MEMORANDUM OPINION
Milton E. Aunan, II, was
executive vice president and chief financial officer of Wadley Health System
and Wadley Regional Medical Center (collectively, Wadley), until his
resignation, which became effective December 31, 2008. The end of Aunan’s employment came between at
least two potential sales of Wadley—the former potential sale falling through
and the latter closing. This case
concerns Aunan’s claim for severance benefits under the Letter of Agreement
(Contract) governing his employment.
Aunan
initiated this case claiming breach of the Contract by VHA Southwest Community
Health Corporation, d/b/a Community Health Corporation (CHC), the successor
employer to Wadley by way of a transfer of the Contract. Aunan claimed he was entitled to the contractually
specified severance package on the termination of his employment. Faced with competing motions for summary
judgment, the trial court granted CHC’s motion, denied Aunan’s second partial
motion for summary judgment,[1]
and rendered judgment that Aunan take nothing.
We reverse the trial court’s judgment and remand this case for further
proceedings consistent with this opinion.
Aunan was originally hired by
Wadley. The Contract provided, in
pertinent part:
2. The
President/Chief Executive Officer may, at his discretion, terminate your
employment at any time, and for any reason, by giving written notice to
you. Upon such termination, all rights,
duties and obligations of both parties shall cease, except that the Medical
Center shall continue to pay you your then monthly salary for a period of
twelve (12) months (including the month in which termination occurred) as an
agreed upon severance. . . . Also, during this period, the Medical Center
agrees, at its expense, to keep your group life and group health insurance
fully in effect and to provide you with out-placement services . . . .
3. The severance arrangements described in
Paragraph 2 shall be available if Wadley Health System and/or Wadley Regional
Medical Center shall sell, merge, joint venture or lease all of or a material
part of its assets or business, directly or indirectly, and as a result you are
terminated.
4. You may also terminate your employment
at any time, for any reason, by giving at least 30 days’ advance written notice
to the President/Chief Executive Officer, but if you do, all rights, duties and
obligations of both parties will cease and you will not be entitled to any
severance benefits, unless said termination is pursuant to Paragraph 8 herein. . . . .
. . . .
8. If Wadley Health System and/or Wadley
Regional Medical Center shall sell, merge, joint venture or lease all of or a
material part of its assets or business, directly or indirectly, or closes, you
may terminate your employment at your discretion or be retained as Executive
Vice President/CFO of any successor corporation to or holding company of the
Wadley Health System. If you elect to
terminate your employment at such time, you shall be entitled to the same
severance arrangement as is applicable under Paragraph 2 when the
President/Chief Executive officer terminates your employment. Any election to terminate your employment
under this Paragraph must be made prior to the finalization and/or closing of
the transaction whether it be, a joint venture, merger, sale or closure.
Shortly after it was signed, the Contract was assigned to
CHC.
Several
years into Aunan’s employment, financial stresses contributed to a perceived
need to sell the hospital. That
environment ultimately developed into this dispute.
November 6,
2008, is a date important to this case.
As of that date, efforts to sell Wadley were about four months
old. Both Christus St. Michael Health System (Christus) and Brim
Healthcare, Inc. (Brim), had been suitors to purchase the hospital. On November
6, Christus and Wadley had a pending, unbinding letter of intent providing the
expectation that Wadley assets would be sold to Christus. Aunan had
received a copy of a “Q&A” document stating Christus and Wadley “announced
on Wednesday, Oct. 22, 2008, that they have agreed to enter into a non-binding
Letter of Intent (LOI) wherein CHRISTUS would acquire Wadley and consolidate
the two community health providers into a single system.” The document “indicated that only an
Administrator and Chief Nursing Officer would make up the Administrative Team
at Wadley.” On November 5, Aunan “attended
a Wadley board of directors meeting whereby the imminent sale of Wadley . . . was
discussed in detail.” By his letter
dated November 6, Aunan gave notice under the Contract of his election to
resign. In the letter, he referenced Wadley’s prospective sale of assets
to Christus and added information suggesting that Wadley was in a financial
condition at the time that made it likely that Wadley could continue operations
for no more than sixty days under the conditions existing at the time.
Aunan’s letter set December 4, 2008, as his last day of employment. If
all had continued as expected, the situation would have been relatively
straightforward. But things changed, dramatically.
With his last
day of employment approaching, Aunan found a new position with a hospital in
Iowa. But Wadley believed it needed
Aunan’s continued presence. That
prompted chairman of the board of directors, Fred Norton, to send an e-mail to other
Wadley executives.
I
think this is an “over-reaction” by [Aunan].
