IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

___________________________________

ADVOCARE INTERNATIONAL L.P., *

*

Plaintiff, *

v. *

 *

HORIZON LABORATORIES, INC., *

RICHARD PAUL SCHECKENBACH, *

R-SQUARED NUTRITION, INC., and *

HERBASIA CORPORATION, * Civil No. 3:04-CV-1988-H

 *

Defendants, *

v. *

 *

ROBERT HACKMAN, *

 *

Third-Party Defendant. *

MEMORANDUM OPINION AND ORDER

Before the Court are Plaintiff Advocare International L.P.’s Motion for Partial Summary

Judgment, and supporting brief and appendix, filed October 31, 2005; Defendant Horizon

Laboratories, Inc.’s Response to Motion for Partial Summary Judgment, filed November 17, 2005;

and Plaintiff Advocare’s Reply, and supplemental appendix, filed December 5, 2006.

Also before the Court are Plaintiff Advocare International’s Objections and Motion to Strike

Summary Judgment Evidence, filed December 5, 2005; Defendant Horizon Laboratories, Inc.’s

Response, and supporting appendix, filed December 23, 2005; and Plaintiff Advocare’s Reply, filed

January 3, 2006.

Also before the Court is Plaintiff Advocare’s Motion to Exclude Defendant Horizon’s

Evidence of Damages, and supporting brief, filed February 3, 2006.

 

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For the reasons that follow, Plaintiff’s motion for partial summary judgment is granted in

part, and denied in part. Plaintiff’s motion to strike summary judgment evidence is denied.

Plaintiff’s motion to exclude evidence is rendered moot by the holding in this opinion.

I. BACKGROUND

Plaintiff Advocare International L.P. [“Advocare”] sells nutritional supplements and weight

management products. From 1994 through 2004, Defendant Horizon Laboratories, Inc. [“Horizon”]

manufactured certain products for Advocare, including a weight management supplement containing

ephedra. This lawsuit arises from the contractual relationship between Advocare and Horizon, and

from their relative liability for losses incurred because of consumer lawsuits based on alleged injury

from ingestion of ephedra.

Advocare’s claims against Horizon include breach of contract, fraud, civil conspiracy, usury,

and indemnity. Horizon’s claims against Advocare include breach of contract and fraud. Plaintiff

Advocare now moves for partial summary judgment on three of the claims at issue.

II. SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate when the facts and law as represented in the pleadings,

affidavits and other summary judgment evidence show that no reasonable trier of fact could find for

the nonmoving party as to any material fact. FED. R. CIV. P. 56; Lujan v. National Wildlife

Federation, 497 U.S. 871, 888 (1990); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251 (1986);

Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986); Innovative Database Systs. v. Morales, 990

F.2d 217 (5th Cir. 1993). The moving party bears the initial burden of identifying those portions of

the pleadings and discovery in the record that demonstrate the absence of a genuine issue of material

fact, but “is not required to negate elements of the nonmoving party’s case.” Lynch Properties, Inc.

 

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v. Potomac Ins. Co. of Ill., 140 F.3d 622, 625 (5th Cir. 1998) (citing Celotex, 477 U.S. at 322-25).

If the movant fails to meet its initial burden, the motion must be denied, regardless of the

nonmovant’s response. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994). 

If the movant does meet its burden, the nonmovant must go beyond the pleadings and

designate specific facts showing that a genuine issue of material fact exists for trial. Matsushita

Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Edwards v. Your Credit, Inc., 148

F.3d 427, 431 (5th Cir. 1998). In determining whether genuine issues of fact exist, factual

controversies are construed in the light most favorable to the nonmovant, but “only if both parties

have introduced evidence showing that a controversy exists.” Lynch, 140 F.3d at 625; see also

Eastman Kodak v. Image Technical Servs., 504 U.S. 451 (1992). In the absence of any proof, the

Court will not assume that the nonmoving party could or would prove the necessary facts. Lynch,

140 F.3d at 625. A party must do more than show some “metaphysical doubt as to the material

facts.” Matsushita, 475 U.S. at 586. If the record, taken as a whole, could not lead a rational trier

of fact to find for the nonmoving party, there is no genuine issue for trial. Friou v. Phillips

Petroleum Co., 948 F.2d 972, 974 (5th Cir. 1991).

