Date: 10-26-2017

Case Style:

Case Number: 01-16-00921-CV

Judge: Laura Carter Higley

Court: Texas Court of Appeals, First District on appeal from the County Civil Court at Law No. 2, Harris County

Plaintiff's Attorney: Tim Timmons

Defendant's Attorney: Matt Hansel and Jeff Dorrell

Description: High Standards Networking and Computer Service, Inc. d/b/a High Standards Technology, Inc. (“HST”) sued Louis F. Puig, MD, PA d/b/a Occupational Medical Care (“OMC”) for breach of contract and business disparagement. OMC counterclaimed for breach of contract, harmful access by computer, and trespass.
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The jury found in favor of HST on its claim and against OMC on its counterclaims. On appeal, OMC argues that (1) there was legally and factually insufficient evidence to support the jury’s business disparagement finding; (2) the jury’s exemplary damages award was excessive; (3) there was legally and factually insufficient evidence to find that OMC breached its contract with HST; (4) the jury’s finding that HST did not breach its contract was against the weight of the evidence; (5) the jury’s findings against OMC on its harmful access by computer and trespass counterclaims were against the weight of the evidence; and (6) it was error to award HST attorney’s fees.
We reverse in part and affirm in part.
Background
HST entered into a “Managed Services Agreement” (“2009 MSA”) with OMC in 2009. Under the 2009 MSA, HST was to provide to OMC computer, telephone, and network services. In 2011, the parties executed an additional “Managed Services Agreement” (“2011 MSA”). Under the 2011 MSA, HST agreed to provide OMC with servers, which HST would obtain through another entity, CharTec. In accordance with the agreement, the servers were provided as a “service,” such that OMC did not own or lease the servers. Rather, CharTec would automatically debit an HST bank account each month for OMC’s use of the servers, and OMC was to reimburse HST for the service. HST would also bill OMC a
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monthly flat rate for standard services provided for under the two MSAs, and it would bill OMC under a separate fee schedule for “projects” undertaken outside the course of typical monthly services. Under the 2011 MSA, HST had the exclusive right to maintain the servers and OMC agreed that any attempt to repair, tamper with, or service the servers by any other party would constitute a breach of the agreement.
Both MSAs provided that HST could suspend or cancel its services if OMC failed to pay HST’s invoices. Around December 2013, OMC was in default on several monthly invoices and refused to pay a “project bill” in the amount of $32,912.34. HST then informed OMC that, despite OMC’s failure to pay, CharTec was still debiting HST’s account for OMC’s use of CharTec’s servers; that HST was required under its contract with CharTec—and permitted under the 2011 MSA—to recover and return CharTec’s servers; and that, if OMC did not pay the overdue invoices, HST would cancel its services.
During this time, HST attempted to log into the servers at OMC’s offices and found that OMC had changed HST’s password. HST thus had to change the password again so that it could log in to its account used to maintain the servers. Ultimately, HST terminated the services it was providing to OMC and removed the equipment it had provided under the MSAs.
In January 2014, after HST suspended services, an OMC employee, Cassie Curlin, emailed Comcast, HST’s internet service provider. Curlin’s email to
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Comcast stated that HST had on three occasions “broken into our computer system and caused damage” and had “committed a felony.”
Curlin also emailed GloStream, an entity with which both HST and OMC did business, stating her desire to “file a complaint” against “one of [GloStream’s] partners . . . . High Standards Technology.” In a reply email, Charles Mann, a GloStream employee, stated that, “obviously we know what happened”; that “[HST] will not work with [GloStream] again in any capacity”; and that Mann would introduce Curlin to “another practice in the area to swap stories with, which I think will be to their benefit.” In June 2014, Lymphedema and Wound Care Institute of Texas (Lymphedema), with which HST had been working since 2009, cancelled its contract with HST. According to HST, “OMC and GloStream, or either of them . . . contact[ed] Lymphedema . . . with the result that HST lost their business.”
In 2015, HST sued OMC. OMC counterclaimed. After the trial court granted certain directed verdicts, the claims presented to the jury were HST’s breach of contract and business disparagement claims and OMC’s breach of contract, unlawful entry, and trespass claims. The jury found that OMC had (and HST had not) breached the contract. The jury also found that OMC had “disparage[d] the business of High Standards” by publishing statements asserting that “High Standards had committed a felony” and asserting that “High Standards had unlawfully hacked OMC’s computer system.” The jury awarded HST $62,124.20 for its breach of