We need and want him to stay
to see us through this. I think the
intent of the provision he cites is to give him a severance if he does not
become employed by the successor entity (by his choice or by the entity’s
choice). He only needs to communicate
that choice “prior” to closing. He has
now done that. He does not need to
separate from service prior to closing—although he seemingly has the right to
do so. I hope he will choose to remain
on the payroll until the transaction closes, and then he collects his severance
afterward.
Wadley approached Aunan and convinced him to remain on board
temporarily; the following e-mail was exchanged among Wadley executives:
As
you can see [Aunan] is exercising his rights under his employment contract to
protect his severance. He and I have
spoken about this, and he is not looking to leave Wadley, nor is there anything
magic about his December 4th date. This
is merely the 30 day notice required under his contract. This letter was triggered by the attached “20
questions” distributed publicly recently which talked of keeping an
administrator and a CNO, no mention of a CFO.
Therefore, it appears, that he has been “noticed.” I will say, that I would like -- and Wadley
needs -- now, more than ever, [Aunan]’s presence here at least through the
closing. Can we set up a contractual
arrangement to keep him here while protecting his rights?
On November
19, 2008, Christus withdrew from the existing letter of intent. The
letter of intent “was officially withdrawn by another proposed letter of
intent, dated November 25, 2008,” which the Wadley board of directors rejected
December 3, 2008. Aunan was aware of the
board’s decision. Wadley began to search
for other potential buyers.
Meanwhile,
Aunan obtained an extension with his new employer to start January 5 “so he
could remain at Wadley to see [it] through the transaction.” By his letter of December 19, 2008,
Aunan—still employed under the Contract—referenced his November 6 letter and
extended his last day of employment to December 31, 2008.
On December
23, 2008, Wadley and Brim picked up discussions about the possibility of Brim
being the purchaser.
After
working through December 31, Aunan left Wadley for his first active date of his
new employment in Iowa, commencing January 5, 2009.
Wadley’s
discussions with Brim ultimately resulted in a preliminary sale agreement dated
January 14, 2009, the same day Wadley filed bankruptcy. In a subsequent
auction held in the bankruptcy proceeding, Brim outbid Christus and became the
purchaser at a sale, which was closed March 1, 2009.
When Aunan
did not receive the severance package described in paragraph two of the
Contract, he sued CHC for breach. During
discovery, Aunan obtained the following testimony from Michael Lieb, Chief
Executive Officer of Wadley: “Q. Do you see any requirement in Mr. Aunan’s
Employment Contract as depicted in Deposition Exhibit No. 2 that requires Mr. Aunan
to stick around until the transaction closes?
A. I do not.” Aunan filed a motion for partial summary
judgment citing Lieb’s testimony and Norton’s e-mail in which he wrote Aunan
did “not need to separate from service prior to closing -- although he seemingly
has the right to do so.”
CHC also
filed a motion for summary judgment. Attached
was the affidavit of James A. Summersett, III, former Chief Executive Officer
of Wadley, stating:
The
purpose for including [paragraph eight] . . . was to provide the executive with
a financial incentive to remain employed with WHS while a change-of-control
transaction is being negotiated and finalized.
WHS was concerned that once executives at WHS found out that the
hospital might be sold, they would seek out and accept other employment while
the negotiations were still ongoing, which could severely hinder negotiations
and the closing of the transaction.
CHC argued that paragraph eight’s
language “[i]f you elect to terminate your employment at such time” meant such time
as “Wadley Health System and/or Wadley Regional Medical Center shall sell,
merge, joint venture or lease all of or a material part of its assets or
business.” Although the election to
terminate employment must have been made “prior to the finalization and/or
closing of the transaction,” CHC argues that the transaction between Wadley and
Christus never closed and that, because Aunan had left prior to the asset
purchase agreement and the closing of the Brim transaction, his letter notices
could not be seen as a notice under paragraph eight with regard to the Brim
transaction. In sum, CHC argued that
Aunan’s notices constituted a paragraph-four notice of termination of
employment and that, therefore, Aunan was not entitled to any severance
benefits.
Aunan
responded by claiming that he had met the requirements of paragraph eight,
(1) that he give notice “prior to the finalization and/or closing of the
transaction” and (2) that there be some closing of a transaction. He also argued that the phrase “at such time”
was ambiguous.
After
reviewing the summary judgment evidence, the trial court ruled in favor of
CHC. We now review the trial court’s
summary judgment.
We employ a
de novo review of the trial court’s grant of a summary judgment, which is based
on written pleadings and written evidence rather than live testimony. Valence Operating Co. v. Dorsett, 164
S.W.3d 656, 661 (Tex. 2005); see Tex. R. Civ. P. 166a(c).
Summary judgment was proper if CHC established there were no genuine
issues of material fact such that it was entitled to judgment as a matter of
law. Nixon v. Mr. Prop. Mgmt., 690 S.W.2d 546, 548 (Tex. 1985); French
v. Gill, 252 S.W.3d 748, 751 (Tex.
