Court Opinion

ID: 3127601
Source: CourtListenerOpinion
Date Created: 2015-10-16 15:43:38.453289+00
Date Added: 2024-06-11T11:53:33.610195
License: Public Domain

MEMORANDUM OPINION
                              Nos. 04-10-00610-CV & 04-10-00611-CV

    GATOR LICENSING, LLC, Old Warrior Investments, LLC, and GI Innovations, LLC,
                                Appellants

                                                   v.

 C. MACK, an Individual, on behalf of himself as an individual, and/or in a derivative capacity
                on behalf of IHT Technology Inc., a Nevada Corporation,
                                         Appellee

                     From the 408th Judicial District Court, Bexar County, Texas
                                  Trial Court No. 2008-CI-17190
                               Honorable Larry Noll, Judge Presiding

Opinion by:       Catherine Stone, Chief Justice

Sitting:          Catherine Stone, Chief Justice
                  Sandee Bryan Marion, Justice
                  Phylis J. Speedlin, Justice

Delivered and Filed: August 10, 2011

AFFIRMED

           In two separate appeals, Gator Licensing, LLC, Old Warrior, LLC, and GI Innovations,

LLC seek to challenge a final judgment to which they are not named parties by establishing

either: (1) that the trial court abused its discretion in denying their post-judgment petition in

intervention; or (2) that they are entitled to challenge the judgment in a restricted appeal under

the doctrine of virtual representation. Because the two appeals involve overlapping issues, we
                                                                    04-10-00610-CV & 04-10-00611-CV

address the issues raised in both appeals in a single opinion. We affirm the trial court’s judgment

and its order striking the petition in intervention.

                                            BACKGROUND

          C. Mack sued numerous defendants, including K. Harris R&D, LLC, for breach of

numerous loan agreements, fraud, and fraudulent transfer. C. Mack sued individually and in a

derivative capacity as a shareholder of IHT Technology, Inc. After a week-long jury trial, the

jury found in favor of C. Mack on his claims, including a claim involving the fraudulent transfer

of intellectual property from IHT to K. Harris R&D, LLC. The trial court signed a final

judgment on March 11, 2010 which, among other provisions, declared the transfer of the

intellectual property from IHT to K. Harris R&D, LLC to be void. The judgment required the

defendants to execute all legal transfers of the intellectual property to IHT as may be necessary

to effectuate the judgment.

          On May 27, 2010, Gator Licensing, Old Warrior, and GI Innovations filed a petition in

intervention, seeking to set aside the portions of the trial court’s judgment relating to the

intellectual property. Gator Licensing and Old Warrior sought to intervene on the basis that they

are members of K. Harris R&D, LLC, and GI Innovations sought to intervene based on its

relationship with K. Harris R&D, LLC, including its licensing of the intellectual property

transferred from IHT. C. Mack filed a motion to strike the petition in intervention, and following

a hearing, the trial court verbally announced that the petition was stricken. The trial court signed

a written order evidencing its ruling on March 22, 2011. Gator Licensing, Old Warrior, and GI

Innovations filed a timely appeal of the trial court’s order striking their petition in intervention.

In addition, Gator Licensing, Old Warrior, and GI Innovations filed a timely notice of restricted

appeal.

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                                                                            04-10-00610-CV & 04-10-00611-CV

                                       PETITION IN INTERVENTION

        Rule 60 of the Texas Rules of Civil Procedure provides, “Any party may intervene by

filing a pleading, subject to being stricken out by the court for sufficient cause on the motion of a

party.” TEX. R. CIV. P. 60. We review a trial court’s decision to strike a party’s intervention

under an abuse of discretion standard. In re Lumbermens Mut. Cas. Co., 184 S.W.3d 718, 722

