Contemporary Health Management, Inc. v. Palacios

832 S.W.2d 743, 1992 Tex. App. LEXIS 1563, 1992 WL 125016

• Court: Court of Appeals of Texas
• Decided: June 11, 1992
• Docket: A14-91-00853-CV
• Status: Published

Opinions

SEARS, Justice.

This is the second time Contemporary Health Management, Inc. (“CHM”) has appealed the trial court’s taxation of guardian ad litem fees against CHM. Previously, this Court reversed the judgment of the trial court because it failed to state good cause for taxing costs against CHM. Contemporary Health Management, Inc. v. Palacios, No. A14-89-00073-CV slip op. at 5-6, 1990 WL 132208 (Tex.App.-Houston [14th Dist.] Sept. 13, 1990, writ denied); Tex.R.Civ.P. 131,141. On remand, the trial court held a hearing, then explained on the record and in an amended judgment its reasons for taxing 60.3 percent of the guardian ad litem’s fees against CHM. In four points of error, CHM contends that (1) the manner in which the trial court conducted the hearing violated CHM’s right of due process; (2) the trial court should have continued the hearing so that CHM’s trial attorneys could testify; (3) there is no evidence, or insufficient evidence, to support the amended judgment; and (4) the trial court abused its discretion in awarding the guardian ad litem an additional $25,000 in attorney’s fees for this appeal. We affirm as modified.

Maria Palacios sustained permanent brain damage following surgery at Medical Arts Hospital. Her husband, Alfredo Pa-lacios, filed a medical malpractice suit individually, as representative of his wife’s estate, and as next friend of his four minor children. Defendants included (1) CHM, (2) the hospital, (3) four physicians, and (4) National Medical Enterprises, Inc., NME Hospitals, Inc., and NME Hospitals, Inc., D/B/A National Medical Hospital Management Company (collectively “NME”). The hospital management company had acquired CHM prior to the injury. Before trial, NME guaranteed the plaintiffs $6 million and payment of medical liens if the plaintiffs failed to recover at least that amount from the other defendants. The plaintiffs agreed that if they recovered more than $6 million, they would share with NME 25% of their recovery above the guaranteed amount. In addition, the trial court approved a settlement agreement whereby the defendant doctors and hospital paid the plaintiffs $2.6 million.

During trial, three former directors of CHM, its excess liability insurer (Ranger Insurance Company), and Ranger’s reinsurer, Employers Reinsurance Company (“ERC”) became dissatisfied with actions of CHM’s primary insurer, U.S. Fire & Casualty Company (“USF & C”), in defending CHM’s interests. Consequently, on the eve of the verdict, CHM’s former directors, Ranger, and ERC entered into a “Covenant Not to Execute and Assignment of Claims” with plaintiffs. By terms of this agreement: (1) plaintiffs reserved the right to proceed to judgment against CHM but promised not to execute on any judgment rendered against CHM; (2) ERC agreed to pay plaintiffs the policy limit amount of $20 million; and, (3) the former directors agreed to file “bad faith settlement” claims against USF & C and its trial counsel, with these causes of action to be assigned one-half to plaintiffs and one-half to ERC. After hearing all the testimony, the parties believed the jury was going to return a monstrous verdict against CHM. The trial court approved this agreement.

The case was not withdrawn from the jury because the subsequent bad faith claim hinged on the jury returning a large verdict for plaintiffs and against CHM. The jury made the following findings regarding the percentage of negligence attributable to each defendant:

(a) Contemporary Health Management, Inc. 0%

(b) Dr. Stanley Hoover 15%

(c) Dr. Esteban Martinez 5%

(d) Dr. Manuel Ramirez 5%

(e) Medical Arts Hospital 5%

(f) National Medical Enterprises, Inc. 70%

The trial court then assessed $385,000 in guardian ad litem fees and allocated liability for these fees among all defendants. On appeal, this Court found the evidence sufficient to support the amount of the trial court’s award of guardian ad litem fees, but remanded the case to the trial court due to the court’s failure to “state good cause” for taxing 60.3% of these costs against CHM. Because of the zero negligence finding against CHM, it “appeared” that CHM was a successful party and this Court held that it was necessary for the trial court to state good cause on the record for taxing costs against CHM.

On remand, the trial court held a hearing on May 21, 1991 and denied CHM’s motion for continuance of the hearing. CHM wanted to call its trial attorneys to testify, however, they were in trial in Dallas. The hearing commenced but was terminated when CHM’s cross-examination of the guardian ad litem, regarding the Mary Carter agreement between NME and the plaintiffs, was objected to by the opposing parties. The trial judge concluded the hearing by stating his reasons for taxing costs against CHM, and he included those good cause findings in the Amended Final Judgment and his findings of fact and conclusions of law.