App.—Texarkana 2008, pet. denied); see Tex. R. Civ. P. 166a(c).
During our analysis of the traditional motion, and in deciding whether
there is a disputed material fact issue which precludes summary judgment, we
take evidence favorable to Aunan as true and resolve all doubts in his
favor. Limestone Prods. Distrib.,
Inc. v. McNamara, 71 S.W.3d 308, 311 (Tex. 2002); Rhone-Poulenc, Inc. v.
Steel, 997 S.W.2d 217, 223 (Tex. 1999); Nixon, 690 S.W.2d at 548. When
both sides move for summary judgment, the court is to review both sides’
summary judgment evidence, determine all questions presented, and render the
judgment the trial court should have rendered.
See FM Props. Operating Co.
v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000).
In
addressing whether summary judgment was appropriate, we must decide first
whether the Contract is ambiguous. We
look to the Contract as a whole and give effect to each provision when
determining whether paragraph eight is ambiguous. Besteman
v. Pitcock, 272 S.W.3d 777, 785 (Tex. App.—Texarkana 2008, no pet.) (citing
Coker v. Coker, 650 S.W.2d 391, 394
(Tex. 1983)). If the court could
properly give paragraph eight a definite or certain legal meaning or
interpretation, then it was not ambiguous.
Chrysler Ins. Co. v. Greenspoint
Dodge of Houston, Inc., 297 S.W.3d 248 (Tex. 2009). Just because the parties advance conflicting
interpretations of the Contract, that does not make it ambiguous. Hicks
v. Castille, 313 S.W.3d 874, 880 (Tex. App.—Amarillo 2010, pet.
filed). An ambiguity exists if the
contract language is susceptible to two or more reasonable interpretations
after applying the applicable rules of construction. In re
D. Wilson Constr. Co., 196 S.W.3d 774 (Tex. 2006); Enter. Leasing Co. of Houston v. Barrios, 156 S.W.3d 547 (Tex.
2004).
“The primary
concern of a court in construing a written contract is to ascertain the true
intent of the parties as expressed in the instrument.” Kelley-Coppedge,
Inc. v. Highlands Ins. Co., 980
S.W.2d 462, 464 (Tex. 1998). “We construe
contracts ‘from a utilitarian standpoint bearing in mind the particular
business activity sought to be served’ and ‘will avoid when possible and proper
a construction which is unreasonable, inequitable, and oppressive.’” Frost
Nat’l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310, 312 (Tex.
2005) (quoting Reilly v. Rangers Mgmt., Inc., 727 S.W.2d 527 (Tex.
1987)); see Old Republic Sur. Co. v. Palmer, 5 S.W.3d 357, 360 (Tex.
App.—Texarkana 1999, no pet.); Nat’l Convenience Stores, Inc. v. Martinez,
784 S.W.2d 468, 471 (Tex. App.—Texarkana 1989, writ denied) (“a reasonable
interpretation of an agreement will always be preferred to one which is
unreasonable”).
Looking at
the Contract as a whole, one can see that it sought to accomplish the business
activity of obtaining Aunan’s full time, professional services as Executive
Vice President and CFO of Wadley, to bind him to confidentiality, to bind him
for one year after his termination not to compete with Wadley in its market
area or solicit its employees away, and to bind him from interfering with
Wadley employees and from diverting any business from Wadley. In exchange, not only was Aunan to be paid
during his employment, but also he was to receive twelve months’ severance
payments if he was terminated or if he resigned under certain
circumstances. The severance payments
were part of the package intended to persuade Aunan to agree to the terms of
Wadley’s employment initially. According
to Summersett’s summary-judgment affidavit, the severance provisions were, in
part, intended to encourage Aunan to continue his services, without undue worry
about his financial future, even when his employer encountered serious business
stresses and was trying to find a buyer.
Turning to
the language central to this dispute, the first three sentences of paragraph
eight control how Aunan could qualify for severance benefits. The first
sentence provides that, if Wadley sells, merges, or stops doing business, Aunan
had two contractually provided options, either to resign his position or to
continue his employment as CFO of any successor corporation or holding company
in the Wadley system. The second sentence provides that, if Aunan elected
to resign “at such time,” he could entitle himself to severance benefits, as if
he had been terminated. The third sentence provides, “Any election to
terminate [Aunan’s] employment under this Paragraph must be made prior to the
finalization and/or closing of the transaction . . . .”
