Court Opinion

ID: 34447
Source: CourtListenerOpinion
Date Created: 2010-04-25 19:16:27+00
Date Added: 2024-06-11T14:57:12.586143
License: Public Domain

United States Court of Appeals
                                                          Fifth Circuit
                                                       F I L E D
                  Revised March 12, 2004
                                                      February 23, 2004
              UNITED STATES COURT OF APPEALS
                   For the Fifth Circuit           Charles R. Fulbruge III
                                                           Clerk

                       No. 02-20834

                   DRESSER-RAND COMPANY

                          Plaintiff-Appellee-Cross-Appellant,

                          VERSUS

              VIRTUAL AUTOMATION INC, ET AL.

                                                     Defendants

 APIX, INC., a Florida Corporation; DENNIS C. MEZZATESTA,
          Individual; CHRIS TSIPOURAS, Individual

                         Defendants-Appellants-Cross-Appellees
__________________________________________________________
                     consolidated with

                       No. 03-20417

                   DRESSER-RAND COMPANY

                                           Plaintiff-Appellant,

                          VERSUS

   VIRTUAL AUTOMATION INC, a Texas Corporation, ET AL.

                                                     Defendants

             DENNIS C. MEZZATESTA, Individual

                                            Defendant-Appellee
                Appeals from the United States District Court
                      For the Southern District of Texas

Before DeMOSS, DENNIS, and PRADO, Circuit Judges

DeMOSS, Circuit Judge:

         Dennis Mezzatesta, Apix, Inc., Chris Tsipouras and others were

found by a jury to have acted fraudulently, breached contracts, and

misappropriated confidential information relating to industrial

control systems developed by Dresser-Rand.                     All of the parties

filed various post-trial motions, each of which were denied by the

district court. Apix appeals the denial of its motion for judgment

as   a    matter      of    law   or   for   a   new   trial    on    Dresser-Rand's

misappropriation claim. Tsipouras appeals the denial of his motion

for judgment as a matter of law or for a new trial on Dresser-

Rand's fraud claim.            Mezzatesta appeals the denial of his motion

for judgment as a matter of law or for a new trial on Dresser-

Rand's fraud and breach of contract claims.                 Finally, Dresser Rand

cross appeals: 1) the district court’s denial of its motion for

judgment as a matter of law on its breach of contract claim against

Apix;     and    2)   the    district    court's   denial      of    its   motion   for

injunctive relief against Apix and Mezzatesta.

                           BACKGROUND & PROCEDURAL HISTORY

         Dresser-Rand supplies industrial control products and services

worldwide. Specifically, Dresser-Rand manufactures compressors and

                                             2
turbines for large industrial applications such as oil and gas

operations.   Dresser-Rand also makes its own control products that

regulate the turbines, compressors, and other machinery it sells.

In 1996, Dresser-Rand hired Dennis Mezzatesta to join its controls

business.   At the time Mezzatesta was hired by Dresser-Rand, most

industrial operations had two types of control systems: one for the

machinery   and   another    to    control   the   balance   of   the    plant's

operations.       Although   Dresser-Rand      had   previously       only   sold

machinery   control   systems,      it   planned   to   enter   the     plant   or

"process" control market.         Dresser-Rand and Mezzatesta set out to

develop a new type of control system, through the "Trax" project,

that could perform both the machinery and plant control functions.

To protect the confidential information related to Trax, Dresser-

Rand required its employees to sign confidentiality agreements. In

particular, Mezzatesta was required to sign a "Code of Conduct,"

pledging to protect the company's confidential information and

avoid conflicts of interest.

     Mezzatesta was responsible for overseeing the Trax project,

including the negotiation of supply agreements for the hardware and

software components that were to make up the control system.

Mezzatesta recommended to Dresser-Rand that Apix, Inc., was the

best hardware supplier for the project.            Subsequently, in January

1999, Dresser-Rand entered into a supply and distribution contract

with Apix to create a hardware component that would meet the Trax

product specifications.           The contract granted Dresser-Rand the

                                         3
exclusive right to sell products containing the Apix hardware in a

defined    "Area   of   Application,"   which   involved   primarily   new

machinery control systems.1      Apix also gave Dresser-Rand the non-

exclusive right to sell control products using the Apix hardware in

all other markets worldwide.

     Because Apix would have access to the Trax specifications

developed by Dresser-Rand and other proprietary information, the

contract contained provisions intended to impose a confidential

relationship between the parties.2      Chris Tsipouras, acting in his

capacity as an officer of Apix, signed the contract acknowledging

     1
      In exchange for the exclusive right to sell Apix hardware in
the “Area of Application,” the contract imposed upon Dresser-Rand
minimum purchase obligations of $750,000 for the first year of the
contract, $1,000,000 for the second year, $1,500,000 for the third
year, and $2,000,000 for the fourth and any following years.
     2
         The relevant confidentiality provisions state, in pertinent
part:
          WHEREAS, APIX and Dresser-Rand mutually agree that
     Dresser-Rand has expended valuable time and expenses, and
     has   provided    valuable   Dresser-Rand    confidential
     information and trade secrets in order for APIX to create
     products in a form factor specific to the DIN Rail
     industry, the sale of which will result in additional
     sales of APIX products; and
          WHEREAS APIX to its benefit is in possession of, or
     has become privy to, valuable Dresser-Rand trade secrets,
     and recognizes Dresser-Rand's need to control or protect
     the sale and distribution and
          WHEREAS, the parties have agreed to a mutually
     cooperative arrangement intended to provide customers
     with the best technical solution and to increase the
     sales of both the parties' respective products, while
     protecting the respective parties [sic] property
     (including intellectual property) and under which
     Dresser-Rand will obtain certain rights of use and sale
     in an Area of Application. . . .