With these summary judgment standards in mind, the Court turns to an analysis of

Advocare’s motions.

III. ANALYSIS

 Advocare has asked the Court for judgment as a matter of law on the following causes of

action: (1) Advocare’s breach of contract claim against Defendant Horizon for failure to maintain

adequate insurance coverage; (2) Horizon’s breach of contract counterclaim against Advocare for

 

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failure to satisfy a monthly purchase commitment; and (3) Horizon’s fraud counterclaim against

Advocare. Each of the three issues is addressed in turn.

A. Breach of Contract (Insurance Coverage)

During the course of the business relationship between Advocare and Horizon, the parties

entered into two written contracts: (1) the Manufacturing Standards and Confidentiality Agreement

dated April 11, 1997 [“1997 Agreement”]; and (2) the Manufacturing Standards and Confidentiality

Agreement dated October 14, 2002 [“2002 Agreement”]. Advocare alleges that both contracts

contained provisions requiring Horizon to maintain adequate product liability insurance coverage

for the products it manufactured for Advocare. Because of the subsequent ephedra lawsuits for

which Advocare was uninsured, Advocare claims damages against Horizon for breach of the two

promises to obtain coverage. The Court addresses each contract separately.

1. 1997 Agreement

Advocare moves for judgment as a matter of law that Horizon breached the parties’

1997 Agreement. The elements of a claim for breach of contract under Texas law are (1) the

existence of a valid contract; (2) compliance with its terms by the claimant; (3) breach of the contract

by the non-claimant; and (4) damages to the claimant as a result of the breach. W.G. Pettigrew

Distrib. Co. v. Borden, Inc., 976 F. Supp. 1043, 1052 (S.D. Tex. 1996), aff’d, 127 F.3d 34 (5th Cir.

1997); Aquila Southwest Pipeline, Inc. v. Harmony Exploration, Inc., 48 S.W.3d 225, 235 (Tex.

App.-San Antonio 2001, no writ); Landrum v. Devenport, 616 S.W.2d 359, 361 (Tex.

App.-Texarkana 1981, no writ). 

For the 1997 Agreement, it is undisputed that the first two prongs are met. The fourth,

however, is not. The Court is unable from the summary judgment materials submitted by Advocare

 

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 Although the 1997 Agreement has no choice of law provision, the 2002 Agreement 1

specifies that Texas law applies to the contract’s interpretation. See Plf.’s App. at 16 (2002

Agreement, ¶ 19). Horizon has not contested the application of Texas law to both contracts.

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to determine whether any of Advocare’s alleged damages of approximately $2.5 million are

attributable to breach of the 1997 Agreement. Accordingly, Advocare has not met its burden of

establishing a prima facie case for breach of contract. Summary judgment on Advocare’s cause of

action for breach of contract must therefore be denied on that basis.

In the interest of streamlining trial of this matter, the Court proceeds to address the third

element of the cause of action, breach of the contract’s terms by Horizon. Under Texas law,1

contract interpretation is a question for the court unless the contract is susceptible of two or more

reasonable interpretations. Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). The court’s primary

goal is to ascertain the true intent of the parties from the four corners of the agreement. Heritage

Resources, Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996); Cook Composites, Inc. v.

Westlake Styrene Corp., 15 S.W.3d 124, 131 (Tex. App. -- Houston [14th Dist.] 2000, writ dism’d).

In this case, the 1997 Agreement reads in relevant part:

Liability Insurance. Manufacturer shall maintain in place at all times

insurance coverage for product liability in adequate amounts.

Further, Manufacturer shall obtain an endorsement to such policy of

product liability insurance, which endorsement names AdvoCare as

an additional insured. Manufacturer shall provide to AdvoCare the

original of said policy endorsement.

Plf.’s App. at 11 (1997 Agreement, ¶ 7).

The “manufacturer” in both contracts is Defendant Horizon. See id. at 10. The plain

language of this contract requires Horizon to buy product liability insurance in “adequate amounts.”

