Opinion
Civil Action No. 3:98-CV-1434-L
February 21, 2001
ORDER
After making an independent review of the pleadings, files and records in this case, and the report and recommendation of the United States Magistrate Judge filed on July 12, 1999, the court concludes that the findings and conclusions of the United States Magistrate Judge are correct. Plaintiffs' objections filed July 26, 1999 are overruled. The findings, conclusions and recommendation of the United States Magistrate Judge are adopted by the court, as herein supplemented. As to all of Plaintiffs' claims other than for breach of contract, Defendant's motion for summary judgment is granted; Plaintiffs' motion for partial summary judgment is denied; and the claims are dismissed with prejudice. As to Plaintiffs' claim for breach of contract, Defendant's motion for summary judgment and Plaintiffs' motion for partial summary judgment are both denied, and the claim may proceed. Defendant's motion for summary judgment is, however, granted with respect to limitation of any damages for the breach of contract claim to those incurred on or before December 31, 1995.
Plaintiffs allege causes of action for breach of contract; violation of the Texas Deceptive Trade Practices Act ("DTPA"), Tex. Bus. Com. Code Ann. §§ 17.41 et seq. (West 1999); breach of implied covenants of good faith and fair dealing; tortious interference with contract and prospective economic advantage; conspiracy; conversion; recoupment; unjust enrichment; and promissory/equitable estoppel. Defendant moves for summary judgment on all of the claims. Plaintiffs moves for summary judgment on the breach of contract and DTPA claims only and, in their response to Defendant's motion for summary judgment, "give notice of intention to abandon their remaining causes of action alleged in their Amended Complaint." Plaintiffs' Response at 2. The magistrate judge addressed only the breach of contract and DTPA claims in his recommendation concerning the Defendant's motion for summary judgment. Plaintiffs have not formally moved to amend their complaint and abandon the other causes of action ("the tort claims"), however, and the court cannot grant summary judgment solely on the basis that the motion is unopposed. See Hibernia Nat. Bank v. Administración Cent. Sociedad Anonima, 776 F.2d 1277, 1279 (5th Cir. 1985).
Defendant advances several arguments for summary judgment on the tort claims. The court needs only address one argument, as it is dispositive. Under Texas law, "where a defendant's conduct breaches an agreement between the parties and does not breach an affirmative duty imposed outside the contract, the plaintiff ordinarily may not recover on a tort claim if the damages are economic losses to the subject matter of the contract." National Union Fire Ins. Co. v. Care Flight Air Ambulance Serv., Inc., 18 F.3d 323, 327 (5th Cir. 1994). As a general matter, "economic losses" affect only a party's pocketbook, as opposed to personal injury or physical injury to property. See, e.g., Two Rivers Co, v. Curtiss Breeding Serv., 624 F.2d 1242, 1245-46 (5th Cir. 1980). All of the damages alleged by Plaintiffs constitute economic losses. Accordingly, the court grants Defendant's motion for summary judgment with respect to Plaintiffs' claims for breach of implied covenants of good faith and fair dealing; tortious interference with contract and prospective economic advantage; conspiracy; conversion; recoupment; unjust enrichment; and promissory/equitable estoppel, and dismisses the claims with prejudice.
The court need not address whether the "economic loss" doctrine also bars Plaintiffs' DTPA claim, since another of Defendant's arguments disposes of that claim. In at least some circumstances where only economic losses are involved, a DTPA claim may be allowed — for example, if it involves fraudulent inducement. See Formosa Plastics Corp. USA v. Presidio Engineers Contractors, Inc., 960 S.W.2d 41, 46-47 (Tex. 1998).
Plaintiffs' DTPA claim is also dismissed with prejudice. The DTPA only provides a cause of action for a "consumer," one "who seeks or acquires by purchase or lease, any goods or services." Tex. Bus. Corn. Code Ann. § 17.45(c). The contract between Plaintiffs and Defendant gave Plaintiffs the right to purchase and resell Defendant's products. Such a distributorship arrangement involves the acquisition of an intangible property right, and may also involve the acquisition of goods or services. Texas Cookie Co. v. Hendricks Peralta, Inc., 747 S.W.2d 873, 876-77 (Tex.App. — Corpus Christi 1988, writ denied). An intangible property right alone does not confer "consumer" status and is excluded from the DTPA's coverage. Id. Plaintiffs contend that they obtained goods from Defendant for their personal use, and also obtained services as part of the distributorship agreement, including training and marketing plans and strategies. A DTPA claim is allowed in at least some circumstances when a distributorship agreement also involves the provision of tangible goods and services. Id. The key is whether the collateral goods and services are "an objective of the transaction and not merely incidental to it." Id. at 877; see also Fisher Controls Int'l, Inc. v. Gibbons, 911 S.W.2d 135, 139 (Tex.App.-Houston [1st Dist.] 1995, writ denied); Wheeler v. Box, 671 S.W.2d 75, 78-79 (Tex.App.-Dallas 1984, no writ).