Paragraph
eight was triggered, because the Wadley assets were sold to Brim in a closing
conducted March 1, 2009—the end of an eight-month effort to find a buyer for
the financially stressed hospital operation. Therefore, Aunan could have
been able to terminate his employment and to qualify for severance benefits, if
he followed the terms of the Contract. This case turns on what the Contract
means when it describes Aunan’s qualifying action as electing to terminate his
employment “at such time” and whether the summary-judgment facts disqualify him
from severance benefits as a matter of law.
Aunan
argues that the phrase “at such time” means any time before the closing of a
transaction, i.e., that the Contract required only that a sale or other
transaction had to occur and that he had to make his election before the
finalization or closing of the transaction. Because, on November 6, 2008,
Aunan notified Wadley of his decision to terminate employment, and a sale to
Brim closed March 1, 2009, Aunan believes he is entitled to severance benefits
as a matter of law. If those were indeed
the only requirements, however, then any employee who wanted to assure himself
or herself of severance benefits in the event of any future sale, no matter how
remote, could give a resignation notice at any time during his or her term of
employment and thus be entitled to severance benefits if any sale were to occur
in the future. That interpretation seems
dubious.
On the other
hand, CHC claims that the phrase “if you elect to terminate your employment at
such time” means that Aunan’s employment must have terminated at the time of
the sale. From CHC’s argument—in which it points out that Aunan’s last
day of employment with Wadley, that is, December 31, 2008, “occurred more than
two months prior to the sale of the assets”—CHC effectively argues that Aunan’s
last day of employment must have been precisely the date of the closing of the
sale of assets and that, otherwise, the Contract was not satisfied. That interpretation seems to craft an equally
dubious, narrow window, without concomitantly precise or explicit Contract
language.
CHC also argues
that an employee’s notice to terminate employment must connect with a
particular transaction. It claims that,
because Aunan’s notice was received in connection with the Christus transaction
and because the transaction between Wadley and Christus never closed, Aunan is
not entitled to severance benefits. That
is true, they claim, because (1) Aunan did not send notice of termination of
employment with respect to the Brim transaction, and (2) he left employment
before Brim and Wadley agreed to the preliminary asset purchase agreement. We find that the express language of paragraph
eight does not establish CHC’s position as a matter of law.
Instead, we
see ambiguities in the relatively imprecise Contract language. CHC could be correct in its assertion that
the Contract requires the effective date of Aunan’s termination to be precisely
the date the sale is closed, if the phrase “at such time” is read to link
termination to the time of the sale, and if the time of the sale is understood
to be the date the parties became contractually bound to sell or the date the
sale is closed. But, without more
explicit or precise contract language requiring Aunan’s last day to coincide
with closing the sale, we believe there are other reasonable interpretations.
While
Aunan had to make his election before the closing of the sale to Brim, it is
possible the Contract might be reasonably understood as linking the election
generally to the season of the sale, for example, to the time a sale or
cessation of business became contemplated.
Here, it seems at least possible that some sale or transfer of hospital
assets, or the cessation of business, was within the contemplation of Wadley
and its executive employees, including Aunan, when he gave notice of his
election to terminate his employment, given that Aunan’s affidavit states he
attended a board meeting in which a sale to some entity was imminent to prevent
cessation of operation within sixty days. If proven, would that be
sufficient to qualify him for severance benefits?
Because
of the peculiar structure of this agreement—if Wadley sells or closes, Aunan
may resign “at such time” and qualify for severance benefits, but he must make
his election before the sale closes or operations cease—the parties necessarily
assumed that, at the time of Aunan’s election, there would be some degree of
anticipation of, or some degree of connection with, a sale or closure that
ultimately occurs. Otherwise, it would be impossible for Aunan
to make any election before a closing or closure. The Contract is silent on what type of
anticipation or connection Wadley and Aunan contemplated with this Contract,
whether it be, for example, (1) Aunan’s simple awareness of some sort of
impending sale or closure that ultimately occurs, (2) an identification,
with or without a letter of intent, of a particular potential buyer who
ultimately buys, or (3) a binding contract to sell to a particular buyer who
ultimately buys.
This
Contract was drafted by Wadley and was a letter agreement, which could have
been considerably more formal or more explicit. While one might
reasonably interpret this Contract to require that a particular sale to a
particular buyer be contemplated at the time of Aunan’s election to terminate
and that the contemplated sale be ultimately closed, the Contract does not
expressly say that. We are uncertain about what was intended. We, therefore, conclude that a contract
ambiguity exists regarding the Contract’s required degree of anticipation of,
and/or required degree of connection with, a sale or closure that ultimately
occurs. One or more fact issues also may
exist concerning whether such required anticipation and/or connection existed
when Aunan made his election to resign.
Therefore, we
reverse the summary judgment and remand this matter to the trial court for
further proceedings consistent with this opinion.
Josh
R. Morriss, III
Chief
Justice
Date Submitted: October
18, 2010
Date Decided: December
16, 2010