No product covered by the agreement is expressly excluded from the requirement of insurance

coverage. The only reasonable construction of this paragraph, therefore, is that the coverage was

 

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intended by the parties to apply to all the products Horizon contractually agreed to manufacture. It

is undisputed that Horizon manufactured the ephedra product for Advocare under both the 1997 and

2002 Agreements. Accordingly, for the duration of the time the Agreements were in effect, Horizon

was required to buy and maintain product liability insurance for the ephedra product.

This Horizon failed to do. Under three of the four insurance policies Horizon bought from

Lexington Insurance Company during the relevant time period, it is undisputed that ephedra was

excluded from coverage. See Advocare Int’l, L.P. v. Horizon Labs., Inc., Civ. No. 3:04-CV-1988-H

(N.D. Tex. January 13, 2006). Under the fourth policy, whose terms the parties disputed in this

lawsuit, the Court has found as a matter of law that the policy’s plain language excluded ephedra

from coverage. See Advocare, order at 2-4. The exclusion is so plain, moreover, that Horizon could

have no objectively reasonable belief that it had complied with the terms of its Agreement with

Advocare. See id.

In opposition to a finding of breach of contract, Horizon first argues that the terms “product

liability” and “adequate amounts” are vague and create a fact issue concerning the agreed scope of

insurance. With respect to the term “product liability,” that argument is specious. With regard to

the term “adequate amounts,” the point is moot. Horizon provided no product liability insurance for

ephedra products whatsoever. By any construction, zero would never be an “adequate amount.”

Second, Horizon argues that Advocare waived objection by failing to investigate whether the

insurance Horizon provided did or did not cover ephedra. Horizon provided Advocare with

certificates of insurance confirming the existence of insurance policies, but the certificates did not

include notice of the endorsement excluding ephedra. Horizon cites no authority for the concept that

 

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an aggrieved party has the burden to police compliance with a contract before claiming breach, and

the Court can conceive of none. 

Finally, Horizon argues impossibility of performance. It produces no summary judgment

evidence, however, that obtaining product liability insurance for ephedra was impossible. Indeed,

the policy terms specify that ephedra was excluded from coverage in consideration for the premium

charged. See id. The only competent evidence before the Court thus shows that ephedra coverage

was not impossible, merely expensive.

Under these circumstances, the Court holds that Horizon breached the 1997 Agreement’s

term requiring maintenance of product liability insurance in adequate amounts. On this limited issue

Advocare’s motion is granted, and the Court will so instruct the jury at trial.

2. 2002 Agreement

The same analysis that applies to Horizon’s alleged breach of the 1997 Agreement applies

to Horizon’s breach of the 2002 Agreement. Horizon did not provide Advocare the insurance

coverage it agreed to provide under the 2002 Agreement; and the Court will so instruct the jury.

From the materials before the Court, however, it is impossible to say as a matter of law whether any

of the alleged damages are traceable to breach of the 2002 Agreement, or instead to breach of the

1997 agreement, or alternatively to both. See W.G. Pettigrew Distrib. Co. v. Borden, Inc., 976 F.

Supp. at 1052 (requiring damages traceable to the breach as an element of a prima facie case of

breach of contract under Texas law). Accordingly, Advocare’s motion for summary judgment

cannot be granted on this claim. 

 

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B. Breach of Contract (Minimum Purchase)

In the second of Advocare’s grounds for summary judgment, Advocare asks the Court to

dismiss Horizon’s counterclaim for Advocare’s alleged breach of the 2002 Agreement. Horizon

claims that Advocare failed to satisfy a minimum Monthly Purchase Commitment from August 2004

until expiration of the contract. In response, Advocare argues first that it terminated the contract in

August 2003, more than a year before its alleged breach. Second, Advocare argues that because

Horizon was itself in breach of the agreement, it cannot bring a claim for breach under Texas law.

The Court agrees on both counts.

Under the 2002 Agreement, it is undisputed that either Advocare or Horizon had the right

to terminate further performance upon the agreement’s breach by the other party. Plf.’s App. at 16

(2002 Agreement ¶ 16). Advocare submits uncontradicted evidence that in compliance with the

agreement’s notice provision, Advocare sent written notice of termination and allowed the

mandatory ten days for Horizon to “cure” the problem. The question is whether the termination was

validly grounded in an actual breach of the agreement by Horizon. If so, the breach supports

Advocare’s termination of the 2002 Agreement; and it also independently precludes Horizon’s suit

for Advocare’s subsequent failure to comply with the agreement’s provisions. See W.G. Pettigrew

Distrib. Co. v. Borden, Inc., 976 F. Supp. at 1052.

