Texas A&M University System v. AFEX Corporation

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-00-00222-CV

Texas A&M University System, Appellant

AFEX Corporation, Appellee

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 201ST JUDICIAL DISTRICT

NO. 92-06726, HONORABLE F. SCOTT McCOWN, JUDGE PRESIDING

Texas A&M University System (A&M) appeals the trial court's order denying its plea to the jurisdiction based on sovereign immunity. See Tex. Civ. Prac. & Rem. Code Ann. § 51.014(a)(8) (West Supp. 2000). We will affirm the trial court's order.

Appellee AFEX Corporation sued A&M and two of its professors, Mark Holtzapple and Richard Davison, for breach of contract, misappropriation of trade secrets, and taking intellectual property without just compensation.⁽¹⁾ The claim for breach of contract arose from a settlement agreement signed in March 1992 by which the parties tried to resolve their disagreements over the use of trade secrets and confidential information.

A&M filed a plea to the jurisdiction asserting sovereign immunity on the claims for breach of contract and misappropriation of trade secrets. The trial court granted the plea as to the misappropriation claim, but denied it as to the contract claim. On appeal, A&M challenges the denial of its plea on the breach of contract claim by two issues.

In its second issue, A&M contends that it did not waive its immunity from suit by its conduct. Although a state agency does not waive its immunity from suit for breach of contract merely by executing a contract, this Court has held that an agency can waive its immunity by accepting some of the benefits of a contract without fulfilling its own contractual duties. See Texas Natural Resource Conservation Comm'n v. IT-Davy, 998 S.W.2d 898, 902 (Tex. App.--Austin 1999, pet. filed); Aer-Aerotron, Inc. v. Texas Dep't of Transp., 997 S.W.2d 687, 691-92 (Tex. App.--Austin 1999, pet. granted); Little-Tex Insulation Co. v. General Servs. Comm'n, 997 S.W.2d 358, 364 (Tex. App.--Austin 1999, pet. granted). A&M argues that the doctrine of waiver of immunity by conduct should not extend to settlement agreements. This Court has recently determined, however, that a settlement agreement is essentially a contract for services, and that actions taken under such an agreement can lead to waiver of immunity. See Texas A&M Univ.-Kingsville v. Lawson, 28 S.W.3d 211, 215 (Tex. App.--Austin 2000, pet. filed).

We therefore turn to A&M's next argument, that AFEX failed to allege that A&M engaged in any conduct by which it waived its immunity from suit. A&M's plea asserting sovereign immunity contests the trial court's subject-matter jurisdiction. Texas Dep't of Transp. v. Jones, 8 S.W.3d 636, 638 (Tex. 1999). A plea to the jurisdiction is a dilatory plea, the purpose of which is to defeat a cause of action without regard to whether the claims asserted have merit. Bland Indep. Sch. Dist. v. Blue, 44 Tex. Sup. Ct. J. 125, 129 (Dec. 7, 2000). In resolving a plea to the jurisdiction, the trial court need not focus solely on the plaintiff's pleadings, but may consider evidence and must do so when necessary to resolve the jurisdictional issues raised; the nature of the issues raised by the plea determines the scope of the court's focus. Id. at 130. The record in this case reflects that the trial court determined the plea based on the pleadings alone. On review of the trial court's order, we will likewise confine ourselves to the pleadings.

To successfully challenge, based on the pleadings, a trial court's jurisdiction to hear the subject matter of a plaintiff's claim, the defendant must show either that (1) the plaintiff's pleadings, taken as true, affirmatively establish that the court lacks subject-matter jurisdiction, or (2) the plaintiff pleaded fraudulently or in bad faith with the purpose of conferring jurisdiction when under the true facts the court would lack it. Curbo v. State, 998 S.W.2d 337, 342 (Tex. App.--Austin 1999, no pet.). While the plaintiff must initially allege facts showing that the court has jurisdiction, an imperfectly stated claim will not defeat the court's jurisdiction. Bybee v. Fireman's Fund Ins. Co., 331 S.W.2d 910, 917 (Tex. 1960). The appellate court must construe the pleadings in favor of the plaintiff and look to the pleader's intent. Texas Ass'n of Bus. v. Texas Air Control Bd., 852 S.W.2d 440, 446 (Tex. 1993). Only when the court can see from the allegations pleaded that, even by amendment, no facts consistent with jurisdiction can be alleged will it be held that the court is without jurisdiction. Bybee, 331 S.W.2d at 917. Thus, if the plaintiff's pleadings are insufficient to demonstrate the court's jurisdiction, but do not affirmatively show a lack thereof, the proper remedy is to allow the plaintiff an opportunity to amend before dismissing. City of Austin v. L.S. Ranch, Ltd., 970 S.W.2d 750, 753 (Tex. App.--Austin 1998, no pet.).

