Pending before the Court are Defendant Texhoma Fiber, LLC's Motion for Summary Judgment (Dkt. # 36) and Plaintiff PEG Bandwidth TX, LLC's Motion for Partial Summary Judgment (Dkt. # 37). Having considered the relevant pleadings and evidence, the Court finds that Plaintiff's motion should be granted. The Court further finds that Defendant's motion should be granted in part and denied in part.
BACKGROUND
Plaintiff PEG Bandwidth TX, LLC ("PEG") provides network solutions for cellular telephone carriers. In 2010 and 2011, PEG began discussions with the Hilliary family about providing PEG access to fiber optic cables for the purpose of supplying "backhaul" service to cellular carriers in the Wichita Falls area.
The parties negotiated an agreement whereby Texhoma Fiber would lease to PEG pre-existing fiber in the Wichita Falls area and PEG would pay Texhoma Fiber to build out and extend the Wichita Falls fiber network to make it suitable for PEG to supply backhaul service to its customers.
The Lease Agreement stated that "TEXHOMA FIBER owns and operates a continuous fiber optic network between the points identified in Exhibit A." The Lease Agreement defined the location of the fiber in Exhibit A as the "Texhoma Fiber Route." The Lease Agreement provided for PEG to pay Texhoma Fiber $1.6 million in order to design, engineer, and construct a continuous fiber optic network in the Wichita Falls area that PEG could lease for the purpose of serving its cellular telephone customers.
Initially, the network would consist of 48-count fiber optic cable that connected the cell sites described on Exhibit "A" to the Lease Agreement. As amended, the Lease Agreement gave PEG the exclusive right to use only six of those fibers throughout the network.
In order to protect PEG's interests, the parties agreed that Texhoma Fiber could lease the other 42 fibers to other lessees subject to a non-circumvention provision:
18.1 NON-CIRCUMVENTION. TEXHOMA FIBER shall not, directly or indirectly through other customers, offer or provide services to licensed CMRS carriers at the sites contained in Exhibit A, without the prior written consent of PEG. Nothing herein shall restrict TEXHOMA FIBER'S right to provide any services to wireless carriers at sites not contained in Exhibit A.
Lease Agreement, at § 18.1.
This 30-year non-compete obligation restricts Texhоma Fiber from directly or indirectly offering or providing any service to any licensed CMRS carriers at any of the sites located on Texhoma Fiber Route (or any other sites that became subject to the Lease Agreement), without first receiving written consent from PEG. The non-circumvention provision allowed Texhoma Fiber to use the other 42 fibers to service customers other than licensed CMRS carriers, such as local businesses seeking to connect multiple sites. It also permitted Texhoma Fiber to use the other
On July 15, 2011, PEG entered into a Master Services Agreement (the "US Cellular Agreement") to provide cellular communication services to United States Cellular Corporation ("US Cellular"). On August 10, 2011, pursuant to the US Cellular Agreement, US Cellular issued a Market Service Order that authorized PEG to provide cell site backhaul services to US Cellular for five years at fourteen new cell sites in the Texhoma Fiber Route.
Texhoma Fiber ultimately never finalized its purchase of Comcell. Because Texhoma Fiber was using fiber owned by Comcell's subsidiary, Community Telephone, apparently without compensating Comcell, Comcell and Community Telephone eventually threatened to disconnect their fiber from the Texhoma Fiber Route. Then, Comcell and Community Telephone filed suit against both Texhoma Fiber and PEG.
Texhoma Fiber settled with Comcell and Community Telephone in 2014. In the settlement, Texhoma Fiber agreed to pay Comcell and Community Telephone $250,000, to assign to Comcell the Lease Agreement, and to convey to Comcell half the fiber in the route served by the Lease Agreement. PEG was not a party to this settlement. On January 1, 2014, Texhoma Fiber, pursuant to § 18.10 of the Lease Agreement, assigned the Lease Agreement to Comcell ("Comcell Assignment"). The relevant assignment provision reads:
Texhoma does hereby assign and transfer unto Comcell, effective as of [January 1, 2014], all of Texhoma's benefits, obligations and liabilities under the PEG Bandwidth Contract, to have and hold the same. Subject to the provisions of Section 1(b) below, Comcell hereby accepts such assignment and transfer and therefore agrees to assume all of Texhoma's benefits, obligations and liabilities under the PEG Bandwidth Contract pursuant to the terms of this Assignment.