                                    4
that Dresser-Rand was entrusting Apix with trade secrets and other

confidential information.

       Unknown to Dresser-Rand, on the same day that Apix signed the

contract with Dresser-Rand, Apix signed another contract with

Virtual Automation, a company that had been formed by Mezzatesta

and another associate for the purpose of marketing a controls

product that could simultaneously perform machinery and process

controls.    Formed while Mezzatesta was still working for Dresser-

Rand, Virtual Automation was to use hardware that was substantially

the same as the hardware Apix sold to Dresser-Rand.

       In July 2000, Paul Fairbanks, Mezzatesta's supervisor at

Dresser-Rand, discovered the existence of Virtual Automation when

he picked up a piece of paper trash in the Dresser-Rand parking

lot.    The scrap of paper turned out to be a Virtual Automation

price list for what appeared to Fairbanks to be Trax items.

Fairbanks immediately initiated an investigation.       After learning

of Fairbank's discovery, Mezzatesta resigned, taking with him

electronic data relating to the Trax project. Upon his resignation

from Dresser-Rand, Mezzatesta immediately began working for Apix,

where he continues to work today.

       During his investigation, Fairbanks inquired as to Tsipouras's

knowledge of Virtual Automation.       Tsipouras denied having done any

business with Virtual Automation.      However, it was discovered that

Tsipouras had not only signed a contract with Virtual Automation,

but was also a stockholder in the company, holding a seat on

                                   5
Virtual Automation's board of directors.

     In August 2000, Dresser-Rand filed suit in state court for

injunctive relief to prevent Virtual Automation and others from

cloning its product.    After non-suiting the case, Dresser-Rand

filed suit in October 2000 in United States District Court for the

Southern District of Texas against multiple defendants, including

Apix, Mezzatesta, and Tsipouras.       Dresser-Rand asserted various

claims against the defendants including, among others, RICO, trade

secret misappropriation, common law misappropriation, fraud, and

breach of contract.    Apix counterclaimed that Dresser-Rand had

breached its contract with Apix.

     After a three and one-half week trial, the jury found for

Dresser-Rand on its common law misappropriation claim against Apix,

on its fraud claims against Tsipouras and Mezzatesta, and on its

breach of contract and civil theft claims against Mezzatesta.    The

jury also found that Dresser-Rand breached its contract with Apix

and awarded Apix $130,000 in damages and $100,000 in attorney's

fees.   The jury awarded Dresser-Rand compensatory damages on its

fraud and misappropriation counts in the amount of $2.2 million,

the value of its lost development costs.       The jury also awarded

$317,000 against Mezzatesta for breach of his employment contracts

with Dresser-Rand and civil theft.     In addition, the jury assessed

punitive damages in the amount of $1,650,000 against Mezzatesta,

$550,000 against Tsipouras, and awarded Dresser-Rand $900,000 in

attorney's fees.   On April 29, 2002, the district court entered

                                   6
judgment on the verdict.

      Shortly after judgment was entered, Apix, Tsipouras, and

Mezzatesta filed motions for judgment as a matter of law, to amend

the judgment, or for a new trial.     In addition, Dresser-Rand filed

a motion seeking injunctive relief against Apix. On July 15, 2002,

the   district   court   denied   all   parties'   pending   motions.

Subsequently, on July 22, 2002, Apix, Tsipouras, and Mezzatesta

filed their notices of appeal.      Dresser-Rand filed its notice of

cross-appeal on August 5, 2002.

                         STANDARD OF REVIEW

      We review de novo a district court's ruling on a motion for

judgment as a matter of law. Miss. Chem. Corp. v. Dresser-Rand Co.,

287 F.3d 359, 365 (5th Cir. 2002).       However, when an action is

tried by a jury, such a motion is a challenge to the legal

sufficiency of the evidence supporting the jury's verdict. Brown v.

Bryan County, OK, 219 F.3d 450, 456 (5th Cir. 2000), cert. denied,

532 U.S. 1007 (2001).      Accordingly, we consider the evidence,

"drawing all reasonable inferences and resolving all credibility

determinations in the light most favorable to the non-moving

party." Id.   This Court grants great deference to a jury's verdict

and will reverse only if, when viewing the evidence in the light

most favorable to the verdict, the evidence points so strongly and

overwhelmingly in favor of one party that the court believes that

reasonable jurors could not arrive at any contrary conclusion.

                                  7
Dahlen v. Gulf Crews, Inc., 281 F.3d 487, 497 (5th Cir. 2002).              A

motion for a new trial should not be granted unless the verdict is

against the great weight of the evidence, not merely against the

preponderance of the evidence. Id.

     We review the denial of a motion for new trial for abuse of

discretion. Miss. Chem. Corp., 287 F.3d at 365; Hidden Oaks Ltd. v.

City of Austin, 138 F.3d 1036, 1049 (5th Cir. 1998) ("Absent a

clear showing of an abuse of discretion, we will not reverse the

trial court's decision to deny a new trial.").

     Finally, the denial of injunctive relief is reviewed under an

abuse   of    discretion    standard,   while   the   legal    conclusions

underlying the denial are subject to de novo review. Waco Int’l,

Inc. v. KHK Scaffolding Houston, Inc., 278 F.3d 523, 528-29 (5th

Cir. 2002).

                                DISCUSSION

I.   Whether the district court erred in denying Apix's motion for
     judgment as a matter of law or for a new trial on Dresser-
     Rand's misappropriation claim.

     On appeal, Apix contends that it did not misappropriate

Dresser-Rand's    product    because:   1)   Dresser-Rand     never   had   a

finished product; 2) Apix never made a product with features

Dresser-Rand planned to include in its proposed product; 3) Apix

never sold its own product that Dresser-Rand claimed was a Trax

"clone;" and 4) Apix simply planned to combine its own hardware

with publicly available software that Dresser-Rand neither made nor

                                    8
planned    to   use   in     the     future,     which      Apix    claims       is     not

misappropriation.

