Rodney Tow v. Organo Gold Intl, Inc. ( 2019 )

Case: 18-20394 Document: 00515030336 Page: 1 Date Filed: 07/11/2019
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 18-20394
United States Court of Appeals
Fifth Circuit
FILED
In the Matter of: Amerisciences, L.P., July 11, 2019
Lyle W. Cayce
Debtor Clerk
RODNEY D. TOW, Successor Trustee, Chapter 7 Trustee of AmeriSciences,
L.P.,
Appellee
v.
ORGANO GOLD INTERNATIONAL, INCORPORATED; ORGANO GOLD
ENTERPRISES, INCORPORATED; HOLTON BUGGS,
Appellants
Appeals from the United States District Court
for the Southern District of Texas
USDC 4:16-CV-643
Before HAYNES, GRAVES, and DUNCAN, Circuit Judges.
PER CURIAM:*
I. Background
This appeal stems from a jury verdict and final judgment adjudicating
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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Organo Gold International, Inc., Organo Gold Enterprises, Inc., and Holton
Buggs (collectively, “Appellants”) 1 liable to AmeriSciences, L.P., for trade
secret misappropriation, tortious interference with contracts, unjust
enrichment, fraudulent transfer, and breach of fiduciary duty. The final
judgment awards AmeriSciences’s bankruptcy trustee, Rodney Tow,
compensatory damages of $3,461,166, with Appellants jointly and severally
liable.
AmeriSciences was a multi-level marketing (“MLM”) company that sold
nutritional supplements through a network of distributors, many of whom
were associated with the medical profession. The company was founded by
president and CEO Barry Cocheu, chairman Louis Gallardo, and executive vice
president Steve Redman. AmeriSciences’s primary source of sales stemmed
from its network of distributors, who served as both customers and sellers for
the company. The network of distributors was an invaluable asset, essentially
the “lifeblood” of the company. Between 2007 and 2011, AmeriSciences spent
$6.2 million recruiting and retaining approximately 6,400 distributors. When
a distributor joined AmeriSciences’s network, it signed an agreement not to
directly or indirectly solicit other distributors into other MLM organizations
for the term of the agreement and one year thereafter. The agreements with
distributors also declared the network and associated information proprietary
and confidential.
Despite AmeriSciences’s significant revenues, the company was in dire
financial straits by the end of 2011—the company’s balance sheet showed
assets of $1.2 million with liabilities of $4.1 million. Cocheu and Gallardo did
not believe AmeriSciences could survive as an MLM company and started
1For the purposes of this appeal, there is no distinction between the two Organo
entities, so we refer them together as “Organo.”
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considering alternatives.
In early 2012, Cocheu and Gallardo began discussions with Holton Buggs
about Organo, an MLM that sells coffee, weight management drinks, and
health supplement products. Buggs was an executive vice president of sales
and marketing for Organo. Buggs was also Gallardo’s neighbor and met
Cocheu in 2009. After a trip together in January 2012, Cocheu and Buggs
discussed a sale of AmeriSciences to Organo.
On April 3, 2012, Buggs sent Cocheu and Gallardo an email describing
how Organo would acquire AmeriSciences’s assets. Buggs proposed Cocheu
and Gallardo “cease the promotion of . . . AmeriSciences and solely promote
Organo,” “transfer the existing genealogy from AmeriSciences to Organo,” and
“provide Organo Gold a current official sales report.” In exchange, Appellants
offered to pay Cocheu and Gallardo $50,000 per month in their personal
capacities for up to nine months, with payments starting after the transfer of
AmeriSciences’s distributor network. Cocheu e-mailed Buggs on April 4, 2012,
asking for payments to him to begin on April 15.
On April 10, 2012, Cocheu and Gallardo met with ten of AmeriSciences’s
leading distributors and notified them that the company had decided to
discontinue the MLM model, that AmeriSciences would no longer pay MLM
commissions, and that Cocheu and Gallardo were leaving the company to join
Organo. Buggs spoke at the meeting about an opportunity with Organo.
However, a formal agreement memorializing the April 3 email was never
drafted.
Cocheu also directed George Skirm, AmeriSciences’s IT director, to work
with Oliver Wang, an Organo IT professional, to transfer the entire distributor
list. On April 12, Buggs sent an email stating, “I just wanted to make the team
aware that we will acquire the distributor base of an existing MLM company
called AmeriSciences.” On April 19, Skirm emailed an Excel and plain-text file
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containing the distributor list to Cocheu, who forwarded it to Wang and copied
Buggs. AmeriSciences was never provided consideration for its distributor list.
