Profinity, LLC v. One Technologies, L.P.

Citation: Not availableDocket: 05-14-00403-CV

Court: Court of Appeals of Texas; December 16, 2015; Texas; State Appellate Court

Original Court Document: View Document

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Affirmed in part; vacated and dismissed in part; opinion filed on December 17, 2015, by the Court of Appeals Fifth District of Texas at Dallas in case No. 05-14-00403-CV. One Technologies, L.P. (OT) initiated a lawsuit against Profinity, LLC (Profinity) and Chad D. Ertel, a former OT employee, alleging Ertel breached a non-compete agreement. Profinity filed a counterclaim under the Texas Free Enterprise and Antitrust Act (TFEAA). The jury ruled against OT and in favor of Profinity, awarding approximately $3.6 million in damages. OT's motion for judgment notwithstanding the verdict (JNOV) was granted regarding Profinity’s counterclaim, but denied for OT’s breach of contract claim against Ertel, resulting in a take-nothing judgment for both parties.

On appeal, Profinity argued that the trial court erred in rendering a take-nothing judgment on its anticompetitive claim, while OT contended it deserved judgment on its breach of contract claim against Ertel. The court ruled against both Profinity and OT on their respective issues and determined that the trial court lacked jurisdiction over Profinity’s counterclaim. The court vacated the JNOV regarding Profinity's counterclaim, dismissed it for lack of jurisdiction, and affirmed the remainder of the trial court's judgment. The case involved marketing competing credit monitoring products, with Ertel having signed a non-compete agreement during his employment with OT, restricting him from engaging in similar business activities for one year post-termination. Despite acknowledging Profinity’s involvement in restricted business, Ertel warranted he would not violate the agreement upon joining Profinity.

Employee is prohibited from advising or lending his reputation to Profinity or any other entity regarding Profinity's operations in "Restricted Business" within the "Restricted Territory." The terms of the original Agreement remain unchanged by the Addendum. "Restricted Business" encompasses any activities conducted by OT or its subsidiaries during Employee’s tenure that involve Confidential Information or are competitive with OT’s operations, specifically including pay-per-click advertising and affiliate marketing. "Confidential Information" refers to non-public information belonging to OT or other entities that OT must keep confidential, while "Restricted Territory" includes the entire United States and any countries where OT or its competitors operate. 

OT filed a lawsuit on April 10, 2012, alleging that Ertel disclosed OT's confidential information to Profinity, solicited OT’s clients, promoted Profinity’s competing product, and competed directly with OT. The lawsuit claims that Profinity knowingly hired Ertel despite his contractual obligations to OT and misused OT's confidential information to gain a competitive edge. OT alleges breach of contract against Ertel, and breach of fiduciary duty, misappropriation of trade secrets, and tortious interference with a contract against both Ertel and Profinity, seeking injunctive relief to stop their unlawful actions. Following a hearing, a temporary injunction was issued on April 27, 2012, restraining Ertel from engaging in any activities related to credit-related products and services and prohibiting Profinity from employing Ertel in competitive capacities within the credit monitoring business.

Ertel and Profinity responded to OT’s petition with general denials and raised affirmative defenses of estoppel and waiver. On April 1, 2013, Profinity introduced an antitrust counterclaim, alleging that between October 4 and October 18, 2011, Ertel and OT's general counsel, Fred Loeber, engaged in discussions about Ertel's departure and his contractual obligations. Profinity claimed that Loeber indicated OT would only object to Ertel’s employment with Profinity if his role involved marketing Profinity’s credit monitoring product to OT’s affiliates. However, OT later interpreted Ertel's obligations more broadly, suggesting that any actions taken by Ertel at Profinity could violate his non-compete agreement. Profinity accused OT of engaging in predatory conduct aimed at monopolizing the market and hindering competition, violating section 15.05(b) of the TFEAA. OT denied the counterclaim and argued that it was protected by the Noerr–Pennington doctrine, which shields litigation actions that may impact competition. On October 22, 2013, OT sought to exclude Profinity's damages expert, Barry Bell, arguing his calculations disregarded the TFEAA's damage limitations. Profinity contested this motion as untimely. The trial commenced on November 12, 2013, where evidence included the agreement and addendum, alongside communications between Ertel and business associates. Loeber testified about their email exchanges regarding the addendum, clarifying that Ertel was prohibited from marketing a credit monitoring product but did not agree that this restriction was limited to OT’s affiliates. Jamie Schultz, OT’s chief strategy officer, affirmed that Ertel's obligations included not marketing credit monitoring to OT’s affiliates and not disclosing or using confidential information, suggesting a broader restriction against competing in the credit monitoring industry.