In its first two points of error, CHM contends the trial court abused its discretion in denying CHM’s motion for continuance of the May 21 hearing, and it violated CHM’s right to due process by not allowing it to procure testimony to rebut evidence, if any, of good cause. At submission, counsel for appellant argued that CHM was entitled to a full evidentiary hearing on the issue of good cause. We disagree. The trial court was not required to hold any hearing. As this Court explained in its prior opinion, Tex.R.Civ.P. 173 authorizes a trial court to appoint a guardian ad litem and “allow him a reasonable fee for his services to be taxed as a part of the costs.” Rule 131 requires that the successful party to a suit recover such fee from the adverse party, unless the trial court finds good cause to adjudge the costs otherwise and states its reasons on the record, pursuant to Rule 141. Rogers v. Walmart Stores, Inc., 686 S.W.2d 599, 601 (Tex.1985); State v. B & L Landfill, Inc., 758 S.W.2d 297, 300 (Tex.App.-Houston [1st Dist.] 1988, no writ); Tex.R.Civ.P. 131, 141. However, the Texas Rules of Civil Procedure do not require the trial court to conduct an evidentiary hearing prior to stating its good cause analysis. Moreover, this Court remanded the case for the trial judge to state good cause existing for the action he took, not for him to find good cause to justify his previous action. Because an evidentiary hearing was not necessary, the trial court did not err in denying the motion for continuance and refusing to hear additional evidence. Therefore, we overrule points of error one and two.

CHM also contends that there was no evidence, or factually insufficient evidence, to support the trial court’s rationale for taxing costs against CHM. The proper standard for reviewing a trial court’s good cause finding is to determine whether the trial court clearly abused its discretion. Rogers, 686 S.W.2d at 601; Dover Elevator Co. v. Servellon, 812 S.W.2d 366, 368 (Tex.App.-Dallas 1991, no writ). In its findings of fact and conclusions of law (incorporated into the amended judgment), the trial court stated, inter alia, that:

jft * * * * *

3) Good cause is specifically set forth and established in the record of this trial, and this Court hereby finds that good cause exists for the taxing of 60% of the guardian ad litem fees and court costs against Contemporary Health Management, Inc.

4) Good cause exists because Contemporary Health Management, Inc. received a great and valuable benefit from the settlement, release and covenant not to execute in that:

a. CHM’s liability for damages was thereby extinguished; and

b. CHM was released from all liability-

5) Good cause exists because Contemporary Health Management, Inc.’s former directors, James H. Jones, Stanley M. Craig and Albert G. Dwarshus, Jr., benefitted from the settlement, release and covenant not to execute in that the directors were effectively released from future potential liability and held harmless.

6) Good cause exists because Contemporary Health Management, Inc.’s excess carrier, Ranger Insurance Company, benefitted from the settlement, release and covenant not to execute in that its potential liability was extinguished and it was released from all future liability.

7) Good cause exists because Contemporary Health Management, Inc.’s reinsurance carrier, Employers Reinsurance Company, benefitted from the settlement, release and covenant not to execute in that its potential liability was extinguished and it was released from all future liability.

8) Good cause exists because Contemporary Health Management, Inc. through its various insurance carriers, paid $20 million, or approximately 80% of the total settlement of $22.6 million to achieve the above described benefits to CHM.

At the outset it should be evident, as stated in number eight of the trial court’s findings of fact and conclusions of law, that it cannot be a clear abuse of discretion to award 60.3% of the guardian ad litem costs against a party that had to pay approximately 80% of the judgment. Although this Court has held that “a successful party under rule 131 is to be based upon success upon the merits, not upon damages,” ¹ no matter how this jury answered as to CHM’s liability, it could not have altered the amount that CHM would actually have to pay to the plaintiffs. Because of the agreement entered into by the parties, the “merits” of the cause of action were resolved by plaintiffs receiving $20 million from CHM through its carriers. Therefore, the jury answer was moot as to the issues of liability and damages of the parties in this lawsuit. In fact, the only purpose of the jury finding was to provide a basis for a cause of action for bad faith against USF & C.

CHM contends the trial court misinterpreted the “Covenant Not to Execute and Assignment of Claims” as a release of liability, thus erring in its “good cause” findings that the agreement extinguished CHM’s liability and released it from liability. In the previous opinion, this Court noted that the agreement expressly provided that it did not constitute an admission of liability on the part of CHM or its former directors. However, the absence of specific language releasing CHM from liability did not prevent CHM from securing the benefit that it desired: the practical effect of the plaintiffs’ promise to not execute on any judgment against CHM assured that it would not have to pay any of plaintiffs’ damages in the event the jury found it liable for damages in excess of $20 million. CHM actually expressed in the agreement that it anticipated a huge adverse jury judgment. The agreement was merely a vehicle for CHM to acknowledge the “merits” of the lawsuit, pay $20 million, and stop the bleeding. Further, it is clear that CHM did not desire an express release of liability, as it intended to use the expected excess judgment against it as grounds to recover in a lawsuit against USF & C and its attorneys “for the ruinous damages that will be caused by the imposition of an excess judgment.” CHM believed that it was going to be exposed to liability in excess of its insurance coverage, therefore it gambled and lost.

We also hold that the trial court was correct in number five of the findings of fact and conclusions of law. The fact that CHM’s three former directors benefited from the agreement in that they were “effectively” released from future potential liability and held harmless is supported by the evidence.

We overrule point of error number three.

Finally, CHM complains the trial court abused its discretion in awarding the guardian ad litem $25,000 in fees in addition to the previous award. We agree. The case was remanded solely for the trial court to state good cause for taxing costs against CHM, therefore the trial court was without jurisdiction to make other modifications to the judgment. We sustain CHM’s fourth point of error and modify the judgment to exclude the additional fee of $25,-000.

The judgment of the trial court is affirmed as modified.

1 . Perez v. Baker Packers, A Div. of Baker Int'l Corp., 694 S.W.2d 138, 143 (Tex.App.-Houston [14th Dist.] 1985, writ ref'd n.r.e.).