Organo also acquired AmeriSciences’s Warehouse Management Software
(“WMS”) without consideration.
AmeriSciences ceased conducting business as an MLM by the summer of
2012, despite seeking to revamp its business under a retail model.
AmeriSciences’s bankruptcy commenced on October 4, 2012 as a Chapter 11
proceeding with Thomas Grace appointed as the trustee. After the matter was
converted to a Chapter 7 proceeding, Rodney Tow succeeded Grace as the
trustee. On May 9, 2013, a substantial portion of AmeriSciences’s assets were
sold to Supplement Research and Development, L.L.C. (“SRD”).
In November 2014, Tow filed a complaint against twenty defendants for
misappropriation of AmeriSciences’s trade secrets, tortious interference with
contracts, breaches of fiduciary duty, unjust enrichment, and fraudulent
transfer. Gallardo and sixteen former AmeriSciences distributors settled with
Tow for $110,000 prior to trial. By trial, the only remaining defendants were
Cocheu, Organo, and Buggs. Organo and Buggs sought to exclude the
testimony of Scott Weingust, Tow’s damages expert, as unreliable under
Federal Rule of Evidence 702. The district court denied the motion. Organo
and Buggs also moved twice to dismiss the action, arguing Tow lacked standing
to assert trade secret claims. The district court denied both motions.
After Tow rested at trial, Organo moved for a judgment as a matter of
law under Federal Rule of Civil Procedure 50 for lack of legally sufficient
evidence. The district court denied the motion. Organo also objected to the
jury charge, requesting separate damages questions for each claim and
instructions regarding the fraudulent transfer claim. The district court
refused Organo’s suggestions. The jury found liability on eight claims: (1)
misappropriation of a trade secret by Cocheu, Organo, and Buggs; (2) tortious
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interference by Cocheu, Organo, and Buggs with the contracts between
AmeriSciences and its distributors; (3) breach of fiduciary duty by Cocheu; (4)
aiding and abetting a breach of fiduciary duty by Organo and Buggs; (5)
defalcation in a fiduciary duty by Cocheu; (6) unjust enrichment of Organo and
Buggs through receipt of the distributor list; (7) fraudulent transfer via actual
fraud by Cocheu of the distributor list and WMS software; and (8) fraudulent
transfer via constructive fraud by Cocheu of the distributor list and WMS
software. The jury answered $3,461,166.00 in the single blank for the dollar
amount for damages.
Following the verdict and judgment, Organo and Buggs filed a renewed
Rule 50 motion for judgment as a matter of law or, alternatively, for a new
trial, which the district court denied. Tow filed a motion under Rule 59(e) to
amend or alter the judgment to (1) find Organo and Buggs liable on the
fraudulent transfer claims, and (2) add $610,682.44 in pre-judgment interest
to the damages award. The district court granted Tow’s motion to alter or
amend. Organo and Buggs 2 filed a timely appeal from the amended final
judgment and now make several arguments for why part or all of the damage
award should be reversed or, in the alternative, that they are entitled to a new
trial.
II. Discussion
A. Appellants’ ‘Standing’ Argument Is an Issue of Contractual
Interpretation and Was Waived
Appellants challenge Tow’s standing to recover trade secret damages
under any theory of recovery by arguing that as of May 9, 2013, Tow sold the
vast majority of AmeriSciences’s assets to SRD under 11 U.S.C. §363(b),
including the “rights to sue for past, present, or future violations or
2 Cocheu did not appeal.
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infringements” of AmeriSciences’s software, trade secrets, distributorships and
customer list (though expressly reserving the fraudulent transfer claim).
Thus, Appellants assert Tow may not bring claims that do not belong to him.
Appellants, however, do not challenge Tow’s Article III standing. 3
Rather, their argument pertains to whether Tow has a right to sue under
AmeriSciences’s agreement with SRD. But that issue is one of “contract
interpretation” and addresses the merits of a potential breach of contract
claim, which is “entirely distinct from ‘standing’ for purposes of Article III.”