The 2002 Agreement reads in relevant part:

USP Compliance. [Horizon] agrees to participate in and fully comply

with the Dietary Supplement Verification Program (“DSVP”)

established by U.S. Pharmacopeia (“USP”). [Horizon] further agrees

to undertake such actions as necessary to obtain the DSVP

certification mark for the Products within 180 days from the Effective

Date of this Agreement.

Plf.’s App. at 14 (2002 Agreement ¶ 3). 

 

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 The Court would normally entertain a presumption in this analysis against the drafter of 2

the agreement, which Horizon claims to have been Advocare. See Republic Nat’l Bank of Dallas

v. Northwest Nat., 758 S.W.2d 109, 115 (Tex. 1978). However, in this case the 2002 Agreement

contains express provision that “[n]o party to this Agreement shall be considered the ‘drafter’ of

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Under the terms of the agreement, then, Horizon agreed to obtain DSVP certification for the

designated products. Horizon concedes that it never accomplished DSVP certification for any of

Advocare’s products. It argues instead that the contractual phrase is ambiguous. 

A contract is ambiguous when its meaning is uncertain and doubtful, or it is reasonably

susceptible to more than one meaning. Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). Whether

a contract is ambiguous is a question of law for the court to decide. Friendswood Dev. Co. v.

McDade & Co., 926 S.W.2d 280, 282 (Tex. 1996); National Union Fire Ins. Co. v. CBI Indus., Inc.,

907 S.W.2d 517, 520 (Tex. 1995). This determination is made by reviewing the contract as a whole

in light of the circumstances existing when the contract was executed. Friendswood Dev. Co., 926

S.W.2d at 282; National Union Fire Ins. Co., 907 S.W.2d at 520. If a contract is worded in such a

manner that it can be given a definite or certain meaning, it is not ambiguous. Friendswood Dev.

Co., 926 S.W.2d at 282; National Union Fire Ins. Co., 907 S.W.2d at 520.

In this case, Horizon argues that the word “undertake” means “to set about,” “to attempt,”

or “to commit to a course of action.” Horizon argues that all the contract required it to do was to

begin within 180 days the process of obtaining DSVP certification. The Court disagrees. The real

question is whether the phrase “within 180 days” is a deadline for initiating the required steps or is,

in contrast, a deadline for obtaining the certification. If the former, the phrase “within 180 days” is

placed awkwardly, ungrammatically, and implausibly far afield from the conduct to which it refers.

If the latter, the sentence reads normally, makes good grammatical sense, and is susceptible of clear

meaning. Accordingly, the Court finds the phrase not to be ambiguous as written: Horizon agreed

2

 

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this Agreement for purposes of construction of this Agreement.” Plf.’s App. at 16 (2002

Agreement ¶ 18).

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to undertake whatever actions were necessary to accomplish DSVP certification by April 2003, 180

days after the contract commenced.

In opposition to this reading, Horizon submits parol evidence that DSVP certification is

impossible to achieve within 180 days and indeed can take years to accomplish. As a result, Horizon

argues, it would never have agreed to obtain it within that short time frame. Whether this allegation

is correct, or more to the point, whether Horizon knew the problem existed at the time it signed the

agreement, is not for the Court to decide. Absent ambiguity, parol evidence is not admissible on the

issue of contract interpretation or breach. Coker, 650 S.W.2d at 393; see Heritage Resources, Inc.,

939 S.W.2d at 121 (requiring a court to determine the parties’ intent from the four corners of the

agreement). To the extent Horizon needed to modify the 2002 Agreement to reflect its actual

progress on the DSVP issue, such modification was required by the contract terms to be in writing.