     The elements of a cause of action for unfair competition by

misappropriation in Texas are: "(i) the creation of plaintiff's

product through extensive time, labor, skill and money, (ii) the

defendant's use of that product in competition with the plaintiff,

thereby gaining a special advantage in that competition (i.e., a

"free ride") because defendant is burdened with little or none of

the expense incurred by the plaintiff, and (iii) commercial damage

to the plaintiff." United States Sporting Prods., Inc. v. Johnny

Stewart Game Calls, Inc., 865 S.W.2d 214, 218 (Tex. App.—Waco 1993,

writ denied).

     Taking these elements and each of Apix's arguments in turn, we

first look at Apix's claim that Dresser-Rand never had a finished

product.     Apix contends that because the Trax project was never

completed, there was no final product to misappropriate.                               This

Court,     however,   has       previously      determined         that    the        Texas

misappropriation      law       is   "specially       designed     to     protect       the

labor—the so-called 'sweat equity'—that goes into creating a work."

Alcatel USA, Inc., v. DGI Techs., Inc., 166 F.3d 772, 778 (5th Cir.

1999).     It appears from the evidence presented at trial that

Dresser-Rand expended substantial time and expense towards the Trax

project.     As Dr. Stephen Carr, an expert witness, testified,

"Dresser-Rand    came      up    with   the    plan    to   do   the    product,        the

specifications for the product, . . . and that's where the essence

                                          9
of a product is, in the work, in the contribution of Dresser-Rand."

Based on this Court's previous interpretation of what is protected

under state misappropriation law and the evidence elicited at

trial, it appears clear that a final product is not required before

it can be misappropriated, and therefore, Apix's first argument

fails.

     Second,    Apix    argues      that    it    never    made    a    product   using

features Dresser-Rand planned on using in the Trax product.                        Apix

again bases its argument, in part, on the premise that it could not

have used features from the Trax product because the Trax features

were unfinished at the time of trial.                  However, there is evidence

that Apix planned to use the Trax technology to create a competing

control     product     to     be    sold        through     Virtual      Automation.

Specifically,       exhibits     presented        at    trial     demonstrated      the

similarities between the Trax product and Virtual Automation's

product materials, including the manner in which the products were

marketed.      In     addition,      expert      testimony       revealed   that   the

differences between the Dresser-Rand and Apix control products were

only superficial. As such, there was sufficient evidence presented

at trial supporting the jury's conclusion that Apix used technology

features associated with the Trax product in its own control system

products.

     Third,    Apix    claims       it   never     sold    its    own   product,   and

therefore, it did not "use" it in competition with Dresser-Rand.

Currently, there are no published cases interpreting the term "use"

                                           10
as that term is applied in the Texas common law definition of

misappropriation. However, there is an analogous argument that the

term "use," as defined in the common law tort of misappropriation,

includes activities other than the actual selling of the product.

For example, in Forscan Corp. v. Dresser Indus., Inc., 789 S.W.2d
389, 395 (Tex. App.—Houston [14th Dist.] 1990, writ denied), a case

involving   the   misappropriation      of   trade   secrets    with    facts

resembling those present here, the defendant made an argument

similar to Apix's, specifically arguing that it had not made

commercial use of the misappropriated information.3            However, the

Texas Court of Appeals rejected this argument, finding that the

defendant's attempts to market the product satisfied the commercial

use requirement.4

     In this case, there was testimony that Mezzatesta and Apix

were already taking orders for sales of the "clone" product even

before   Mezzatesta   resigned   from    Dresser-Rand.         In   addition,

     3
       To prove misappropriation of trade secrets, a plaintiff must
show: 1) the existence of a trade secret; 2) a breach of a
confidential relationship or improper discovery of the trade
secret; and 3) use of the trade secret without authorization. Guy
Carpenter & Co., Inc. v. Provenzale, 334 F.3d 459, 467 (5th Cir.
2003).
     4
       Specifically, the Forscan court found that:
     [The defendant] himself stated that in 1981 he was in the
     process of both testing his tool and attempting to market
     it.    He had employed a marketing director who was
     conducting a marketing survey and contacting prospective
     customers.    Clearly, this is evidence of intended
     commercial use.
Forscan, 789 S.W.2d at 395.

                                   11
evidence proffered at trial revealed that Apix and Mezzatesta were

prepared to give away the product to gain the competitive advantage

of entering the new control market before Dresser-Rand.       It is

undisputed that Apix was actively marketing its competing product

at least six months before trial.      Therefore, based on Apix's

marketing activities and the fact that it was already taking

product orders, we find that Apix did in fact "use" the Trax

technology.

      In its fourth argument, Apix claims that it simply planned to

combine its own hardware with publicly available software that

Dresser-Rand neither made nor plans to use in the future.   However,

as discussed previously, the evidence presented at trial indicated

that Dresser-Rand, not Apix, was responsible for coming up with the

idea for the control system, investing the time, labor, skill, and

money to design the specifications, modify the existing hardware

and software components, and conduct the alpha testing of the

product.

      In sum, there is sufficient evidence to affirm the district

court's order denying Apix's motion for judgment as a matter of law

or for a new trial on Dresser-Rand's misappropriation claim.

II.   Whether the district court erred in denying Chris
      Tsipouras's motion for judgment as a matter of law or for
      a new trial on Dresser-Rand's fraud claim.