Cotton v. Certain Underwriters at Lloyd’s of London, 831 F.3d 592, 594 (5th
Cir. 2016) (quoting Novartis Seeds, Inc. v. Monsanto Co., 190 F.3d 868, 871 (8th
Cir. 1999)); see also Perry v. Thomas, 482 U.S. 483, 487, 492 (1987) (explaining
that a contention that plaintiffs “were ‘not parties’ to [an] agreement” did not
raise an issue of jurisdictional standing). Because Appellants do not raise any
non-waivable Article III or jurisdictional issues (and we find none), they were
required to raise their contractual interpretation argument in their Rule 50
motions. “Generally, a party must make a pre-verdict Rule 50(a) motion and
a [renewed] post-verdict Rule 50(b) motion to preserve the right to appellate
review.” Thompson & Wallace, Inc. v. Falconwood Corp., 100 F.3d 429, 435
(5th Cir. 1996). Appellants, however, did not raise any arguments claiming
AmeriScience’s trustee was an improper party, interpreting AmeriSciences’s
contract with SRD, or 11 U.S.C. § 363(b) in either their pre-verdict Rule 50(a)
motion or their post-verdict Rule 50(b) motion. “A party cannot ‘renew’ a
motion it never made.” OneBeacon Ins. Co. v. T. Wade Welch & Assoc., 841
3 Even if Appellants did make such a challenge, Tow has Article III standing. Article
III standing requires a plaintiff to show that it has been injured, that the defendant caused
the injury, and that the requested relief will redress the injury. Lujan v. Defs. of Wildlife,
504 U.S. 555, 560–61 (1992). Tow alleged AmeriSciences’s trade secrets were
misappropriated, that Appellants were liable, and Tow, in his capacity as trustee, would
recover the damages awarded.
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F.3d 669, 680 (5th Cir. 2016) (citations omitted). Accordingly, we “lack power
to address a claim not properly raised in a Rule 50(b) motion.” Id. Thus, “this
issue is not properly before [the court],” as Appellants have waived it. Id.
Moreover, Appellants’ argument fails on the merits. Appellants were not
a party to the contract between AmeriSciences and SRD. An individual who is
“not a party to an agreement has no interest in the terms of that contract.” El
Paso Cmty. Partners v. B&G/Sunrise Joint Venture, 24 S.W.3d 620, 626 (Tex.
App.—Austin 2000, no pet.) (citing Imco Oil & Gas v. Mitchell Energy Corp.,
911 S.W.2d 916, 920 (Tex. App.—Fort Worth 1995, no writ) (holding a non-
party had no right to enforce contract terms)). As Tow notes, even if
Appellants’ interpretation of the contract were correct, AmeriSciences and
SRD would seek to reform the contract based on mutual mistake. As a non-
party, Appellants would have no basis to oppose any reformation. See
Merrimack Mut. Fire Ins. Co. v. Allied Fairbanks Bank, 678 S.W.2d 574, 577
(Tex. App—Houston [14th Dist.] 1984, write ref’d n.r.e.). Thus, this newly-
minted argument fails.
B. The District Court Did Not Err When It Modified the Judgment
to Include Fraudulent Transfer Liability
After the jury’s verdict, the district court entered a final judgment
stating, “Judgment is GRANTED in favor of Plaintiff and against Defendant
Barry Cocheu on claims of breach of fiduciary duty, defalcation, fraudulent
transfer (actual fraud), and fraudulent transfer (constructive fraud).” There
was no fraudulent transfer finding against Appellants. Tow moved to amend
the judgment under Federal Rule of Civil Procedure 59(e). The district court
granted the motion and amended the judgment to reflect fraudulent transfer
findings. Appellants argue the fraudulent transfer findings violate Federal
Rule of Civil Procedure 49.
A grant or denial of a motion to alter or amend under Rule 59(e) is
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reviewed for abuse of discretion. Fletcher v. Apfel, 210 F.3d 510, 512 (5th Cir.
2000). 4 Appellants assert that the district court violated Rule 49(a)(3), which
states “[a] party waives the right to a jury trial on any issue of fact raised by
the pleadings or evidence but not submitted to the jury unless, before the jury
retires, the party demands its submission to the jury.” Specifically, Appellants
argue that the district court improperly waived their right to a jury trial when
it refused their demand for a specific jury question on fraudulent transfer
claims. Appellants, however, cite no case law to support the notion that Rule
49(a)(3) applies in such a manner.
Regardless, the jury was specifically instructed on fraudulent transfer
as follows:
Plaintiff Rodney Tow alleges that Defendant Barry Cocheu
fraudulently transferred AmeriSciences’ distributor list and WMS
software to Defendants Holton Buggs, Organo Gold International,
and Organo Gold Enterprises before AmeriSciences entered into
bankruptcy. . . In order to establish a claim for actual fraudulent
transfer, Plaintiff must establish each of the following elements by
a preponderance of the evidence:
1. The distributor list and WMS software were the property of
AmeriSciences;
2. The distributor list and WMS software were transferred to
Defendants within two years before the filing of AmeriSciences’
bankruptcy; and
3. AmeriSciences or its agent made the transfer with actual intent
to hinder, delay, or defraud any existing or future creditor.