(Tex. 2006).       Although the trial court has broad discretion in determining whether an

intervention should be stricken, it is an abuse of discretion to strike a plea in intervention if: (1)

the intervenor could have brought some or all of the same action in his own name, or, if the

action had been brought against the intervenor, he could have defeated the action in whole or in

part; (2) intervention would not complicate the case by excessive multiplication of the issues;

and (3) intervention is almost essential to protect the intervenor’s interest. Guar. Fed. Sav. Bank

v. Horseshoe Operating Co., 793 S.W.2d 652, 657 (Tex. 1990); Orion Refining Corp. v. UOP,

259 S.W.3d 749, 777 (Tex. App.—Houston [1st Dist.] 2007, pet. denied).

        While the Texas Rules of Civil Procedure do not impose a deadline for intervention, the

general rule is that a party may not intervene after final judgment unless the judgment is set

aside. Tex. Mut. Ins. Co. v. Ledbetter, 251 S.W.3d 31, 36 (Tex. 2008); In re Lumbermens Mut.

Cas. Ins. Co., 184 S.W.3d at 725; State v. Naylor, 330 S.W.3d 434, 438 (Tex. App.—Austin

2011, pet. filed). The petition in intervention in this case was filed over two months after the

trial court signed the final judgment. 1 Because the petition was filed after the rendition of a final

judgment, it was untimely. See Ledbetter, 251 S.W.3d at 36; Naylor, 330 S.W.3d at 438-39.

Moreover, the primary basis for the intervention was to assert rights as members of or under

agreements with K. Harris R&D, LLC that are separate from the claims resolved by the jury in

1
  Although the petition was filed over two months after the rendition of final judgment, the trial court retained
plenary jurisdiction because the defendants in the underlying cause filed a timely motion for new trial.

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                                                                      04-10-00610-CV & 04-10-00611-CV

the underlying case. Given that a week-long jury trial had been completed over two months

prior to the filing of the petition in intervention, the trial court could have determined that the

intervention would complicate the case by excessive multiplication of the issues. See Guar. Fed.

Sav. Bank, 793 S.W.2d at 657; Orion Refining Corp., 259 S.W.3d at 777. Accordingly, the trial

court did not abuse its discretion in striking the petition in intervention.

                                        RESTRICTED APPEAL

       A. Standing

       Generally, a restricted appeal is available only to parties of record, so that non-parties

who have not properly intervened in the trial court lack standing to pursue an appeal of the trial

court’s judgment. Naylor, 330 S.W.3d at 438; Johnson v. Johnson, 841 S.W.2d 114, 115 (Tex.

App.—Houston [14th Dist.] 1992, no writ); Mobil Exploration & Producing U.S., Inc. v.

McDonald, 810 S.W.2d 887, 889 (Tex. App.—Beaumont 1991, writ denied). However, an

unnamed party may have standing to pursue a restricted appeal if the party was “virtually

represented” by a named party. Naylor, 330 S.W.3d at 439; Johnson, 841 S.W.2d at 115; Mobil

Exploration & Producing U.S., Inc., 810 S.W.2d at 889. In order to claim virtual representation,

an appellant must show: (1) it is bound by the judgment; (2) its privity of estate, title, or interest

appears from the record; and (3) there is an identity of interest between the appellant and a

named party to the judgment. In re Lumbermens Mut. Cas. Inc. Co., 184 S.W.3d at 722; Naylor,
330 S.W.3d at 439.

       GI Innovations contends it was virtually represented because: (1) K. Harris R&D, LLC is

one of its members; and (2) K. Harris R&D, LLC licensed the patents transferred from IHT to GI

Innovations. GI Innovations cites no legal support for its contention that it would be bound by a

judgment against one of its members. Typically, a company could be bound by a judgment

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                                                                                   04-10-00610-CV & 04-10-00611-CV

against a shareholder or member only through a theory of “outsider reverse corporate veil

piercing.” See Wilson v. Davis, 305 S.W.3d 57, 70 (Tex. App.—Houston [1st Dist.] 2009, no

pet.). No party to the underlying lawsuit, however, sought to hold GI Innovations liable for the

actions of K. Harris R&D, LLC. Based on the record presented, GI Innovations is a separate

legal entity from its members, and we find no support in the law or in the record for the

proposition that GI Innovations would be bound by a judgment against one of its members.