      On appeal, Tsipouras contends that Dresser-Rand failed to

produce evidence supporting its claim that Tsipouras intended to

                                 12
allow Virtual Automation to sell Apix hardware in competition with

Dresser-Rand.   Tsipouras argues that in its contract with Virtual

Automation,   Apix   expressly   prohibited    Virtual   Automation    from

selling the hardware in Dresser-Rand's “Area of Application,” and

therefore, cannot be liable for fraud.         Dresser-Rand responds by

pointing to the fact that on the same day Tsipouras signed the

contract with Dresser-Rand giving Dresser-Rand non-exclusive rights

to sell the hardware worldwide and exclusive rights to sell the

hardware in Dresser-Rand's Area of Application, Tsipouras also

signed a distributorship agreement with Virtual Automation giving

Virtual Automation exclusive worldwide rights to distribute the

same hardware, including in Dresser-Rand's Area of Application.

     Based on a review of the two contracts, they cannot be

reconciled.   Although Tsipouras claims to have prohibited Virtual

Automation    from   selling   hardware   in   Dresser-Rand's   Area    of

Application, the relevant contract provision expressly states that

Virtual Automation "shall not sell to Dresser-Rand, it's [sic]

subsidiaries and affiliates in the Area Of Application." (Emphasis

added).   Therefore, Virtual Automation still appears to have the

right to compete with Dresser-Rand in its Area of Application as

long as Virtual Automation sells to buyers other than Dresser-Rand.

This right conflicts with the exclusive right granted by Tsipouras

on behalf of Apix to Dresser-Rand.

     Based on the fact that the contract between Dresser-Rand and

Apix directly conflicts with the distributorship agreement between

                                   13
Virtual Automation and Apix, and that both contracts were signed by

Tsipouras on behalf of Apix on the same day, the evidence is

sufficient to support the district court's denial of Tsipouras's

motion for judgment as a matter of law or for a new trial on

Dresser-Rand's fraud claim.

III. Whether the district court erred both in allowing
     Dresser-Rand's expert to testify on lost profits and in
     denying Apix's and Tsipouras's motion for judgment as a
     matter of law on the issue of lost profits.

     Apix and Tsipouras argue that the district court erred in

allowing the testimony of two witnesses called by Dresser-Rand in

support of its lost profits damage theory — Dr. Meherwan Boyce,

called as an industry expert, and Mr. Thomas Jollay, an accountant.

At trial, Dr. Boyce estimated the market penetration that Dresser-

Rand's Trax product would have had, and Mr. Jollay opined that,

based on Dr. Boyce's estimate, Dresser-Rand suffered lost profits

in the amount of $25 million.         Apix and Tsipouras contend that

under Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993),

the district court improperly admitted Dr. Boyce's testimony as

"scientific knowledge."    Apix and Tsipouras address in detail the

Daubert factors, arguing that Dr. Boyce's estimates should be

excluded.

     In   response,   Dresser-Rand    insists   that   the   lost   profits

analysis is irrelevant because it had no impact on the judgment.

Dresser-Rand   argues   that   the   jury   rejected   the   lost   profits

analysis and instead only awarded Dresser-Rand its $2.2 million

                                     14
development costs.         In addition, Dresser-Rand asserts that a

Daubert   challenge      cannot    support       reversal   because,   at    most,

admission of the testimony at issue would amount to harmless error.

     The district court's determination of admissibility of expert

evidence under Daubert is reviewed for abuse of discretion. St.

Martin v. Mobil Exploration & Producing U.S., Inc., 224 F.3d 402,

405 (5th Cir. 2000) (citing Moore v. Ashland Chem., 151 F.3d 269,

274 (5th Cir. 1998) (en banc)).              Erroneous admission of expert

testimony is subject to a harmless error analysis. St. Martin, 224
F.3d at 405; United States v. Matthews, 178 F.3d 295, 304 (5th Cir.

1999).    Moreover, pursuant to Fed. R. Civ. P. 61, this Court is

bound to disregard any errors, including the admission of expert

testimony,   that   do    not     affect   the    substantial   rights      of   the

parties. Bell v. Swift & Co., 283 F.2d 407, 409 (5th Cir. 1960).

The burden of proving substantial error and prejudice is upon the

appellant. Id.

     Even if the district court erred in allowing Dresser-Rand’s

witnesses to testify concerning lost profits, this testimony had

little or no effect on the jury's verdict.                   The jury awarded

Dresser-Rand only its $2.2 million development costs and divided

that amount among three defendants — $1,100,000 against Mezzatesta,

$550,000 against Tsipouras, and $550,000 against Apix.                 Testimony

at trial revealed that Dresser-Rand's development costs and claim

for lost profits were distinct and separable from one another.                    In

addition, the jury charge specifically makes a distinction between

                                       15
compensatory damages and lost profits.                  The jury appears to have

taken into account the testimony of Dr. Boyce and Mr. Jollay,

evaluated        the    validity    of     the   lost    profits   analysis,    and

subsequently rejected that analysis.               Therefore, because the jury

did not award Dresser-Rand any of its lost profits claim, even if

the district court erred in admitting the lost profits testimony,

such error would be harmless.

IV.    Whether the evidence at trial conclusively established
       that Apix incurred $2,760,000 in damages in addition to
       the $130,000 awarded by the jury for Dresser-Rand's
       breach of its contract with Apix.

       The jury found that Dresser-Rand breached its contract with

Apix by retaining certain hardware components provided by Apix

without remitting payment.               Apix claims that although the jury

correctly determined that Dresser-Rand breached its contract with

Apix and awarded Apix $130,000 for failing to pay Apix for the

hardware Dresser-Rand received, the contract also imposed minimum

purchase obligations on Dresser-Rand.5                  Specifically, Apix argues

that       at   the    time   of   trial   Dresser-Rand      failed   to   purchase

$2,760,000 of Apix hardware as required by the contract.                       Apix

asserts that it invested $300,000 to upgrade its manufacturing

       5
       The minimum purchase obligation provision of the contract
states that "[d]uring the first four years and future years of the
Agreement, Dresser-Rand shall purchase the minimum purchase
requirement for such years as set forth in Exhibit A,” which
requires Dresser-Rand to purchase Apix hardware in the following
amounts: $750,000 in the first year, $1,000,000 for the second
year, $1,500,000 for the third year, and $2,000,000 for the fourth
and any future years.