(Dkt. # 36, Exhibit 6).
By letter dated March 12, 2014, Texhoma Fiber, pursuant to § 18.10 of the Lease Agreement, notified PEG about the Comcell Assignment, and directed PEG to send all further payments due under the Lease Agreement to Comcell. The notice letter stated, "Texhoma Fiber, LLC assigned to Comcеll Inc., all rights, title and interest in the Dark Fiber Lease Agreement .... By this Notice, you are directed to make all future payments due under said Lease and amendments to Comcell, Inc." (Dkt. # 37, Exhibit 21). On July 2, 2014, PEG and Comcell agreed to amend the Lease Agreement for a third time to include Comcell as successor in interest to Texhoma Fiber. After the assignment, the fiber optic sheath in the Texhoma Fiber Route contained 24 fibers owned by Texhoma Fiber and 24 fibers owned by Comcell, with Comcell's fibers servicing PEG (Dkt. # 37, Exhibit 15).
After the assignment, Texhoma leased certain fiber to Dobson Technologies ("Dobson"), which Dobson has used to provide cellular communication services to US Cellular at some of the US Cellular Sites (Dkt. # 39 at p. 7). In 2016, US Cellular did not renew its contract with PEG. US Cellular instead contracted for Dobson Technologies to provide service at the same sites subject to the Lease Agreement in the Wichita Falls area.
On December 1, 2016, PEG filed its amended complaint asserting that Texhoma Fiber breached the Lease Agreement's thirty-year non-compete obligation by leasing fiber to Dobson at some of the US Cellular Sites where PEG formerly provided cell site backhaul services to US Cellular
LEGAL STANDARD
The purpose of summary judgment is to isolate and dispose of factually unsupported claims or defenses. Celotex Corp. v. Catrett ,
The party seeking summary judgment bears the initial burden of informing the court of its motion and identifying "depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials" that demonstrate the absence of a genuine issue of material fact. Fed. R. Civ. P. 56(c)(1)(A) ; Celotex ,
ANALYSIS
I. Breach of Contact
Both parties have moved for summary judgment on the contract issues
Section 18.1 of the Lease Agreement disallows Texhoma Fiber from, directly or indirectly through other customers, offering or providing services to licensed CMRS carriers at the sites contained in Exhibit A, without the prior written consent of PEG. It is undisputed that Texhoma Fiber, indirectly through its customer Dobson, has since 2016 provided service to US Cellular at sites listed in Exhibit A to the Lease Agreеment, as amended (Dkt. # 39 at ¶ 18). Thus, Texhoma Fiber would seem to be in breach of the Lease Agreement.
However, Texhoma Fiber argues that it assigned to Comcell all of its "benefits, obligations and liabilities" under the Lease Agreement. It further argues that the Lease Agreement does not limit the rights or obligations it can assign under the Lease Agreement, but simply requires it to provide notice to PEG of the assignment pursuant to § 18.10. Thus, the assignment did not exclude any of Texhoma Fiber's obligations under the Lease Agreement, and therefore, included the thirty-year non-circumvention obligation. Texhoma Fiber further claims that it conveyed to Comcell all of the fibers in the Wichita Falls Network that PEG had an exclusive right to use.
PEG claims that Texhoma Fiber's notice was incomplete. PEG asserts that Texhoma Fiber notified PEG only that it had "assigned to Comcell, Inc., all rights, title, and interest " in the Lease Agreement. Further, PEG asserts that the notice specifically addresses only payments due from PEG, which are to be directed to Comcell, instead of Texhoma Fiber, going forward. Thus, PEG claims that Texhoma Fiber did not notify PEG Bandwidth about assignment of any "obligations," such as the non-circumvention obligation.