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contract claim, $12,638.23 for business disparagement, $90,000.00 in exemplary damages, $100,000 in attorney’s fees, and conditional appellate attorney’s fees. The jury also found against OMC on its counterclaims for breach of contract, unauthorized access, and trespass. The trial court entered judgment on the jury’s verdict, and denied OMC’s motions for new trial and judgment notwithstanding the verdict.
Standard of Review
In a legal-sufficiency review, the court determines whether reasonable and fair-minded people could arrive at the factfinder’s conclusion, after considering all evidence that supports the verdict, and disregarding contrary evidence unless a reasonable factfinder could not. City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). We will conclude that the evidence is legally insufficient to support the finding only if (a) there is a complete absence of evidence of a vital fact, (b) the court is barred by rules of law or evidence from giving weight to the only evidence offered to prove a vital fact, (c) the evidence offered to prove a vital fact is no more than a mere scintilla, or (d) the evidence conclusively establishes the opposite of the vital fact. Id. at 810. We review the evidence in the light most favorable to the judgment. Id. at 822.
In a factual-sufficiency review, we examine all of the evidence and set aside the judgment only if it is so contrary to the overwhelming weight of the evidence as
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to be clearly wrong and unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986). Unlike a legal-sufficiency review, a factual-sufficiency review requires us to review the evidence in a neutral light. See Woods v. Kenner, 501 S.W.3d 185, 196 (Tex. App.—Houston [1st Dist.] 2016, no pet.) (citing Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex. 2001); Plas–Tex, Inc. v. U.S. Steel Corp., 772 S.W.2d 442, 445 (Tex. 1989)).
Business Disparagement
In its first, second, and fourth issues, OMC argues that there was insufficient evidence to support the jury’s finding that OMC disparaged HST’s business; that there was insufficient evidence to support the jury’s award of economic damages for business disparagement; and that the jury’s exemplary damages award was excessive.
In its first issue, OMC argues that there was insufficient evidence to support the jury’s finding that OMC disparaged HST’s business. To prevail on a business disparagement cause of action, HST was required to establish that (1) OMC published false and disparaging information about HST (2) with malice (3) without privilege (4) that caused HST special damages. In Re Lipsky, 460 S.W.3d 579, 592 (Tex. 2015). OMC does not dispute that it published disparaging words about HST, but argues that the words it published, were not false, were not published with
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malice, were not published without privilege, and did not cause HST special damages.
HST argued that OMC employee Cassie Curlin’s email to GloStream, with which both HST and OMC did business, resulted in the termination of HST’s contract with Lymphedema, an entity that worked with both HST and GloStream. In a January 2014 email to GloStream’s Charles Mann, Curlin asked what Mann needed from her in order to file a complaint against “one of [GloStream’s] partners,” HST. In the email, Curlin asserted that she had “already reported some information to the local authorities about [HST] as well as the local internet provider and just want to make sure you [sic] aware of the situation.” Mann replied that, “obviously we know what happened”; that “[HST] will not work with [GloStream] again in any capacity”; and that Mann would introduce Curlin to “another practice in the area to swap stories with, which I think will be to their benefit.”
HST argues that the jury could have found that Lymphedema was the “practice in the area to swap stories with” to which Mann referred in his email to Curlin, and that Mann’s reference to working with GloStream “in any capacity” necessarily included working with Lymphedema, with which both HST and GloStream were working at the time. In particular, HST contends that Lymphedema cancelled its contract with HST in June of 2014 as a result of the disparaging
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statements that Curlin published, and other possible statements that were impliedly referenced, in the January 2014 email exchange with Mann.
The only evidence presented at trial in support of that assertion was the testimony of Curlin and HST’s president, Stana Steen. Curlin testified that she believed “people [that worked with HST] needed to be on notice [about the alleged hacking].” Steen testified that she believed that Lymphedema had been contacted about OMC’s hacking allegations. Steen testified that, “In my opinion, I feel that [OMC or GloStream] did contact Lymphedema. And I don’t know what they said, but it was disparaging enough that [Lymphedema] felt that we had an issue with causing their GloStream install to not go as planned.”