                                            16
capabilities so that it could produce the quantities Dresser-Rand

agreed to purchase.   In addition, Apix maintains that by focusing

on its contract with Dresser-Rand and giving up on other business

opportunities, it was severely damaged.

     Dresser-Rand insists that the minimum purchase provisions in

its contract with Apix were not intended to go into effect until

the Trax product was complete.           Paul Fairbanks, the manager of

Dresser-Rand’s   control   system   operations,    also   testified   that

Dresser-Rand’s minimum purchase obligations were directly tied to

Dresser-Rand’s exclusive right to purchase, use, and sell Apix’s

hardware in Dresser-Rand’s Area of Application.           In other words,

according to Dresser-Rand, to maintain its exclusive right granted

by Apix, Dresser-Rand had to purchase the minimum quantities as set

forth in the contract.6

     In the absence of an error of law, this Court reviews the

district court’s award for damages for clear error only. In re

Liljeberg Enters., Inc., 304 F.3d 410, 447 (5th Cir. 2002).        If the

award of damages is plausible in light of the record, a reviewing

court should not reverse the award even if it might have come to a

different conclusion. Id. (quotation marks and citation omitted).

At the conclusion of the trial, the jury found that Dresser-Rand

breached its contract with Apix. In awarding damages, however, the

jury determined that Dresser-Rand was only liable to Apix for

     6
       It is undisputed that at the time of trial Dresser-Rand
failed to meet any of the minimum purchase obligations.

                                    17
$130,000, the value of the Apix hardware that Dresser-Rand received

but did not pay for.           As for Dresser-Rand’s minimum purchase

obligations, the jury instructions specifically inquired as to the

amount of money, “if any, . . . [that] would fairly and reasonably

compensate Apix for its damages, if any, that were proximately

caused . . . [by] Dresser-Rand’s failure, if any, to meet its

minimum    purchase    obligations     under   the   contract.”        The   jury

answered this question by awarding Apix nothing.

     Apix fails to provide this Court with any compelling reason to

overturn      the   jury’s   damage   award    for   Dresser-Rand’s     breach.

Additionally, given that the jury also found that Tsipouras, an

Apix officer, was liable for defrauding Dresser-Rand on the same

contract, the determination that Apix should not benefit under the

minimum purchase obligation provision is certainly appropriate.

Thus,   the    minimum   purchase     obligation     damage   award,   or    lack

thereof, was not clear error.

V.   Whether the district court erred in denying Mezzatesta's
     motion for judgment as a matter of law or for a new trial
     on Dresser-Rand's fraud and contract claims.

     Mezzatesta argues that Dresser-Rand produced no evidence that

his alleged fraud or breach of contract caused Dresser-Rand injury,

i.e., damage.       Mezzatesta recognizes that Dresser-Rand alleged two

different types of damages at trial — lost profits and lost

investment. Mezzatesta contends that both of these damage theories

were premised on Dresser-Rand's claim that Mezzatesta used Virtual

                                       18
Automation to “clone” the Trax product.                 He argues, however, that

because the evidence at trial established that Virtual Automation

never made a product, Dresser-Rand never suffered damages, and

therefore, its fraud and breach of contract claims fail as a matter

of law.

     1.     Fraud

     Among the essential elements of fraud is a showing of injury

suffered because of the fraud. C & C Partners v. Sun Exploration &

Prod. Co.,       783 S.W.2d 707,   718   (Tex.    App.—Dallas     1989,   writ

denied).     The absence of this element will prevent recovery for

fraud. Id.       The measure of damages in a fraud case is the actual

amount of the plaintiff's loss that directly or proximately results

from the defendant's fraudulent conduct. Tilton v. Marshall, 925
S.W.2d 672,    680     (Tex.    1996).        The    desired   end   is   actual

compensation for the injury, not lost profits. C & C Partners, 783
S.W.2d at 719.

     Based on evidence presented at trial, Dresser-Rand determined

that its Trax product was going to be preempted in the new controls

market by Mezzatesta's fraudulently-acquired product by at least

six to eight weeks.              Therefore, because this preemption would

effectively      cause    Dresser-Rand      to   lose    its   profitability,    it

abandoned the Trax project, incurring investment costs up to that

time. Alternatively, Dresser-Rand presented evidence that it would

have suffered damages even if it had attempted to continue with the

Trax project.      Specifically, there was evidence that Dresser-Rand

                                          19
had tried but was unable to locate suitable substitute hardware

from a new vendor.         Dresser-Rand also established that it had

budgeted neither the funds nor the time to start the Trax project

over with a new hardware supplier.         Therefore, although Mezzatesta

and Virtual Automation did not ultimately complete and sell an end

product that they could have placed in direct competition with

Dresser-Rand's, the evidence supports the jury's conclusion that

Mezzatesta's fraudulent acts caused Dresser-Rand to prematurely

withdraw from      the   market,   thereby   suffering   the   loss   of   its

investment costs.

     2.     Breach of Contract

     Mezzatesta also argues that this Court should reverse the

district court's denial of his motion for judgment as a matter of

law or for a new trial on Dresser-Rand's breach of contract claim.