PEG further claims that Texhoma Fiber's notice was false because Texhoma Fiber had not assigned all rights, title, and interest to Comcell. Rather, Texhoma Fiber had retained its rights, title, and interest in half оf the fiber which is the subject matter of the Lease Agreement. The Settlement Agreement with Comcell required Texhoma Fiber to execute a Bill of Sale, in
PEG further argues that § 18.10 does not permit an assignment of all obligations, including the non-circumvention provision, but only part of the rights. According to PEG, in order to avoid the non-circumvention obligation with respect to its retained fibers, Texhoma Fiber has to prove a novation with respect to that obligation and asserts Texhoma Fiber has not presented any evidence showing PEG agreed to extinguish the non-circumvention obligation with respect to half of the fibers. PEG further argues Texhoma Fiber cannot point to any authority allowing it to destroy a contractual obligation by purporting to assign the obligation while keeping the contractual rights or property to which that obligation pertains.
The Court need not address whether Texhoma Fiber's notice of the assignment was sufficient because it finds that the Lease Agreement does not extinguish Texhoma Fiber's non-circumvention obligatiоn through an assignment.
In Seagull Energy E & P, Inc. v. Eland Energy, Inc. , the Texas Supreme Court held that an assignment relieves a party of its obligations only if it effects a novation.
An obligor is discharged by the substitution of a new obligor only if the contract so provides or if the obligee makes a binding manifestation of assent, forming a novation .... Otherwise, the obligee retains his original right against the obligor, even though the obligor manifests an intention to substitute another obligor in his place and the other purports to assume the duty.
RESTATEMENT (SECOND) OF CONTRACTS § 318, cmt. d. (emphasis added).
A duty cannot be "assigned" in the sense in which "assignment" is used in this Chapter . The parties to an assignment, however, may not distinguish between assignment of rights and delegation of duties. A purported "assignment" of dutiеs may simply manifest an intention that the assignee shall be substituted for the assignor. Such an intention is not completely effective unless the obligor of the assigned right joins in a novation , but the rules of this Section give as full effect as can be given without the obligor's assent.
RESTATEMENT (SECOND) OF CONTRACTS § 328, cmt. a. (emphasis added). See Seagull Energy ,
"A party raising the defense of novation must prove (1) the validity of a previous obligation; (2) an agreement among all parties to accept a new contract; (3) the extinguishment of the previous obligation; and (4) the validity of the new agreement.... It must clearly appear that the parties intended a novation, and novation is never presumed." Fulcrum Central v. AutoTester, Inc. ,
Texhoma Fibеr has failed to come forth with any evidence of novation and concedes that a party to a contract generally cannot escape its contractual obligations merely by assigning the contract to a third party (Dkt. # 36 at p. 8). However, Texhoma Fiber contends that the operative language of the Lease Agreement, specifically Section 18.10, expressly and unambiguously permits Texhoma Fiber to assign all its contractual obligations, including the non-circumvention obligation (Dkt. # 36 at p. 9).
Contract terms "are given their plain, ordinary, and generally accepted meanings unless the contract itself shows them to be used in a technical or different sense." Valence Operating Co. v. Dorsett ,
The assignment provision reads:
PEG shall not assign this Agreement in whole or in part, nor sublet the Leased Fibers, without the prior written consent of TEXHOMA FIBER, which TEXHOMA FIBER may withhold in its sole discretion. Provided, PEG may assign this Agrеement in whole or in part to an affiliate, subsidiary or parent company of PEG or pursuant to a merger, stock sale or sale or exchange of substantially all of the assets of PEG or any of its affiliates, subsidiaries or parent companies with prior notice to TEXHOMA FIBER. TEXHOMA FIBER may, without PEG's consent, but with notice to PEG, assign its rights and obligations hereunder to any entity, or to any affiliate of TEXHOMA FIBER or pursuant to a merger, stock sale or sale or exchange of substantially all the assets of TEXHOMA FIBER. This Agreement binds and inures to the benefit of any permitted assignees or successors to the parties.
Lease Agreement, at § 18.10.
Neither party disputes that the Lease Agreement is unambiguous. Furthermore, a plain reading of the Lease Agreement leads the Court to the conclusion that the contract is unambiguous and the Court, therefore, will interpret its meaning as a question of law. The Court finds that an assignment pursuant to § 18.10 of the Lease Agreement is not a valid release of Texhoma Fiber's liabilities and responsibilities.