4Appellants argue for de novo review. See Tyler v. Union Oil Co. of Cal., 304 F.3d 379
(5th Cir. 2002) (noting questions of law in Rule 59(e) motions may be reviewed de novo in
certain circumstances). Although we review for an abuse of discretion, given the
overwhelming one-sided nature of the arguments, we would come to the same conclusion
under de novo review.
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The jury answered “yes” to the following questions: “Have Defendants Holton
Buggs, Organo Gold International, or Organo Gold Enterprises been unjustly
enriched?” 5; “Did Defendant Barry Cocheu transfer the AmeriSciences
distributor list or the WMS software with actual intent to hinder, delay, or
defraud any creditor?”; and “Did Defendant Barry Cocheu transfer the
AmeriSciences distributor list or the WMS software through a constructive
fraudulent transfer?” Appellants are correct that there was no specific
question asking whether each Appellant was a transferee. But the jury
instruction expressly articulates that to find Cocheu liable for fraudulent
transfer, the jury must find that the distributor list and WMS software were
transferred to Organo and Buggs. A district court has “substantial latitude in
framing its instructions to the jury . . . even if a portion of the instruction is
not technically perfect, [we] will affirm if the charge in its entirety presents the
jury with a reasonably accurate picture of the law.” United States v. Flores, 63
F.3d 1342, 1374 (5th Cir. 1995). Here, the jury instruction “correctly reflect[s]
the legal issues” in question. Id. Given the instructions and answers, it is
difficult to come to any other conclusion than the jury made the necessary
findings for the district court to enter a fraudulent transfer liability judgment
against Appellants. Thus, the district court did not abuse its discretion in
amending the judgment.
Appellants briefly make two other arguments: first, that the distributor
list was never transferred, and second, that there was no jury finding that
AmeriSciences transferred the distributor list, only a finding that Cocheu did,
so no fraudulent transfer is possible under 11 U.S.C. § 548. These arguments
ignore the facts of the case and the broad language of the relevant statutes.
The Texas Uniform Fraudulent Transfer Act “defines the term ‘transfer’
5 With respect to unjust enrichment, the jury answered “yes” as to each Appellant.
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broadly to include ‘every mode, direct, or indirect, absolute or conditional,
voluntary or involuntary, of disposing of or parting with an asset or an interest
in an asset.’” Hometown 2006-1 1925 Valley View, L.L.C. v. Prime Income Asset
Mgmt., LLC, 847 F.3d 302, 307 (5th Cir. 2017) (quoting TEX. BUS. & COM. CODE
§ 24.002(12)). Sending electronically stored information via Excel and e-mail
constitutes a transfer. Section 548 of the Bankruptcy Code, allowing a trustee
to set aside “any transfer of an interest of the debtor in property,” clearly
encompasses the transfer here, 6 taking the facts in the light most favorable
to the prevailing party.
C. Prejudgment Interest Was Properly Awarded
After the verdict, Tow moved to amend the judgment under Rule 59(e),
seeking prejudgment interest in the amount of $610,682.44. The district court
granted Tow’s motion. Appellants argue the district court erred because Texas
Finance Code § 304.102 mandates prejudgment interest only for “tangible”
property, and trade secrets are intangible property. But federal courts that
have interpreted this provision have held “Texas law on trade secret claims
mandates the award of prejudgment interest.” 7 Appellants do not cite any
authority to the contrary.
Even if awarding prejudgment interest was not mandatory, there is no
dispute a district court can and usually should award prejudgment interest for
trade secret claims. The Texas Supreme Court has held that there are “two
6 The fraudulent transfer statute expressly allows for the trustee to recover for a
transfer, within two years before the date of the filing of the bankruptcy petition, regardless
of intent, so long as AmeriSciences received less than a reasonably equivalent value in
exchange for the transfer of the distributor list and was insolvent at the time. See 11 U.S.C.
§ 548(a)(1)(B). The latter is not contested.
7See Retractable Techs., Inc. v. Occupational & Med. Innovations, LTD., 6:08-CV-120,
2010 WL 3199624, at *4 (E.D. Tex. Aug. 11, 2010); Myriad Dev., Inc. v. Alltech, Inc., 817 F.
Supp. 2d 946, 990 & n.253 (W.D. Tex. 2011).