Again, the sole basis for Mezzatesta's appeal on the breach of

contract issue is his contention that Dresser-Rand did not suffer

injury.     The jury found that Mezzatesta breached his fiduciary

obligations imposed by his employment contract with Dresser-Rand by

using Virtual Automation as a vehicle to clone Dresser-Rand's Trax

product.    As part of his employment agreement with Dresser-Rand,

Mezzatesta assigned all rights to any inventions or designs that he

made, conceived or created, either solely or jointly with others

that related to Dresser-Rand's business "directly or indirectly,"

or   that   were    developed      using   Dresser-Rand's      materials   or

facilities.    In addition, Mezzatesta agreed to "keep secret and

                                      20
confidential" Dresser-Rand’s confidential information, both during

his employment and afterward.

      Mezzatesta        also     signed    a    "Code       of    Conduct"    whereby   he

acknowledged that he was required to "protect . . . confidential

and trade secret information." Pursuant to the Code of Conduct, he

agreed    to    avoid    situations        in       which   his    personal    interests

conflicted      with     those    of   Dresser-Rand,             including    holding   an

interest in any company that might become either a competitor or a

supplier of Dresser-Rand.

      The      damages    suffered        by    Dresser-Rand         as   a   result    of

Mezzatesta's breach of contract are similar in nature to the

damages Dresser-Rand suffered because of Mezzatesta's fraud.                            We

find that there was sufficient evidence to allow the jury to make

a reasonable determination of Dresser-Rand’s damages as a result of

Mezzatesta's breach of contract, and we conclude that the jury

award is not clearly erroneous.7

VI.   Whether the district court erred in denying Dresser
      Rand's motion for judgment as a matter of law on its
      breach of contract claim against Apix.

      At the close of Apix’s case-in-chief and before the case went

to the jury, counsel for Dresser-Rand orally moved for judgment as

      7
       Mezzatesta also argues that the district court erred by
entering judgment for punitive damages against him because there
was no evidence that Dresser-Rand suffered actual damages. Because
there is sufficient evidence that Dresser-Rand suffered actual
damages on both its fraud and breach of contract claims,
Mezzatesta's argument regarding punitive damages and attorney's
fees necessarily fails as well.

                                               21
a matter of law on its breach of contract claim against Apix, which

the district court immediately denied.              The issue went before the

jury, which ultimately determined that Apix did not breach its

contract with Dresser-Rand.            On its cross-appeal, Dresser-Rand

cites two reasons in support of its contention that Apix breached

its contract when it assigned distributorship responsibilities to

Virtual     Automation.      First,    Dresser-Rand       maintains   that     its

contract with Apix clearly prohibits Apix from appointing a third

party, such as Virtual Automation, to act as a distributor within

Dresser-Rand's Area of Application.               Second, Dresser-Rand argues

that the plain language of the contract expressly precludes Apix's

grant to Virtual Automation of the exclusive right to resell the

hardware outside Dresser-Rand's Area of Application.

      In response, Apix argues that the notion that its appointment

of   Virtual   Automation    violates       its   contractual     obligation   to

protect Dresser-Rand's confidential information ignores Apix's

contentions that: 1) the jury found Dresser-Rand had no trade

secrets; 2) nothing in the contract prohibited Apix from using

Virtual Automation as a distributor; 3) the obligations to protect

Dresser-Rand's information only applied within Dresser-Rand's Area

of Application — which is where Apix claims it prohibited Virtual

Automation from selling; and 4) Apix’s decision to employ Virtual

Automation as a distributor was its standard business practice. As

detailed below, none of these defenses appear meritorious.

      The   issue   before   us   is   governed      by   basic   principles    of

                                       22
contract interpretation.       It is well settled that courts must

enforce the unambiguous language in a contract as written, and the

applicable standard is the objective intent evidenced by the

language used, rather than by the subjective intent of the parties.

Petula Assocs., Ltd. v. Dolco Packaging Corp., 240 F.3d 499, 504

(5th Cir. 2001) (quotations omitted).            Only after a court has

determined   that   a   contract    is   ambiguous   can   it   consider   the

parties' interpretations. H.E. Butt Grocery Co. v. Nat'l Union Fire

Ins. Co., 150 F.3d 526, 529 (5th Cir. 1998).

     1.   Appointing a third-party distributor within Dresser-
          Rand’s Area of Application

     We must determine whether Apix's distributorship assignment

with Virtual Automation violated the express terms of Apix’s

contract with Dresser-Rand.        Section 1.03 of the Dresser-Rand/Apix

contract states:

          In order to protect the Dresser-Rand confidential
     and trade secret information contained in the HARDWARE:

          In circumstances that involve or are within Dresser-
     Rand's Area of Application,
          (a) APIX shall not sell or appoint, allow, or
     permit any other party to sell the HARDWARE, and,
          (b) APIX shall refer all requests to Dresser-Rand
     for inquiries on, or orders for, the HARDWARE in
     circumstances that involve or are within Dresser-Rand's
     Area of Application.8

     Apix's first argues that there can be no breach because the

     8
      With regard to section 1.03(b), Dresser-Rand asserts that it
is undisputed that none of its management knew that Apix had
assigned distributorship responsibilities to Virtual Automation, or
that Virtual Automation was privy to any of the Trax
specifications.

                                      23
jury determined at trial that Dresser-Rand had not proven that the

technology associated with the Trax project was a trade secret.

Although this may be a correct statement, section 1.03 specifically

states that the contract is intended to protect "confidential and

trade secret information” contained in the Trax product. (Emphasis

added). Therefore, although Dresser-Rand did not persuade the jury

that it had a protectable trade secret, it nevertheless drafted a

contract that also protected confidential information.9

     Apix next argues that nothing in the contract prohibited it

from using Virtual Automation as a distributor.        However, it

appears that section 1.03(a) expressly contemplates and prohibits

such an assignment by specifically precluding Apix from appointing

any other party to sell the hardware within Dresser-Rand's Area of

Application. Meanwhile, the relevant provision in the Apix/Virtual

Automation distributorship agreement expressly states that Virtual

Automation “shall not sell to Dresser-Rand, it's [sic] subsidiaries

and affiliates in [Dresser-Rand’s] Area Of Application.” (Emphasis

added).   Therefore, Virtual Automation still appears to have the

right to compete with Dresser-Rand in its Area of Application as

long as Virtual Automation sells to buyers other than Dresser-Rand.