"Generally speaking, a party cannot escape its obligations under a contract merely by assigning the contract to a third party." Seagull Energy ,
Each Participating Party desiring to abandon a well pursuant to Section 14.2 shall assign effective as of the last applicable election date, to the non-abandoning Parties, in proportion to their Participating Interests, its interests in such well and the equipment therein and its ownership in the production from such well. Any party so assigning shall be relieved from any further liability with respect to said well.
Accordingly, the Court reaches the same conclusion in this case. Section 18.10 of the Lease Agreement did not expressly provide that Texhoma Fiber's obligations under the agreement should terminate upon assignment; thus, Texhoma Fiber was not expressly released from its non-circumvention obligation following the assignment to Comcell.
When a court finds that there is no express release in an assignment, "the contract's subject or other circumstances may indicate that obligations were not intended to survive assignment."
II. Texas Free Enterprise and Antitrust Act, and Texas Covenants Not to Compete Act
Texhoma Fiber asserts that § 18.1 of the Lease Agreement, the non-circumvention provision, is an unlawful, unreasonable, and unenforceable restraint of trade in violation of the Texas Free Enterprise and Antitrust Act, Tex. Bus. & Com. Code §§ 15.01, et seq. , and the Texas Covenants Not to Compete Act, Tex. Bus. & Com. Code §§ 15.50, et seq. The thirty-year non-compete obligation reads:
TEXHOMA FIBER shall not, directly or indirectly through other customers, offer or provide services to licensed CMRS carriers at the sites contained in Exhibit A, without the prior written consent of PEG. Nothing herein shall restriсt TEXHOMA FIBER'S right to provide any services to wireless carriers at sites not contained in Exhibit A.
Lease Agreement, at § 18.1.
Texhoma Fiber asserts that the Texas Covenants Not to Compete Act "supplements and clarifies" the Texas Free Enterprise and Antitrust Act's "broad proscription against trade restraints by establishing specific standards for covenants not to compete." (Dkt. # 39 at p. 22). Texhoma Fiber further asserts that
the general rule of reason [under the Texas Free Enterprise and Antitrust Act] does not apply to the noncompete obligation at issue in this case. Texhoma does not dispute that the Texas Free Enterprise and Antitrust Act is patterned off federal antitrust statutes оr that the rule of reason standard that governs most restraints of trade under federal antitrust law also generally applies to contracts in restraint of trade under Texas law.
(Dkt. # 39 at p. 23). Thus, the Court finds Texhoma Fiber has abandoned its affirmative defense under Texas Free Enterprise and Antitrust Act and exclusively relies on the Texas Covenants Not to Compete Act to invalidate the non-circumvention provision.
PEG asserts that the Covenants Not to Compete Act does not apply to the Lease Agreement because it applies exclusively to employment contracts, not commercial contracts (Dkt. # 37 at pp. 20-22). The Court disagrees with PEG's argument but finds the Texas Covenants Not to Compete Act is still inapplicable to the Lease Agreement because the non-circumvention provision is a restrictive covenant running with the land, i.e. the Texhoma Fiber Route, and should be analyzed as such.
Although not legally binding, the Court finds the analysis in Rolling Lands Investments, L.C. v. Northwest Airport Management, L.P. persuasive.
Section 18.1 of the [Lease Agreement] does not provide that Texhoma is prohibited from using the fibers in the Texhoma Fiber Route to compete with PEG for certain business at certain locations; it broadly provides that Texhoma is prohibited from offering or providing services to Cell Phone Companies at thе sites covered by the [Lease Agreement] by any means whatsoever.
(Dkt. # 39 at p. 11). The distinction is unavailing. The non-circumvention provision prevents Texhoma "from using the fibers in the Texhoma Fiber Route ... [to offer or provide] services to Cell Phone Companies at the sites covered by the Lease Agreement by any means whatsoever." (Dkt. # 39 at p. 11).