Blaine LaBron, the senior manager of affiliate marketing at OT, testified about receiving an email mistakenly sent to Ertel's former OT email account in February 2012. This email was part of a conversation involving Profinity’s executive Paul Quintal and included references to a credit monitoring product, leading LaBron to believe Ertel was involved with Profinity in that capacity. LaBron reported this email to his superior, which subsequently initiated the lawsuit by OT.

Expert testimony from Ernest Janik indicated that OT's lost net profits amounted to $9.5 million using a low model and $11.2 million using a high model, representing complete damages for all claims made by OT. However, on cross-examination, Janik admitted he had not calculated any specific damages related to Ertel's potential violation of his non-compete obligation.

Ertel testified about his resignation from OT and a conversation with Loeber regarding an addendum that would permit him to join Profinity. He expressed concern over a clause in the addendum that suggested his obligations under his employee agreement remained unchanged, indicating he believed it could prevent him from joining Profinity. Ertel sought clarification from Loeber, who confirmed that as long as Ertel did not market credit monitoring to OT’s affiliates or disclose confidential information, he would not be in violation of his non-compete agreement. After this clarification, Ertel signed the addendum and informed Profinity’s president about their agreement.

Ertel asserted that before leaving OT, he sought clarification from Loeber regarding his post-employment obligations, confirming that as long as he did not market credit monitoring to OT's affiliates or disclose confidential information, he believed he was compliant with his agreement. Loeber agreed with this understanding. Ertel further testified that while employed at Profinity, he did not market credit monitoring products to OT’s affiliates, instead promoting other products like Profinity’s prepaid debit card. He explained that he issued tracking links for all products, which were administrative rather than marketing functions, and confirmed that his role did not involve marketing credit monitoring to OT’s affiliates.

During the trial, Bell provided testimony about OT's claimed damages, stating that the financial records did not demonstrate harm to OT and criticized Janik’s damage calculations as inflated and speculative. Bell stated that the core issue for quantifying Profinity's damages was the lost subscribers, noting that the revenue from Profinity primarily comes from new subscriber sign-ups. He calculated Profinity's total lost profits due to OT's alleged anticompetitive actions at $1,784,000. On cross-examination, Bell confirmed that he did not perform a state-by-state analysis of the damages, including whether any losses were specific to Texas. He acknowledged that he could not geographically locate the lost subscribers and confirmed that the alleged conduct he was quantifying occurred in Texas.

OT filed a motion for a directed verdict against Profinity's counterclaim, arguing that there was no evidence of injury occurring in Texas. Profinity's counsel contended that all relevant conduct and harm occurred in Texas, specifically where Mr. Ertel worked. The trial court deferred its ruling on this matter. During closing arguments, OT's counsel emphasized that Mr. Ertel's Employment Agreement included a representation that no other agreements existed and outlined restrictions on competition for one year. Ertel's counsel argued that he was compliant with the agreement as long as he did not market credit monitoring to OT's affiliates or disclose confidential information, asserting that OT’s complaints were about minor marketing activities unrelated to OT affiliates.