“Proof of special damages is an essential part” of a business disparagement cause of action. Hurlbut v. Gulf Atl. Life Ins. Co., 749 S.W.2d 762, 766 (Tex. 1987). Evidence that is “devoid of any specific facts illustrating how” disparaging statements “actually caused [the alleged] losses” is insufficient to establish that a plaintiff suffered special damages as a result of the statements. Lipsky, 460 S.W.3d at 593 (citing Burbage v. Burbage, 447 S.W.3d 249, 262 (Tex. 2014) (holding that jury could not reasonably infer that cancellations for funeral home business were caused by defamation when any number of reasons could have caused cancellations)). Here, the only evidence presented at trial from which the jury could have found that OMC’s disparaging statements caused HST special damages was
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Steen’s testimony that, in her opinion, either OMC or GloStream published a statement “disparaging enough” that Lymphedema terminated its contract with HST.
“Bare, baseless opinions do not create fact questions.” Id. at 592 (citing Elizondo v. Krist, 415 S.W.3d 259, 264 (Tex. 2013); City of San Antonio v. Pollock, 284 S.W.3d 809, 816 (Tex. 2009)). “Opinion testimony that is conclusory or speculative is not relevant evidence, because it does not make the existence of a material fact ‘more probable or less probable.’” Coastal Transp. Co., Inc. v. Crown Cent. Petroleum Corp., 136 S.W.3d 227, 232 (Tex. 2004) (quoting TEX. R. EVID. 401). To create a fact issue, opinions must be based on demonstrable facts and a reasoned basis. Lipsky, 460 S.W.3d at 593.
In this case, HST provided no evidence, outside of Steen’s bare assertions of her opinion, demonstrating that disparaging statements about HST were made to Lymphedema, by whom the statements were made, when the statements were made, whether the statements made to Lymphedema were false, or how the statements caused Lymphedema to cancel its contract with HST. To the contrary, Steen testified that she did not know what was said to Lymphedema or by whom.
Steen’s testimony regarding the connection between OMC’s disparaging statements and HST’s loss of business did not illustrate how any particular statements actually caused HST’s losses. See id. Steen’s testimony was, therefore,
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speculative and insufficient evidence to uphold a finding that OMC disparaged HST’s business. See id.; Pollock, 284 S.W.3d at 816.
We sustain OMC’s first issue.
Because we have reversed the determination of liability, we must also reverse the awards of actual and exemplary damages. See Temple v. Zimmer U.S.A., Inc., 678 S.W.2d 723, 725 (Tex. App.—Houston [14th Dist.] 1984, no writ) (holding determination of damages is immaterial absent determination of liability). Accordingly, we do not need to reach OMC’s second and fourth issues challenging the sufficiency of the evidence to uphold the jury’s actual and exemplary damages awards for business disparagement.
Breach of Contract
In its third issue, OMC argues that HST failed to fully or substantially perform its contractual duties and, therefore, that there was insufficient evidence from which the jury could have found that OMC breached the contract. In its fifth issue, OMC argues that the jury’s finding that HST had not breached the contract was against the weight of the evidence.
In order to prevail on its breach of contract cause of action, HST was required to prove: (1) the existence of a valid contract; (2) HST performed or tendered performance; (3) OMC breached the contract; and (4) OMC’s breach caused HST’s damages. See Davis v. Tex. Farm Bureau Ins., 470 S.W.3d 97, 104 (Tex. App.—
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Houston [1st Dist.] 2015, no pet.). OMC does not contest, in these two issues, the evidence that it breached the contract. Instead, OMC argues that the evidence established that HST breached first.
OMC argues it proved that HST breached first because, “[d]uring the nine months from September 2012 to May 2013, OMC made hundreds of reports of system failures preventing patients from reaching OMC to schedule appointments and causing OMC to lose business.” (Emphasis in original.) Certain exhibits and testimony at trial established that HST had repeated problems with OMC’s phone system. Steen testified that, to resolve the issue, HST switched telephone providers, worked with the phone system manufacturer to obtain updated cards to operate the phones, and obtained a new system and mother board.
For the problems with the phone system to excuse OMC’s later breaches of the contract, the phone system problems had to be material breaches. See Mustang Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195, 196 (Tex. 2004) (“It is a fundamental principle of contract law that when one party to a contract commits a material breach of that contract, the other party is discharged or excused from further performance.”). Nonmaterial breaches do not excuse future performance by the non-breaching party. Bartush-Schnitzius Foods Co. v. Cimco Refrigeration, Inc., 518 S.W.3d 432, 436 (Tex. 2017). Materiality is an issue of fact to be decided by the fact finder. Id.