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legal sources for an award of prejudgment interest: (1) general principles of
equity and (2) an enabling statute.” Johnson & Higgins of Tex. Inc. v. Kenneco
Energy, Inc., 962 S.W.2d 507, 528 (Tex. 1998), superseded by statute on other
grounds, TEX. FIN. CODE § 304.1045. Under Texas law, “an equitable award of
prejudgment interest should be granted to a prevailing plaintiff in all but
exceptional circumstances.” Am. Intern. Trading Corp. v. Petroleos Mexicanos,
835 F.2d 536, 541 (5th Cir. 1987). Here, Appellants have not articulated any
exceptional circumstances. Texas courts have awarded prejudgment interest
in equity in misappropriation cases, see Harper v. Wellbeing Genomics Pty Ltd.,
No. 03-17-00035-CV, 2018 WL 6318876, at *1 (Tex. App.—Austin Dec. 4, 2018,
pet. filed), fraudulent transfer cases, see In re Advanced Modular Power Sys.,
Inc., 413 B.R. 643, 685 (Bankr. S.D. Tex. 2009) (citing state cases), as well as
for tortious interference claims. See Sandare Chem. Co., Inc. v. WAKO Intern.,
Inc., 820 S.W.2d 21, 23 (Tex. App.—Fort Worth 1991, no writ).
Appellants also argue prejudgment interest is inappropriate because
“[p]rejudgment interest may not be assessed or recovered on an award of future
damages.” TEX. FIN. CODE § 304.1045. Future damages can be characterized
as “the monetary equivalent of the harm or injuries not yet actually sustained
by the plaintiffs/appellees, but which they will suffer from the date of judgment
forward in time.” Mo. Pac. R. Co. v. Lemon, 861 S.W.2d 501, 529 (Tex. App.—
Houston [14th dist.] 1993, writ dism’d by agr.). But Tow’s damages expert did
not extrapolate future damages from misappropriation of AmeriSciences’s
distributor list. Instead, he testified what a reasonable buyer would pay for
the list at the time the company suffered injury. Although Appellants point to
testimony where Weingust discusses the distributor list’s future income
potential, any assessment of current value of the distributor list would
naturally consider what potential the list had at the time of the
misappropriation. Therefore, § 304.1045 is inapplicable, and we affirm the
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district court’s addition of prejudgment interest.
D. Separate Damages Questions Were Not Required
Appellants next argue that the district court erred when it refused to
submit separate damage questions for each defendant and cause of action.
District courts enjoy wide discretion in formulating jury charges. Broad.
Satellite Int’l Inc. v. Nat’l Digital Television Ctr., Inc., 323 F.3d 339, 347 (5th
Cir. 2003). Any “challenges to, and refusals to give, jury instructions” are
reviewed for abuse of discretion. United States v. Ebron, 683 F.3d 105, 151
(5th Cir. 2012). A jury instruction is reviewed to determine whether it “is a
correct statement of the law and whether it clearly instructs jurors as to the
principles of law applicable to the factual issues confronting them.” Id. at 152.
A judgment should be reversed only if the jury charge leads to a “substantial
and eradicable doubt [about] whether the jury has been properly guided in its
deliberations.” Arleth v. Freeport-McMoran Oil & Gas Co., 2 F.3d 630, 634 (5th
Cir. 1993).
The jury charge “correctly stated the law” and “clearly instructed jurors
as to the principles of law applicable to the factual issues confronting them”
with respect to: (1) misappropriation of trade secrets, (2) tortious interference
with existing contracts, (3) breach of fiduciary duty, (4) aiding and abetting
breach of fiduciary duty, (5) defalcation in a fiduciary duty, (6) unjust
enrichment, (7) fraudulent transfer via actual fraud, and (8) fraudulent
transfer via constructive fraud. Damages were also properly and clearly
explained.
Appellants cite no authority for the proposition that a district court must
provide separate damages questions for each defendant or claim where a
plaintiff’s claims had the same legal measure of damages and all stemmed from
the same conduct. As the district court noted, there was no reason for “a
different damage line for every cause of action when there’s only one measure
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of recovery.” Moreover, Appellants were all found jointly liable for (and thus
jointly responsible for the damages caused by) Cocheu’s breach of fiduciary
duty. See Kinzbach Tool Co. v. Corbett-Wallace Corp., 160 S.W.2d 509, 514
(Tex. 1942). Joint and several liability further makes separate damages
questions unnecessary. Because the jury charge correctly stated the law,
clearly instructed the jury, and the Appellants are jointly and severally liable,
the district court did not abuse its discretion by submitting a single damages
question.