The noncompete agreements in the cases cited by Texhoma Fiber are also distinguishable because they specifically prohibit certain competitive conduct, not necessarily limit the use of the specific
The Court now analyzes whether the non-circumvention provision is a valid restrictive covenant running with the land.
III. Declaratory Relief
Both parties also move for summary judgment on PEG's claim for declaratory relief. PEG specifically seeks a declaration that "Texhoma Fiber has a continuing duty, extending for thirty years from the date of acceptance, for each site listed in the [Lease Agreement] or its amendments, not to directly or through other customers, offer or provide services to licensed CMRS carriers, without prior written consent of
The federal Declaratory Judgment Act states, "[i]n a case of actual controversy within its jurisdiction,...any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal rеlations of any interested party seeking such declaration, whether or not further relief is or could be sought."
The Court finds that PEG's motion for summary judgment on its claim for declaratory relief should be granted and Texhomа Fiber is bound by the non-circumvention obligation until the expiration of the thirty-year Lease Agreement.
IV. Attorneys' Fees
Texhoma Fiber also moves for summary judgment on PEG's request for attorneys' fees, asserting that the Lease Agreement does not permit PEG to recover attorneys' fees and Section 38.001 of the Texas Civil Practice and Remedies Code restricts the proper target of reasonable attorneys' fees to an "individual" or a "corporation," but not other legal entities, such as limited liability companies. TEX. CIV. PRAC. & REM. CODE § 38.001(8). PEG concedes that "[a]s of now, the Texas Legislature still has not fixed the hole created by case law construing Texas statutory law so as not to allow recovery of attorney fees from a limited liability company in a breach of contract action." (Dkt. # 38 at p. 5) (citing See Vast Construction, LLC v. CTC Contractors, LLC ,
CONCLUSION
It is therefore ORDERED that Plaintiff's Motion for Partial Summary Judgment (Dkt. # 37) is hereby GRANTED and the Court declares that Defendant is bound by the non-circumvention obligation until the expiration of the thirty-year Lease Agreement. Therefore, no material questions of fact exist with regard to whether Defendant is liable to Plaintiff for breach of the Lеase Agreement. The only remaining issue to be decided by the trier of fact is the amount of damages.
It is further ORDERED that Defendant's Motion for Summary Judgment (Dkt. # 36) is GRANTED in part and DENIED in part. Defendant's motion is granted only as to Plaintiff's claim for attorneys' fees and Plaintiff's claim for attorneys' fees is hereby dismissed.
IT IS SO ORDERED .
Notes
"Backhaul" service connects a cell phone tower or site to a switch location designated by the cellular telephone carrier in order to enable the cellular carrier to service a market.
This is a typical arrangement in the telecommunications industry whereby the lessor installs, maintains, and retains title to the fibers but attaches no electronics to the fibers. Instead, at each end of the fibers and at other locations between the end points, the lessee attaches the transmitting and receiving electronic equipment that processes and passes the communications signals over the optical fibers. Typically, as is the case here, the lessor builds a network consisting of a large number of fibers and then leases or otherwise conveys, pursuant to a substantial upfront fee paid prior to and/or contemporaneously with the delivery of the fibers, the exclusive right to use a subset of those fibers to the lessee for the entire anticipated useful life of the fibers.
After negotiations, the parties agreed that Texhoma Fiber would lease two fibers to PEG in the "backbone" of the fiber route, and four fibers in the "lateral" routes.
In its Response to PEG's Motion for Partial Summary Judgment, Texhoma fiber asserts that "PEG committed a prior breach of the [Lease Agreement] which excused Texhoma from continuing to perform." (Dkt. # 39 at p. 20). "[T]he contention that a party to a contract is excused from performance because of a prior material breach by the other contracting party is an affirmative defense that must be affirmatively pleaded." Pivotal Payments, Inc. v. Taking You Forward LLC , No. 4:16CV-00598,
In its sur-reply, Texhoma Fiber asserts that "the fibers leased by PEG under the [Lease Agreement], and the remaining fibers in the Texhoma Fiber Route, are all personal property, not real property" and, thus, "the non-compete obligation cannot 'run with the fiber.' " (Dkt. # 45 at p. 4). The Court disagrees. See In re Energytec, Inc. ,