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The evidence established that both OMC and HST continued to perform under the MSAs during and after the nine-month period of trouble with the phone system. The jury could have reasonably decided that the problems with the phone system for nine months were not so material as to excuse all future performance as evidenced by the parties’ continued performance. See id.
We overrule OMC’s third and fifth issues.
Harmful Access by Computer
In its sixth issue, OMC argues the jury’s finding against it on its harmful access by computer claim was against the great weight and preponderance of the evidence. Section 33.02 of the Texas Penal Code makes it an offense to “knowingly access a computer, computer network, or computer system without the effective consent of the owner.” TEX. PENAL CODE ANN. § 33.02(a) (West 2016). Section 143.001 of the Texas Civil Practice and Remedies Code creates a civil cause of action for the offense “if the conduct constituting the violation was committed knowingly or intentionally.” TEX. CIV. PRAC. & REM. CODE ANN. § 143.001(a) (West 2011).
OMC argues that HST established it committed the offense by admitting that it locked OMC out of the servers by changing the passwords. OMC argues, “To do this, it was necessary for [HST] to gain access to OMC’s system—which OMC had attempted to block and to which OMC did not consent.”
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As it applies to this situation, “owner” is defined as “a person who has . . . a greater right to possession of the property than the actor.” TEX. PENAL CODE ANN. § 33.01(15)(A) (West 2016). OMC failed to establish that it had the greater right to access the property. In fact, the 2011 MSA establishes the opposite. The parties agreed under the 2011 MSA that HST was providing OMC with the service of access to the servers, not the servers themselves. Instead, the parties agreed the servers would “remain [the] sole property of” HST. The agreement establishes HST’s right to terminate the service by terminating OMC’s access to the servers or by physically removing them. Accordingly, we hold the jury’s finding against OMC on its harmful access by computer claim was not against the great weight and preponderance of the evidence. See CIV. PRAC. & REM. § 143.001(a); PENAL §§ 33.01(15)(A), .02(a).
We overrule OMC’s sixth issue.
Trespass
In its seventh issue, OMC argues the jury’s finding against it on its trespass claim was against the great weight and preponderance of the evidence. Trespass constitutes “(1) entry (2) onto the property of another (3) without the property owner’s consent or authorization.” Envtl. Processing Sys., L.C. v. FPL Farming Ltd., 457 S.W.3d 414, 419 (Tex. 2015). The parties agreed in the 2011 MSA that, if the contract was terminated, OMC consented to allow HST to enter OMC’s property
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to reclaim the servers. Accordingly, HST’s entry onto OMC’s property was with OMC’s effective consent. See id.
We overrule OMC’s seventh issue.
Attorneys’ Fees
In its eighth issue, OMC argues that, because it is a professional association, HST was not entitled to an award of attorneys’ fees for its breach of contract claim. See TEX. CIV. PRAC. & REM. CODE ANN. § 38.001(8) (West 2015); Fleming & Associates, L.L.P. v. Barton, 425 S.W.3d 560, 574–76 (Tex. App.—Houston [14th Dist.] 2014, pet. denied) (holding attorneys’ fees under Chapter 38 are not authorized for limited liability partnership); Choice! Power, L.P. v. Feeley, 501 S.W.3d 199, 211–14 (Tex. App.—Houston [1st Dist.] 2016, no pet.) (holding same for limited partnership).
HST argues that OMC has not preserved this issue for appeal. “[A] party wishing to argue on appeal that a statute does not authorize an award of attorney’s fees must preserve its complaint in the trial court.” Enzo Invs., LP v. White, 468 S.W.3d 635, 651 (Tex. App.—Houston [14th Dist.] 2015, pet. denied); accord Zapalac v. Cain, 39 S.W.3d 414, 420 (Tex. App.—Houston [1st Dist.] 2001, no pet.) (“The record does not reflect that appellants presented this argument to the trial court, i.e., that an invalid will cannot support an award of attorney’s fees . . . it is, therefore, not preserved for our appellate review.”).
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OMC did not challenge HST’s right to claim attorneys’ fees at any point in the trial proceedings. OMC has, therefore, failed to preserve the issue for appeal. See TEX. R. APP. P. 33.1(a); Enzo Investments, 468 S.W.3d at 651.1
We overrule OMC’s eighth issue.

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1 OMC did not respond to HST’s preservation argument in is reply brief. Instead, it argues that HST failed to comply with the conditions precedent to obtain attorneys’ fees under section 38.001 of the Texas Civil Practice and Remedies Code. We do not address issues raised for the first time in a reply brief. McAlester Fuel Co. v. Smith Int’l., Inc., 257 S.W.3d 732, 737 (Tex. App.—Houston [1st Dist.] 2007, pet. denied).

Outcome: We reverse and render a take nothing judgment on High Standard Technology’s business disparagement claim. We affirm the remainder of the trial court’s judgment.

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