E. The District Court Did Not Err with Respect to Tow’s Expert
Scott Weingust was hired to determine the value of AmeriSciences’s
distributor network and testified at trial as Tow’s damages expert. Appellants
sought to exclude Weingust’s testimony for unreliability in a Daubert motion,
which the district court denied. Appellants argue Weingust’s testimony should
have been excluded as unreliable because he used improper methods to
calculate damages. Appellants also argue evidence of Organo’s lost profits was
improperly excluded. A district court’s decision to admit or exclude evidence
under Federal Rule of Evidence 702 is granted “wide latitude” and should be
affirmed unless “it is manifestly erroneous.” Roman v. W. Mfg., Inc., 691 F.3d
686, 692 (5th Cir. 2012) (quotation omitted). “This deferential abuse-of-
discretion standard applies to both the expert’s qualifications and to the
reliability determination.” Id.
Weingust concluded that the distributor network was worth
approximately $3.451 million based on the following two methodologies: the
cost approach showed AmeriSciences had incurred about $6.2 million over five
years to develop the distributor network, attract new distributors, and retain
existing ones. The income approach considers how long income is expected
from the asset and the amount of income each year. Weingust concluded the
income approach dictated the network would generate $700,327 over ten years.
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Weingust testified that neither valuation method was better than the other, so
he averaged the two to conclude the value of the distributor network was
$3.451 million.
Weingust also prepared documents showing that 454 distributors from
the 6,411 on the list had joined Organo, resulting in $57,067.80 in profit.
Appellants contend this valuation, the lost profits approach, is the proper
method to calculate trade secrets damages. But Texas “takes a ‘flexible and
imaginative’ approach to damages calculation in trade secret misappropriation
cases that allows calculation of damages based on defendant’s avoided costs.’”
GlobeRanger Corp. v. Software AG U.S. of Am., Inc., 836 F.3d 477, 499 (5th
Cir. 2016) (quoting SW Energy Prod. Co. v. Berry-Helfand, 491 S.W.3d 699, 710
(Tex. 2016)). In fact, Weingust’s valuation method is expressly allowed—
damages valuations may consider “the development costs the defendant
avoided by the misappropriation . . . [and] [t]he costs a plaintiff spent in
development . . . [which] can be a proxy for the costs the defendant saved.” Id.
In GlobeRanger, the Fifth Circuit affirmed a nearly identical damages
valuation, noting that “[a]lthough a more precise damages model might have
been possible, the district court’s decision to allow testimony based on this
measure was not manifestly erroneous.” Id. at 500 (internal quotation
omitted). That is exactly the case here. As in GlobeRanger, rather than
challenging the reliability of a witness, Appellants instead challenge “the
weight a factfinder should give the testimony.” Id. (internal citations omitted).
Yet Appellants “had the opportunity to try to convince the jury not to give full
weight to [Tow’s] expert’s calculations,” through their own expert, but did not
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persuasively do so. Id. We therefore affirm the district court with respect to
expert testimony. 8
F. Tow Presented Legally Sufficient Evidence for Each of His
Claims
Appellants next argue that they are entitled to judgment as a matter of
law as to every one of Tow’s claims. When reviewing a district court’s denial
of a post-verdict Rule 50(b) motion, we assess “whether a reasonable jury would
not have a legally sufficient evidentiary basis to find for the party on that
issue.” Nobach v. Woodland Vill. Nursing Ctr., Inc., 799 F.3d 374, 377–78 (5th
Cir. 2015) (quoting FED. R. CIV. P. 50(a)(1)). We review a district court’s ruling
on a motion for judgment as a matter of law de novo. Id. All of Appellants’
challenges to Tow’s claims and the legal sufficiency of the evidence are
assessed below. We hold there is legally sufficient evidence for a reasonable
jury to find as it did for each claim, and affirm the district court in its entirety
as to this issue. Because the value of the distributor list serves as Tow’s
evidence for several claims, we assess that issue first.
1. Evidence of the Value of the Distributors List
Appellants argue there is no evidence to value the distributors list
because Weingust valued only the distributor network. Appellants claim the
distinction between a “list” and a “network” is key but make no substantive
argument supported by record evidence for why the two are different in a way
that matters here. Appellants cite no authority for the proposition that there
is a difference between a network and a list as a matter of law. To the contrary,
8 Appellants also contend the district court abused its discretion in excluding their
attempts to offer evidence of lost profits. Essentially, Appellants seek to show their
misappropriation was not overly profitable. But this argument is also contradicted by
GlobeRanger, which stated, “the wrongdoer should not benefit from hindsight perspective
that its gamble of misappropriating the trade secret turned out not to be so profitable.” 836
F.3d at 500.