This provision in the distributorship agreement directly conflicts

with section 1.03(a)'s prohibition on the creation of third-party

assignments in Dresser-Rand’s Area of Application.        Therefore,

     9
       It is noteworthy that the jury did find Apix liable for
unfair competition by misappropriation of confidential information.

                                24
based on basic principles of contract interpretation, Apix's second

argument fails.

     Third, Apix argues that the obligation to protect Dresser-

Rand's information only applied within Dresser-Rand's Area of

Application.      However, as discussed above, Apix failure to satisfy

that obligation renders this argument meritless.              In other words,

the distinction Apix attempts to make between its obligations in

and out of the Area of Application would succeed only if it

successfully protected Dresser-Rand’s information in the first

place.        Finally, Apix's fourth argument, that its decision to

employ    Virtual    Automation    as    a    distributor   was   its   standard

business practice, has no relevance to this discussion.

     Finding no merit in any of Apix’s four arguments, we conclude

that Apix failed to satisfy its contractual obligations relating to

its duties within Dresser-Rand’s Area of Application.

     2.        Exclusive right to resell Apix hardware
               outside Dresser-Rand’s Area of Application

     Dresser-Rand’s second assertion on its cross-appeal is that

there is contradictory language between the contracts regarding the

right    to    resell   the   hardware    outside   Dresser-Rand’s      Area   of

Application.      Apix first assigned Dresser-Rand the “non-exclusive

right to use and to purchase and resell the said APIX hardware in

a form factor specific to the DIN Rail industry to all customers in

all markets worldwide.” (Emphasis added).            Immediately thereafter,

Apix granted Virtual Automation the “exclusive right to distribute

                                         25
the said HARDWARE . . . in the DIN Rail Market.”10 (Emphasis added).

Simply stated, Apix’s non-exclusive grant to Dresser-Rand and the

contemporaneously-granted exclusive right to Virtual Automation

within the same market do not appear to be reconcilable.

     Finding no ambiguous language between the Dresser-Rand/Apix

contract and the Apix/Virtual Automation distributorship agreement,

we conclude that Apix breached its contract with Dresser-Rand as a

matter of law.   Therefore, we reverse the district court’s denial

of Dresser-Rand’s motion for judgment as a matter of law and remand

with instructions to the district court to determine damages, if

any, for Dresser-Rand as a result of Apix’s breach.

VII. Whether the district court erred in denying Dresser-
     Rand's motion seeking injunctive relief against Apix and
     Mezzatesta.

     At the conclusion of the trial, Dresser-Rand filed a motion

with the district court requesting injunctive relief against both

Apix and Mezzatesta.   Specifically, Dresser-Rand sought to enjoin

Apix and Mezzatesta from manufacturing, marketing, offering for

sale, or selling any electronic control product containing features

developed by Dresser-Rand for the Trax project. The district court

denied Dresser-Rand's motion for injunctive relief and Dresser-Rand

cross-appealed the district court's denial.

     Dresser-Rand cites three reasons why the district court erred

     10
       The hardware referred to in both contracts was found by the
jury to be the same.

                                26
in denying its motion for a permanent injunction against Apix.

First, Dresser-Rand maintains that the district court failed to

comply with Fed. R. Civ. P. 52(a), which Dresser-Rand claims

requires findings of fact and conclusions of law to be entered with

respect to the grant or denial of an injunction.         Second, Dresser-

Rand argues that this Court should reverse the district court's

denial of injunctive relief because the fully developed record

establishes that a denial under the facts constitutes an abuse of

discretion.      Third, Dresser-Rand suggests that because Mezzatesta

filed   for    bankruptcy   before   the   jury's   verdict,   the   damages

subsequently awarded by the jury were virtually eliminated, leaving

Dresser-Rand without an adequate remedy at law.

     1.       Applicability of Rule 52(a)

     Taking Dresser-Rand's arguments in turn, we first address

whether Rule 52(a) compels the district court to make specific

findings of facts and state its conclusions of law.              As stated

previously, the district court did not make any express findings of

fact or conclusions of law supporting its denial of injunctive

relief.   Although Rule 52(a) does require a district court to make

such findings and state its conclusions, these requirements are

only imposed when a trial is heard without a jury or when a court

is issuing an interlocutory order.         Dresser-Rand's request for a

permanent injunction at the conclusion of a jury trial does not

trigger this rule.      Therefore, as Rule 52(a) has no application

under the facts of this case, Dresser-Rand's first argument on its

                                     27
appeal for injunctive relief fails.

     2.     Whether the district court abused its discretion.

     Dresser-Rand also argues that the district court abused its

discretion in denying Dresser-Rand's motion for injunctive relief.

A trial court abuses its discretion if it "(1) relies on clearly

erroneous factual findings when deciding to grant or deny the

permanent injunction, (2) relies on erroneous conclusions of law

when deciding       to   grant    or   deny    the   permanent    injunction,    or

(3) misapplies the factual or legal conclusions when fashioning

injunctive relief." Peaches Entm't Corp. v. Entm't Repertoire

Assoc., 62 F.3d 690, 693 (5th Cir. 1995).