See Plf.’s App at 16 (2002 Agreement ¶ 14). By the unambiguous terms of the contract, Horizon

was in breach 180 days after the effective date. Based on that breach, Advocare terminated the

contract approximately four months later, in August 2003. Accordingly, Horizon’s claim of breach

beginning in August 2004 must fail for lack of a valid agreement in existence between the parties.

As a second ground for granting summary judgment on Horizon’s claim, the Court notes that

Horizon’s breach for failure to obtain DSVP certification in the required time period independently

precludes Horizon from asserting a subsequent breach of that contract by Advocare. See W.G.

Pettigrew Distrib. Co. v. Borden, Inc., 976 F. Supp. at 1052 (finding under Texas law a prima facie

requirement that a claimant for breach of contract not have been in prior breach). Advocare’s motion

 

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for summary judgment on Horizon’s counterclaim for breach of the 2002 Agreement’s Monthly

Purchase Commitment is granted.

C. Fraud

Advocare next asks for summary judgment on Horizon’s counterclaim of fraud. Horizon has

pleaded that Advocare did not intend to abide by the 2002 Agreement at the time the terms of the

contract were agreed. Advocare’s first argument is that Horizon failed to plead fraud with

particularity. See FED. R. CIV. P. 9(b). The court finds, to the contrary, that Horizon has met the

bare bones of the requirement. See Def.’s Second Amended Answer and Counterclaim ¶¶ 42, 43,

50 (setting out the time, place, circumstances, and content of the alleged fraud, along with Horizon’s

reliance and damages).

Advocare argues next that Horizon’s fraud claim is simply a claim for breach of contract, and

as such is not independently supportable. As a general rule, the failure to perform the terms of a

contract is a breach of contract, not a tort. See International Printing Pressmen & Assistants Union

of N. Am. v. Smith, 198 S.W.2d 729, 735-36 (Tex. 1946). When one party enters into a contract with

no intention of performing, however, that misrepresentation may give rise to an action in fraud.

Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex. 1986); Stanfield v. O'Boyle, 462

S.W.2d 270, 272 (Tex. 1971); Lone Star Steel Co. v. Scott, 759 S.W.2d 144, 155 (Tex.

App.--Texarkana 1988, writ denied). Accordingly, Horizon has stated a claim on this issue.

To survive summary judgment, Horizon must do more than merely state a claim; it must

submit competent summary judgment evidence. Matsushita Elec. Indus. Co., 475 U.S. at 587;

Edwards, 148 F.3d at 431. Instead, Horizon offers only bald allegations of fraudulent intent. See

Farris Aff. In the absence of a supporting inference arising from Advocare’s early termination of

 

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the contract, for which the Court has found nothing improper, Horizon has failed to meet its

summary judgment burden. See Securities and Exchange Comm’n v. Recile, 10 F.3d 1093, 1097-98

& n.15 (5th Cir.1994) (holding that bald allegations of fraudulent intent are insufficient to create a

genuine issue of material fact); Fraire v. Arlington, 957 F.2d 1268, 1273 (5th Cir.), cert. denied, 506

U.S. 973 (1992) (same). Because no genuine issue of material fact exists for this claim, it is

dismissed.

IV. CONCLUSION

For the reasons given above, Advocare’s motion for summary judgment is GRANTED IN

PART and DENIED IN PART. The Court will instruct the jury that Horizon did not provide

insurance coverage required by both the 1997 and 2002 Agreements. Summary Judgment on

Advocare’s claim of breach of contract with respect to failure to provide insurance coverage is

otherwise DENIED. As to Horizon’s counterclaims against Advocare, summary judgment is

GRANTED in Advocare’s favor for Horizon’s claim of breach of the 2002 Agreement’s Monthly

Purchase Commitment, and for Horizon’s claim of fraud.

Advocare’s motion to strike summary judgment evidence is DENIED. Because the Court

has granted summary judgment on Horizon’s counterclaims for which Horizon asserts damages of

lost profits, Advocare’s recently filed motion to exclude evidence of damages for those claims is

DENIED AS MOOT.

 

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The Court does not by this Order decide the merits of the stated account for which Horizon

seeks recovery in the amount of approximately $3.4 million.

SO ORDERED. 

DATED: February 6, 2006.

___________________________________

BAREFOOT SANDERS, SENIOR JUDGE

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

 

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