At the charge conference, OT sought a jury instruction limiting damages under the Texas Free Enterprise and Antitrust Act to injuries occurring in Texas, which the trial court denied. Profinity defined the "Employment Agreement" for the jury, which included the original agreement and an amendment. The jury was asked a series of questions regarding Ertel's breach of the Employment Agreement and the conditions for determining damages.

Profinity's antitrust counterclaim included questions assessing whether OT attempted to monopolize trade related to Ertel's departure, the fair compensation for Profinity's damages, and whether OT's conduct was willful or flagrant. To succeed in the attempted monopolization claim, Profinity needed to prove that OT engaged in anticompetitive conduct, intended to achieve monopoly power, had a dangerous probability of doing so, and that Profinity suffered injury to its credit monitoring business. For antitrust damages, Profinity had to demonstrate actual injury due to OT's conduct, that OT's actions materially caused this injury, and that the injury fell within the scope of the antitrust laws.

Profinity is required to demonstrate that it suffered injury due to OT's alleged violations of antitrust laws, without needing to establish the precise dollar value of that injury. It must provide evidence that OT's illegal conduct was a material cause of the injury, meaning some damage must be proven to have resulted from the antitrust violation rather than other factors. Profinity does not need to show that OT's actions were the sole cause of its injury, but it must establish that the injury aligns with the types of harm the antitrust laws are designed to prevent, known as 'antitrust injury.' Injuries resulting from reduced competition or actions harmful to consumers qualify as antitrust injuries, while those due to increased competition or beneficial actions do not.

The jury found in favor of Profinity regarding lost profits amounting to $3,641,828, but answered 'no' to the first question and did not proceed to subsequent questions. OT filed motions for judgment notwithstanding the verdict (JNOV) on its breach of contract claim and Profinity's counterclaim. OT argued that evidence conclusively showed that Ertel violated the Employment Agreement by engaging in credit monitoring and advising Profinity in contravention of the agreement. On Profinity's counterclaim, OT contended that the jury awarded damages for injuries outside Texas and that the Noerr-Pennington doctrine protected OT from antitrust liability related to its legal actions against Ertel and Profinity. In response, Profinity asserted that the Texas Fair Enterprise Act applies to harmful conduct occurring in Texas, regardless of where the affected trade extends, and that the awarded damages stemmed solely from OT's predatory actions in Texas. Profinity also argued against OT's application of the Noerr-Pennington doctrine, stating their claims were based on OT's predatory scheme rather than its lawsuit. Ertel added that trial testimony showed he was allowed to work at Profinity under certain conditions, allowing the jury to determine if he breached the Employment Agreement based on the parties' interpretations.

Ertel contended that OT failed to prove breach of contract as a matter of law, citing disputed conduct during the trial. OT's motion for judgment notwithstanding the verdict (JNOV) was denied because it could not demonstrate that Ertel’s affirmative defenses were insufficient as a matter of law, nor did it adequately address the disputed damages. In its reply, OT asserted that Ertel did not dispute its interpretation of the contract’s plain text, but instead relied on statements from OT witnesses. OT also introduced the parol evidence rule for the first time in a footnote. During the JNOV hearing, Profinity's counsel acknowledged the absence of explicit testimony regarding lost customers in Texas but argued that the jury could reasonably infer that among the 75,000 lost customers nationwide, some must have been in Texas, given its significant population. Counsel for OT countered that there was no basis for speculation that any of these customers were from Texas. 

The document details the standard for granting JNOV, indicating it should be issued when evidence conclusively favors one party or a legal principle prevents recovery. The analysis section outlines the requirements for a breach of contract claim: a valid contract, the plaintiff's performance, the defendant's breach, and resulting damages. OT argued it was entitled to JNOV on its breach of contract claim, asserting that the contract clearly prohibits Ertel from supporting Profinity’s credit monitoring product, while Ertel argued that OT's statements suggested the non-compete only limited marketing activities, misinterpreting both the statements and the agreement.