         Similarly, we find no support for the proposition that GI Innovations would be bound by

a judgment against K. Harris R&D, LLC by virtue of its licensing agreement. See E.W. Bliss Co.

v. U.S., 253 U.S. 187, 192 (1920) (a licensee has no ownership interest in a patent). Although a

licensee may be indirectly affected by a judgment rendered against a licensor, GI Innovations has

cited no law to support the proposition that licensees are bound by a judgment rendered against a

licensor such that the licensor virtually represents all of its licensees in lawsuits brought against

the licensor. Accordingly, GI Innovations failed to establish that it has standing to bring a

restricted appeal challenging the trial court’s judgment. 2

         B. Necessary Parties and Service

         Gator Licensing and Old Warrior contend they were virtually represented because they

are members of K. Harris R&D, LLC. We have found case law to support the proposition that

shareholders of a corporation are in privity with the corporation as to all corporate matters and

are bound by a decree against the corporation. Western Inn Corp. v. Heyl, 452 S.W.2d 752, 760

(Tex. Civ. App.—Fort Worth 1970, writ ref’d n.r.e.); see also Donzis v. Immudyne, Inc., No. 04-

2
  We note that even if GI Innovations could establish standing, its argument that it was a necessary party to the
proceeding below would likely fail because K. Harris R&D, LLC retained the right to license its intellectual
property to other licensees. See Caldwell Mfg. Co. v. Unique Balance Co., 18 F.R.D. 258, 261-62 (S.D.N.Y. 1955)
(stating bare licensee is not a necessary party to a suit in which a licensor seeks to protect its ownership interest); see
also Ortho Pharmaceutical Corp. v. Genetics Institute, Inc., 52 F.3d 1026, 1031 (Fed. Cir. 1995) (describing lack of
standing or property interest a mere licensee has and comparing license to mere privilege that protects licensee
against a claim of infringement by the licensor).

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                                                                   04-10-00610-CV & 04-10-00611-CV

00-00685-CV, 2001 WL 913977, at *2 (Tex. App.—San Antonio Aug. 15, 2001, no pet.) (not

designated for publication); but see Tex. Capital Sec. Mgmt., Inc. v. Sandefer, 80 S.W.3d 260,

266 (Tex. App.—Texarkana 2002, pet. stricken) (asserting party’s mere status as shareholder is

insufficient to establish privity).   Because members of a limited liability company are

comparable to shareholders of a corporation, it would appear to follow that they are similarly

bound by a judgment against and in privity with the company. See Western Inn Corp., 452
S.W.2d at 760; see also Donzis v. Immudyne, Inc., 2001 WL 913977, at *2. However, we have

found no law to support the proposition that a shareholder is entitled to bring a restricted appeal

challenging a judgment against a corporation based on the doctrine of virtual representation.

Because Gator Licensing and Old Warrior cannot prevail on the merits of their restricted appeal

for the reasons stated below, we will simply assume for purposes of this appeal that Gator

Licensing and Old Warrior have standing to bring the restricted appeal.

       Gator Licensing and Old Warrior argue the judgment should be reversed because they

were necessary parties and were not served with citation. Because title ownership to property

owned by a corporation rests in the corporation and not in any individual shareholder, the

shareholders of a corporation are not necessary parties to a lawsuit against the corporation.

Western Inn Corp., 452 S.W.2d at 760. Similarly, a member of a limited liability company does

not have an interest in any specific property of the company. TEX. BUS. ORGS. CODE ANN.

§ 101.106(b) (West Pamp. 2010).        It therefore follows that just as a shareholder is not a

necessary party to a lawsuit against a corporation, a member of a limited liability company is not

a necessary party to a lawsuit against the company. See Western Inn Corp., 452 S.W.2d at 760.

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                                                                 04-10-00610-CV & 04-10-00611-CV

                                        CONCLUSION

       The trial court’s order striking the petition in intervention and the trial court’s final

judgment are affirmed.

                                                    Catherine Stone, Chief Justice

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