moves to strike Defendants' expert Julio Gonzalez. Dkts. 20, 22. Defendants also move for summary judgment, seeking dismissal of HOK's remaining claims. Dkt. 21.

II. MOTIONS FOR SUMMARY JUDGMENT

A. LEGAL STANDARD

In cases where federal subject matter jurisdiction is based on diversity, state law governs substantive matters while federal law governs procedure. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S. Ct. 817 (1938); Hall v. GE Plastic Pac. PTE Ltd., 327 F.3d 391, 395 (5th Cir. 2003). Under the Federal Rules of Civil Procedure, a court shall grant summary judgment when a "movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). "[A] fact is genuinely in dispute only if a reasonable jury could return a verdict for the non-moving party." Fordoche, Inc. v. Texaco, Inc., 463 F.3d 388, 392 (5th Cir. 2006). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548 (1986). If the party meets its burden, the burden shifts to the non-moving party to set forth specific facts showing a genuine issue for trial. Fed. R. Civ. P. 56(e). The court must view the evidence in the light most favorable to the non-movant and draw all justifiable inferences in favor of the non-movant. Envtl. Conservation Org. v. City of Dall., Tex., 529 F.3d 519, 524 (5th Cir. 2008).

B. HOK's Motion for Summary Judgment of Defendants' Counterclaims

Defendants bring counterclaims for (1) declaratory judgment, (2) tortious interference with contract, (3) business disparagement, and (4) defamation. Dkt. 16. HOK moves for summary judgment on all counterclaims. Dkt. 20. The court will address each counterclaim in turn.

1. Declaratory Judgment

i. Parties' Arguments

Defendants seek a declaratory judgment that the EPAC is valid and creates obligations that Defendants have a legal right to perform. Dkt. 16 at 15. Further, Defendants ask the court to declare that, under the EPAC, UT retains the right to determine whether to allocate section 179D deductions. Id. HOK argues that the court cannot declare rights pursuant to a contract between EE and UT because UT is not a party to this lawsuit; therefore, no justiciable controversy exists. Dkt. 20 at 6-7. In response, Defendants argue that a court may declare the rights of any interested party and that the "controversy" at issue in this case is HOK's interference with EE's performance of its contractual obligations to UT. Dkt. 24 at 12-13.

ii. Analysis

In ruling on a request for declaratory judgment, this court applies the federal Declaratory Judgment Act. See Honey Holdings I, Ltd. v. Alfred L. Wolff, Inc., 81 F. Supp. 3d 543, 555 (S.D. Tex. 2015) (Harmon, J.) (holding that the federal Declaratory Judgment Act is a procedural vehicle and therefore applies in a case removed to federal court). Under the Declaratory Judgment Act, a court "[i]n a case of actual controversy within its jurisdiction . . . may declare the rights and other legal relations of any interested party seeking such a declaration, whether or not further relief is or could be sought." 28 U.S.C. § 2201 (2012).

In analyzing whether to decide or dismiss a declaratory judgment suit, a federal district court must first determine whether the declaratory judgment action is justiciable. Sherwin-Williams Co. v. Holmes Cty., 343 F.3d 383, 387-88 (5th Cir. 2003). The justiciability inquiry typically turns on whether there is an "actual controversy" between the parties to the action. Orix Credit All., Inc. v. Wolfe, 212 F.3d 891, 895 (5th Cir. 2000); see also 28 U.S.C. § 2201 (limiting the declaratory judgment remedy to "a case of actual controversy"). A court must find that an actual controversy exists in order to exercise subject matter jurisdiction. Orix, 212 F.3d at 895. "[T]he question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Maryland Cas. Co. v....