Parol evidence is deemed irrelevant when a contract is clear and complete, as in this case. Ertel argues that OT failed to demonstrate a breach of contract due to disputed conduct at trial. OT established through its testimony that 'Restricted Business' involved marketing Profinity’s credit-monitoring product, allowing the jury to find that Ertel did not engage in such business. OT's cross-appeal fails because it has not conclusively negated Ertel's affirmative defenses or established its damages. In a reply brief, OT claims the merger clause negates Ertel's defenses and that it presented un-rebutted expert testimony on damages. However, the court finds that even if Ertel breached the Employment Agreement, OT is not entitled to judgment as a matter of law, as its motion for judgment notwithstanding the verdict (JNOV) did not adequately address damages. OT's assertion of un-rebutted testimony does not equate to conclusive evidence, especially since this testimony was contested. Consequently, the denial of OT's JNOV motion regarding its breach of contract claim was appropriate. 

Profinity's antitrust counterclaim is also addressed, asserting that the trial court erred in granting OT's motion for judgment notwithstanding the verdict based on the Texas Free Enterprise and Antitrust Act (TFEAA). OT counters that the TFEAA does not cover extraterritorial injuries, the counterclaim is protected by the First Amendment and Noerr–Pennington doctrine, and Profinity failed to provide sufficient evidence of monopolization and damages. Notably, no party requested a new trial or further proceedings regarding breach of contract damages.

The Texas Free Enterprise and Antitrust Act (TFEAA) aims to foster economic competition within Texas and benefit consumers. It aligns with federal antitrust interpretations, making monopolization illegal under section 15.05(b). Section 15.25(b) clarifies that suits under the TFEAA are not barred due to involvement in interstate or foreign commerce. The Texas Supreme Court has determined that the TFEAA does not provide a cause of action for injuries occurring outside Texas. In the Harmar case, RCC franchisees sued Coca-Cola for anticompetitive practices affecting their business in the Ark-La-Tex region. The trial court ruled in favor of the plaintiffs, awarding damages and issuing an injunction against certain practices. Coca-Cola contested the jurisdiction for injuries outside Texas, but the franchisees argued that these injuries stemmed from actions taken within the state. The Supreme Court concluded that while the TFEAA can address practices affecting trade that extends beyond Texas, its primary focus is on promoting competition within Texas itself, affirming that injuries outside the state do not provide grounds for action under the TFEAA if they do not directly relate to competition within Texas.

The provision clarifies that the Texas Free Enterprise and Antitrust Act (TFEAA) does not support claims for extraterritorial injuries, as remedying such injuries does not benefit Texas consumers or promote competition within Texas. The Texas Supreme Court rejected the argument that compensation for injuries occurring in other states could promote Texas competition, stating that the actions taken by Coke in Texas did not justify extraterritorial relief under the TFEAA. The court emphasized that relief is only permissible if it directly benefits Texas consumers or promotes competition within the state.

Profinity argues that the TFEAA applies to harmful conduct occurring in Texas, even if it affects trade outside the state. Profinity contends that its claims are based solely on predatory conduct directed at it in Texas, with damages resulting specifically from this conduct. Profinity asserts that its antitrust claim is legitimate despite its nationwide marketing strategy and that the TFEAA protects against injuries in Texas regardless of the online nature of its business. Profinity criticizes OT's position for potentially undermining the effectiveness of the TFEAA in the context of online commerce.

OT counters that Profinity's damages calculation was based on a nationwide impact rather than a Texas-specific analysis, arguing that the TFEAA does not allow recovery for damages incurred outside Texas, as this does not maintain or promote competition within Texas markets.