We therefore review the pleadings filed by AFEX to determine whether it alleged facts showing that A&M waived immunity from suit. AFEX alleged that because Mark Holtzapple and others began revealing AFEX's trade secrets and confidential information, AFEX threatened litigation against Holtzapple, Davison, and A&M. In March 1992, to resolve their disputes, Holtzapple, Davison, A&M, and others entered into a binding contract with AFEX. The agreement imposed a number of obligations on the parties, including that A&M would refrain from using AFEX's confidential information and would maintain the information's confidentiality. The allegations of AFEX imply that, in accordance with the agreement, AFEX released A&M from its claims.

AFEX alleged that A&M breached the agreement by continuing to use AFEX's trade secrets and confidential information for its own gain and by filing a patent application that contained confidential information or trade secrets of AFEX. In its third supplemental petition, AFEX alleged that A&M waived immunity from suit because "it has performed under, accepted benefits from, and accepted substantial performance from AFEX" under the 1992 agreement. Although we are not bound by legal conclusions in a jurisdictional challenge, the allegations that A&M accepted benefits and substantial performance from AFEX are not legal conclusions, but factual allegations asserted in general terms. See Firemen's Ins. Co. v. Board of Regents of Univ. of Tex. Sys., 909 S.W.2d 540, 542 (Tex. App.--Austin 1995, writ denied) (court determining jurisdictional challenge is not bound by pleader's legal conclusions); O. W. Grun Roofing & Constr. Co. v. Cope, 529 S.W.2d 258, 261 (Tex. Civ. App.--San Antonio 1975, no writ) (whether performance amounts to substantial performance is question of fact). Rather than affirmatively demonstrating an absence of jurisdiction, these general allegations reflect at most a lack of detail correctable pursuant to special exception. See Tex. R. Civ. P. 91. Further, we infer that one specific benefit accepted by A&M was AFEX's termination of its threatened litigation against A&M. We conclude from our review of the pleadings that, because A&M has not shown that the pleadings affirmatively negate jurisdiction, the trial court did not err in denying its plea to the jurisdiction. We overrule issue two.

In its first issue, A&M urges several additional bases for immunity. Having determined that the trial court correctly found from the pleadings that immunity was waived by the parties' conduct, we need not address this issue.

We affirm the order of the trial court.

J. Woodfin Jones, Justice

Before Justices Yeakel, Patterson and Jones^*

Affirmed

Filed: January 11, 2001

Do Not Publish

^* Before J. Woodfin Jones, Justice (former), Third Court of Appeals, sitting by assignment. See Tex. Gov't Code Ann. § 75.003(a)(1) (West 1998).

1. AFEX sued Holtzapple and Davison in their individual and official capacities for breach of contract and misappropriation of trade secrets. A&M later added Bruce Dale, another professor at A&M, as a defendant, charging him with misappropriation of trade secrets in both capacities, but with breach of contract only in his official capacity. The three professors sought summary judgment on the contract and misappropriation claims in their individual capacities based on the affirmative defense of official immunity. In a prior appeal, this Court affirmed the trial court's denial of their summary-judgment motion. See Holtzapple v. AFEX Corp., No. 3-96-273-CV (Tex. App.--Austin Aug. 28, 1997, no pet.) (not designated for publication).

>, 331 S.W.2d 910, 917 (Tex. 1960). The appellate court must construe the pleadings in favor of the plaintiff and look to the pleader's intent. Texas Ass'n of Bus. v. Texas Air Control Bd., 852 S.W.2d 440, 446 (Tex. 1993). Only when the court can see from the allegations pleaded that, even by amendment, no facts consistent with jurisdiction can be alleged will it be held that the court is without jurisdiction. Bybee, 331 S.W.2d at 917. Thus, if the plaintiff's pleadings are insufficient to demonstrate the court's jurisdiction, but do not affirmatively show a lack thereof, the proper remedy is to allow the plaintiff an opportunity to amend before dismissing. City of Austin v. L.S. Ranch, Ltd., 970 S.W.2d 750, 753 (Tex. App.--Austin 1998, no pet.).