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both a distributor list and network can be trade secrets under Texas law: a
trade secret includes any “compilation of information used in one’s business,
and which gives an opportunity to obtain an advantage over competitors who
do not know or use it.” Nova Consulting Grp., Inc. v. Eng’g Consulting Servs.,
Ltd. 290 F. App’x. 727, 734 (5th Cir. 2008) (citing cases) (quotations omitted).
Trade secrets include “customer lists, client information, customer preferences,
and buyer contacts.” Id.
Weingust did consider the distributor network to include “relationships
between the distributors and the company.” But AmeriSciences also provided
Organo with the distributor information including each distributor’s upline
number, address, email, phone number, Social Security Number, username,
password, birthdate, status, entry date time, and lifetime rank. AmeriSciences
updated the information to remove inactive distributors and modify
genealogies to prepare for the transfer. Skirm even wrote a custom program
to export all the distributor information into an Excel file to transfer to
Appellants, a capability that did not previously exist. Whether this material
is branded as a network or as a list, it was valuable information easily
characterized as a trade secret.
There is an abundance of evidence for the valuation itself. Weingust
testified about the methodologies he used to opine that the distributor list had
a value of $3,451,166, including the amount AmeriSciences invested to develop
the list and retain distributors, and Skirm testified about the value of such a
list for an MLM company. Weingust also testified with respect to the value of
WMS. Although Appellants’ expert Gary Abadalla offered a differing opinion,
the jury agreed with Weingust. Thus, a reasonable jury could find that the
distributor list was valued appropriately.
2. Evidence for Use of a Trade Secret
Appellants challenge the sufficiency of evidence regarding the “use” of a
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trade secret. “Use” of a trade secret includes “soliciting customers through the
use of information that is a trade secret” or “relying on the trade secret to assist
or accelerate research or development.” Bohnsack v. Varco, L.P., 668 F.3d 262,
279 (5th Cir. 2012) (citation omitted). Tow presented evidence to fit this broad
definition. For example, Appellants uploaded the distributor list into Organo’s
server and Buggs stated in an email, “I just wanted to make the team aware
that we will acquire the distributor base of an existing MLM company called
AmeriSciences.” In addition, Cocheu stated the list was the “critical file that
Oliver must have to input the organization tree for our group.” Skirm testified
that he sent the WMS software to Organo, and Organo attempted to integrate
it. Therefore, a reasonable jury could conclude that Appellants had “used” a
trade secret.
3. Evidence of Trade Secret Damages
As noted above, Texas law takes a “flexible and imaginative” approach
to calculating damages in misappropriation of trade secrets cases. S.W.
Energy, 491 S.W.3d at 710. This includes the “value a reasonably prudent
investor would have paid for the trade secret, [and] the development costs the
defendant avoided by the misappropriation.” Id. at 711. Weingust testified
about what a reasonably prudent investor would have paid for the trade secret
and the development costs avoided by Appellants. Thus, there was legally
sufficient evidence of trade secret damages for the jury to conclude as it did.
4. Evidence of Damages for Tortious Interference
Appellants next argue there was insufficient evidence of damages for
tortious interference liability. Damages for tortious interference may include
contract damages, unjust enrichment, lost profits, consequential losses, and
actual harm to reputation. See In re Performance Nutrition, Inc., 239 B.R. 93,
115 (Bankr. N.D. Tex. 1999) (citing state law cases). Tow cites evidence that
Cocheu breached his agreement with AmeriSciences to support the jury’s
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verdict on tortious interference. 9 But the jury question did not ask whether
Cocheu tortiously interfered with his own contract with AmeriSciences, and a
party cannot tortiously interfere with a contract to which he is a party to. See
Latch, 107 S.W.3d at 545. Rather, Jury Question No. 2 asked, “Did any
Defendant tortiously interfere with AmeriSciences’ contracts with its
distributors?” The jury answered “yes” as to Cocheu, Buggs, and Organo. 10
AmeriSciences’s distributor contracts barred distributors from sponsoring an
existing AmeriSciences distributor into another MLM company, and included
non-solicitation and confidentiality provisions.
The following evidence is in the record: Cocheu, Gallardo, and Buggs
met with high level AmeriSciences distributors to inform them Cocheu and
Gallardo planned to move to Organo. At that same meeting, Buggs spoke to
the distributors about Organo products and the company to get distributors to
join Organo. Buggs admits “the evidence showed that a few of the large
AmeriSciences distributors may have breached their contracts by encouraging
other distributors to join Organo or providing Organo with information about
9 Tow notes that Cocheu signed an agreement acknowledging AmeriSciences’s
distributor list was a confidential trade secret, along with “any other confidential information
or data relating to the business” of AmeriSciences not publicly known. Cocheu also agreed
he would not use the trade secrets for his personal gain or disclose the distributor list.