     At    common    law,   for    a   permanent     injunction    to   issue   the

plaintiff must prevail on the merits of his claim and establish

that equitable relief is appropriate in all other respects. Amoco

Prod. Co. v. Village of Gambell, 480 U.S. 531, 546 n.12 (1987)

(recognizing that the standard for a permanent injunction is

essentially the same as for a preliminary injunction with the

exception that the plaintiff must show actual success on the merits

rather than a mere likelihood of success).                  A party seeking a

permanent injunction must also plead and prove an irreparable

injury for which no adequate remedy at law exists. Butler v. Arrow

Mirror & Glass, Inc., 51 S.W.3d 787, 795 (Tex. App.—Houston [1st

Dist.] 2001, no pet.).            For purposes of injunctive relief, an

adequate remedy at law exists when the situation sought to be

enjoined    is   capable    of    being    remedied    by   legally     measurable

                                          28
damages. Haq v. America's Favorite Chicken Co., 921 S.W.2d 728, 730

(Tex. App.—Corpus Christi 1996, writ dism'd w.o.j.).

     In this case, Dresser-Rand was successful on its claim that

Apix misappropriated confidential information associated with the

Trax product and that Mezzatesta acted fraudulently and breached

his contract with Dresser-Rand.       Dresser-Rand also established by

its own trial testimony that its claim of $25 million in lost

profits would have provided it fair and proper compensation.            In

other words, according to Dresser-Rand's arguments at trial, any

harm that it might have suffered as a result of Apix's and

Mezzatesta’s   wrongful    actions    could   be   adequately   cured   by

calculable monetary damages.    Additionally, Dresser-Rand conceded

at trial that it abandoned the Trax project after learning of

Apix's misappropriation.      Arguably, it would be difficult for

Dresser-Rand to claim it would suffer irreparable injury if Apix

were to manufacture, market, offer for sale, or sell any electronic

control product containing features similar to Dresser-Rand's Trax

product when Dresser-Rand has withdrawn its product from that

market.

     3.   Mezzatesta's Pre-Verdict Filing for Bankruptcy

     In its third argument, Dresser-Rand argues that injunctive

relief is proper because Mezzatesta has essentially eliminated the

damages awarded against him when he filed for bankruptcy prior to

the jury's verdict.       The jury awarded Dresser-Rand a total of

$3,967,700 in damages against Mezzatesta.          However, prior to the

                                     29
jury's verdict, Mezzatesta filed a voluntary Chapter 13 bankruptcy

petition in the Bankruptcy Court for the Southern District of

Texas.    In his original bankruptcy schedules, Mezzatesta scheduled

general    unsecured    claims      of    $124,164.03,   exclusive   of   the

$3,967,700   claim     in   favor   of   Dresser-Rand.    Pursuant   to   his

original Chapter 13 Plan of Reorganization, Mezzatesta proposed to

pay unsecured creditors an aggregate distribution of $426.70.

According to Dresser-Rand's calculations, its pro rata share of the

distribution would total no more than $413.77. Dresser-Rand argues

that these circumstances preclude it from having an adequate remedy

at law, rendering an injunction appropriate.11

     As previously discussed, a plaintiff can prove there is no

adequate remedy at law where damages cannot be calculated. Haq, 921
S.W.2d at 730.    In addition, there is no adequate remedy at law if

the defendant is incapable of responding in damages. Texas Indus.

Gas, 828 S.W.2d at 533; Bank of the Southwest N.A., Brownsville v.

Harlingen Nat'l Bank, 662 S.W.2d 113, 116 (Tex. App.--Corpus

Christi 1983, no writ).       The Texas Court of Appeals has concluded

that “insolvency can be a factor in determining whether there is an

adequate remedy at law.” Texas Indus. Gas, 828 S.W.2d at 533

     11
       Dresser-Rand originally filed a motion for injunctive relief
against both Apix and Mezzatesta. However, due to Mezzatesta's
bankruptcy and the correlating automatic stay, Dresser-Rand
voluntarily withdrew its motion for injunctive relief. Two months
later, the district court denied all post-trial motions and the
parties filed their respective notices of appeal and cross-appeal.
Thereafter, the bankruptcy court lifted its stay to allow Dresser-
Rand to seek injunctive relief against Mezzatesta.

                                         30
(emphasis added).

     4.   Analysis

     Based on a review of the parties’ respective arguments, we

conclude that the district court did not abuse its discretion in

denying Dresser-Rand injunctive relief.        We first observe that by

its own argument, Dresser-Rand has calculable damages, i.e., its

$25 million lost profits claim.      Damages capable of being measured

afford Dresser-Rand an adequate remedy at law, thus precluding

injunctive relief. Second, also by its own admission, Dresser-Rand

has completely abandoned the Trax project, thus eliminating any

irreparable harm it might incur as a result of any similar product

that Apix and/or Mezzatesta may or may not introduce into the

market.   In the absence of such harm, the granting of injunctive

relief is not appropriate.     See Butler, 51 S.W.3d at 795.       Finally,

although Mezzatesta may not be capable of paying the damages

awarded Dresser-Rand by the jury, this factor is but one we may

consider in making our determination. Texas Indus. Gas, 828 S.W.2d

at 533.   The first two factors discussed above, i.e., Dresser-

Rand’s calculable damages and the abandonment of its Trax project,

weigh far greater in our analysis as to the propriety of an

injunction.    As    such,   the   district   court   did   not   abuse   its

discretion in denying Dresser-Rand's motion for injunctive relief

against Apix and Mezzatesta.

                               CONCLUSION

                                     31
          Having           carefully   reviewed    the     record    of    this   case,    the

parties’ respective briefing and arguments, and for the reasons set

forth above, we AFFIRM the post-trial rulings of the district

court, with                the   exception   of   the     district    court’s     denial    of

Dresser-Rand’s motion for judgment as a matter of law on its breach

of contract claim against Apix.                        Finding that the district court

erred in denying such motion, we REVERSE that portion of the

district court’s order and accordingly REMAND this case for further

proceedings not inconsistent with this opinion.                           AFFIRMED in part,

REVERSED in part, and REMANDED.

G:\opin\02-20834.opn.wpd                          32