The court concurs with the conclusion of the magistrate judge that the collateral goods and services in this case are merely incidental to the distributorship agreement. Plaintiffs provide no evidence as to the importance or significance of the collateral services, or the volume of goods purchased for personal use. The damages requested relate to the lost income stream from sale of Defendant's product, that is, the intangible property right. Plaintiffs' allegations of misrepresentations relate primarily to their rights under the distributorship agreement, and do not mention the collateral services provided. In a DTPA claim, "the goods or services purchased or leased must form the basis of the complaint." Melody Home Mfg. Co. v. Barnes, 741 S.W.2d 349, 351-52 (Tex. 1987). When the complaint is based on a defendant's refusal to continue a distributorship, rather than denial of the collateral services, a DTPA claim is not available. Tapered Insulation Systems, Inc. v. Schuller Int'l, Inc., 1998 WL 892238, at *5 (Tex.App. — San Antonio Dec. 23, 1998, no writ). The court concludes that Plaintiffs are not "consumers" under the DTPA definition and therefore grants Defendant's motion for summary judgment, and denies Plaintiffs' motion for partial summary judgment, with respect to the DTPA claim. Accordingly, that claim is dismissed with prejudice.
The court notes that portions of the evidence referred to by Plaintiffs, in their motion for partial summary judgment and response to Defendant's motion, were not included in appendices to their motion and response and therefore are not before the court. For example, Plaintiffs did not file relevant portions of the deposition of Adele K. Barnes. Their motion references a request to Defendant to file depositions and deposition exhibits, but that is their responsibility, not Defendant's, Plaintiffs' citation to (and apparent misunderstanding of) Local Rule 5.2(d) notwithstanding.
Plaintiffs' breach of contract claim relies on two alleged breaches: 1) terminating the distributorship without just cause, and 2) terminating the distributorship without following required procedures. For the first alleged breach, a critical determination is whether a transaction between Lennie Harms and Cynthia Treadway took place while Plaintiffs' distributorship was suspended. The parties have provided competent summary judgment evidence supporting their conflicting allegations as to Defendant's compliance with termination procedures as well as the timing of the Harms-Treadway transaction, and the court concludes that there is a genuine issue of material fact with respect to both of the alleged breaches. Defendant's motion for summary judgment and Plaintiffs' motion for partial summary judgment are therefore both denied with respect to the validity of the breach of contract claim.
Defendant's motion for summary judgment is, however, granted with respect to limitation of any damages for the breach of contract claim to those associated with the remaining term of the agreement. Regardless of whether Defendant's original termination of the agreement for cause was valid, Defendant exercised its right to terminate the agreement on thirty days notice, as specified in the agreement, on November 27, 1995. The agreement includes no requirement that such termination be for cause. Plaintiffs' only response to Defendant's argument is "[t]hat in the usual course of conduct and dealing, or custom and practice, Defendant Omnitrition has never terminated any Distributor for any reason other than cause, or not approved or accepted a Distributor's Application/Notice of Renewal." See Plaintiffs' Motion for (Partial) Summary Judgment, ¶ 27. There are two obvious flaws with this response. First, it is not a reasonable interpretation of the evidence on which Plaintiffs rely — a statement in the deposition of Lennie Harms that the termination of Plaintiffs is the only involuntary termination or failure to renew by Omnitrition, other than for cause, of which she is aware. Absent evidence that Ms. Harms would have been aware of any such terminations if they occurred, Plaintiffs' conclusion grossly overreaches. Second, Plaintiffs offer no legal support, and the court is aware of none, for their apparent belief that, if Omnitrition has not terminated distributors other than for cause in the past, it may not do so in their case regardless of the terms of the distributorship agreement. Because the undisputed evidence is that Defendant had the right to terminate the agreement on thirty days notice without cause, and that Defendant exercised that right, the court adopts the magistrate judge's recommendation and holds that no damages are recoverable under Plaintiffs' breach of contract claim for injuries relating to the period before December 31, 1995.
It is so ordered