In the case referenced, OT contends that the Texas Free Enterprise and Antitrust Act (TFEAA) remains effective by allowing claims for anticompetitive conduct occurring and impacting the Texas market, even if the plaintiff operates outside Texas, provided that damages are segregated. Profinity argues its counterclaim relates to anticompetitive actions by a monopolistic Texas business affecting competition and consumers in Texas. However, the court finds Profinity's claims unsupported, noting a lack of evidence showing how the requested relief promotes competition or benefits Texas consumers, referencing the Harmar case which mandates such a showing for TFEAA applicability. The trial court's ruling that Profinity's counterclaim is not actionable under the TFEAA is upheld, as Profinity did not seek remand for damage segregation or demonstrate the feasibility of such segregation. Additionally, any potential claims for damages are precluded by the Noerr-Pennington doctrine, which protects the right to petition the government from antitrust liability, as established in Supreme Court cases. The court emphasizes that the Noerr-Pennington doctrine, rooted in First Amendment rights, is relevant to this case and bars Profinity's claims.

The Noerr–Pennington doctrine grants immunity from antitrust liability to parties petitioning the government for redress and protects conduct incidental to such lawsuits. However, it includes a "sham exception" for cases where petitioning activities are a façade for anti-competitive behavior. Profinity contends that this doctrine does not apply to its antitrust claim against OT, arguing that its claims are based on OT's predatory conduct involving a departing employee rather than the lawsuit itself. Profinity asserts that OT's actions aimed to eliminate competition through deceptive means, qualifying as independent grounds for antitrust liability. The jury found OT attempted to monopolize the online credit monitoring market related to the employee's departure, indicating that Profinity's claims are not solely based on OT's litigation. Profinity also raises judicial estoppel, suggesting OT cannot assert inconsistent positions from previous litigation involving ConsumerInfo.com. Lastly, Profinity claims that even if the Noerr–Pennington doctrine were applicable, the sham litigation test would negate OT's immunity from liability.

Profinity's argument regarding its antitrust claim is not eligible for review by the Court because it was not asserted in the trial court, as per TEX. R. APP. P. 33.1. OT claims that Profinity’s antitrust allegations stem from OT being sued and asserts that the First Amendment protects its right to petition the government, shielding OT's lawsuit from antitrust liability. The record indicates that in the ConsumerInfo.com lawsuit, OT alleged that ConsumerInfo.com fraudulently obtained a federal trademark for ‘FREECREDITREPORT.COM’ by misrepresenting the usage of the mark. OT argues that this conduct constitutes a textbook case of antitrust violation due to fraud on the Patent and Trademark Office and asserts that its antitrust claim is based on a broader pattern of anticompetitive behavior, not solely on the ConsumerInfo.com lawsuit. 

OT contends that ConsumerInfo.com's reliance on the Noerr-Pennington doctrine is misplaced, as the antitrust claim is grounded in legitimate allegations of improper trademark registration and enforcement to stifle competition. The Court notes that Profinity's claims do not involve allegations of fraudulently obtained trademark registration. Furthermore, the Court rejects Profinity's assertions of independent conduct supporting its antitrust claim, stating that Profinity did not demonstrate how it was adversely affected without the litigation. In fact, Profinity's counsel conceded that without the lawsuit, Profinity would not have been hindered.

Profinity's antitrust counterclaim was dismissed based on the Noerr-Pennington doctrine, which protects certain litigation-related conduct from antitrust liability. The court found that the cases Profinity cited as support involved independent anticompetitive conduct unrelated to litigation, rendering them irrelevant. These cases included allegations of conspiracies to suppress competition among hospital systems, misrepresentation by radio station competitors, environmental lobbying activities, predatory practices by distributors, and fraudulent patent enforcement. The court also dismissed Profinity's claim under the Texas Free Enterprise and Antitrust Act (TFEAA) for lack of jurisdiction, referencing the Texas Supreme Court's prior ruling on non-actionable complaints in a related case. Consequently, the court vacated the trial court's judgment related to Profinity's counterclaim while affirming the remainder of the trial court's judgment. Each party was ordered to bear its own costs in the appeal.