Further, emails between Buggs and Cocheu show that, without any formal agreement,
Cocheu agreed to cease his work at AmeriSciences and begin promoting Organo; Cocheu
would be paid $50,000 per month in his personal capacity after the transfer of the distributor
list; and Cocheu sent the list to Buggs without AmeriSciences receiving consideration.
10 Cocheu may have had a legitimate argument that he could not have been liable for
tortious interference with AmeriSciences’s contracts with its distributors because he was
AmeriScience’s agent: “[A]gents are not liable for tortious interference with their principals’
contracts . . . .” Latch, 107 S.W.3d at 545. Only if the agents acts are “so contrary to the
corporation’s interests that his or her actions could only have been motivated by personal
interest” is such recovery possible.” Id. Although that probably was the case here, the jury
was not asked that question. In any event, Cocheu did not appeal. Organo and Buggs did
not make the argument that, at these meetings, Cocheu was acting for AmeriSciences such
that they could not be evidence of tortious interference.
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their downline organizations.” In addition to damages for unjust enrichment,
which are discussed below, Weingust presented evidence for damages
stemming from profit Organo earned from former AmeriSciences
distributors. 11 Thus, there was sufficient evidence for a reasonable jury to
conclude that Organo and Buggs tortiously interfered with AmeriSciences’s
contracts with distributors.
5. Evidence of Buggs’s Personal Liability
Buggs argues there is legally insufficient evidence demonstrating he
personally received and benefitted from the use of the distributor list. But Tow
presented the following evidence at trial: Cocheu provided the distributor list
directly to Buggs, who acknowledged receiving the distributor list, Buggs sent
an email stating “I just wanted to make the team aware that we will acquire
the distributor base of an existing MLM company called AmeriSciences,” and
Buggs also received AmeriSciences’s downline information. Skirm and
Weingust’s testimony also supported the notion that having more distributors
in one’s downline means more earning potential. This constitutes legally
sufficient evidence for a reasonable jury to conclude as it did.
6. Evidence of Damages for Breach of Fiduciary Duty and Unjust
Enrichment
Appellants’ last argument for judgment as a matter of law is that there was
insufficient evidence to show damages for breach of fiduciary duty and unjust
enrichment. Under Texas law, a corporate officer’s or director’s breach of
fiduciary duty may result in liability for “any loss” the corporation may suffer
as a result, including consequential damages. Meyers v. Moody, 693 F.2d 1196,
11 Appellants argue Tow never tied evidence of Organo’s profit to AmeriSciences’s
distributors breaching their contract with AmeriSciences. But evidence showing Buggs
pitched AmeriSciences’s distributors on Organo and that some of AmeriSciences’s
distributors joined Organo shows that Buggs and Organo’s tortious interference contributed
to their profits.
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1214 (5th Cir. 1982). Further, a defendant is obligated to restore benefits to
the plaintiff when a defendant is unjustly enriched via fraud. Heldenfels Bros.
Inc. v. City of Corpus Christi, 832 S.W.2d 39, 41 (Tex. 1992). Tow presented
legally sufficient evidence for a reasonable jury to conclude as it did through
Weingust’s testimony regarding AmeriSciences’s development costs to recruit
and retain distributors and how much a reasonably prudent investor would
have paid for the list.
G. A Settlement Credit Should Be Applied
Finally, Appellants argue that the final judgment must be reduced by
$110,000 because Gallardo and numerous distributor defendants settled prior
to trial for that amount for identical claims to those for which the jury found
Appellants jointly and severally liable. Under Texas law, “a plaintiff is entitled
to only one recovery for any damages suffered” and a “nonsettling defendant is
entitled to offset any liability for joint and several damages by the amount of
common damages paid by the settling defendant.” Crown Life Ins. Co. v.
Casteel, 22 S.W.3d 378, 390–92 (Tex. 2000) (abrogated on other grounds). Tow
concedes this point, agrees the judgment should be reduced by $110,000, and
acknowledges we may issue a remittitur. See Brunnemann v. Terra Int’l, Inc.,
975 F.2d 175, 178 (5th Cir. 1992). Thus, we remand for the limited purpose of
modifying the judgment to account for the settlement credits.
III. Conclusion
For the reasons stated above, we REMAND for the limited purpose of
modifying the judgment as to the Appellants to account for the settlement
credits. Aside from that sole issue, we AFFIRM the district court’s judgment
in its entirety.
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