S. Merlin McAnelly v. Brady Medical Clinic, P.A. Lonnie Lee Vickers James H. Allen, Jr. And Pedro Castro

• Court: Court of Appeals of Texas
• Decided: November 12, 2004
• Docket: 03-04-00095-CV
• Status: Published

Opinion

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-04-00095-CV

S. Merlin McAnelly, Appellant

v.

Brady Medical Clinic, P.A.; Lonnie Lee Vickers; James H. Allen, Jr.; and Pedro Castro, Appellees

FROM THE DISTRICT COURT OF MCCULLOCH COUNTY, 198TH JUDICIAL DISTRICT NO. 2002134, HONORABLE EMIL KARL PROHL, JUDGE PRESIDING

MEMORANDUM OPINION

Appellant Dr. S. Merlin McAnelly challenges the trial court’s judgment non obstante

veredicto (JNOV) in favor of appellees Brady Medical Clinic, Lonnie Vickers, James Allen, and

Pedro Castro (collectively, Brady Medical Clinic). Dr. McAnelly sued to enforce a verbal agreement

that he allegedly made with Brady Medical Clinic. Dr. McAnelly contended that Brady Medical

Clinic promised to pay him $25,000 in exchange for some medical supplies and his promise not to

compete with the clinic’s medical practice for two years. Alternatively, he sought damages on

promissory estoppel and quantum meruit grounds. Because the promise not to compete alleged by

McAnelly was unenforceable under Texas law, we affirm the trial court’s judgment with regard to

enforcement of the non-compete agreement and the promissory estoppel claim. We reverse and render judgment with respect to Dr. McAnelly’s quantum meruit claim for medical supplies given

to Brady Medical Clinic and remand to the trial court for a determination of attorney’s fees.

BACKGROUND

Dr. McAnelly practiced medicine as a family doctor in Brady, Texas, for over 35

years. At the time of his retirement, Dr. McAnelly was practicing with Dr. Castro in a clinic owned

by West Texas Medical Associates (WTMA). Drs. McAnelly and Castro were employees of WTMA

which paid them a salary based on the revenue each doctor generated, less the operating expenses

of the clinic. WTMA decided it would close its clinic in Brady when Dr. McAnelly announced his

retirement.

Brady Medical Clinic decided to open a new clinic in the same space. It purchased

the building which housed the clinic and WTMA donated some of its equipment. Brady Medical

Clinic also negotiated with Dr. McAnelly prior to his retirement regarding details of the transition.

These negotiations and the terms of any agreement between Dr. McAnelly and Brady Medical Clinic

form the basis of the dispute. Dr. McAnelly alleged that in a verbal agreement Brady Medical Clinic

promised to pay him $25,000 in exchange for his promise not to compete and for some medical

supplies remaining in the clinic. Brady Medical Clinic contended that they attempted to negotiate

a price they would pay Dr. McAnelly for his goodwill and the remaining supplies, but the parties

never could agree on the terms.

Dr. McAnelly retired from his medical practice on December 31, 2001, and Brady

Medical Clinic opened its doors January 1, 2002. Dr. McAnelly wrote a letter to his patients

announcing his retirement and informing them that Brady Medical Clinic would assume his practice.

2 Brady Medical Clinic did not pay Dr. McAnelly any money and Dr. McAnelly did not recommend

Brady Medical Clinic to his patients. Dr. McAnelly subsequently brought suit against Brady Medical

Clinic seeking the $25,000 he alleged was promised in exchange for his agreement not to compete

and his share of the medical supplies. The case was tried before a jury and the jury found in favor

of Dr. McAnelly in all respects. The trial court, however, granted Brady Medical Clinic’s motion

for JNOV and denied all relief sought by Dr. McAnelly. This appeal followed.

DISCUSSION

Standard of Review

A JNOV is appropriate when the evidence is conclusive and when one party is

entitled to judgment as a matter of law. Mancorp, Inc. v. Culpepper, 802 S.W.2d 226, 227-28 (Tex.

1990); Trinity Indus., Inc. v. Ashland, Inc, 53 S.W.3d 852, 863 (Tex. App.—Austin 2001, pet.

denied). We review the denial of a motion for JNOV under a legal sufficiency or no evidence

standard of review. Trinity Indus., 53 S.W.3d at 863. That is, we review the evidence in the light

most favorable to the jury findings, considering only the evidence and inferences that support them

and disregarding all evidence and inferences to the contrary. Id. We will reverse a JNOV if there

is more than a scintilla of evidence to support the jury’s finding. See Mancorp, 802 S.W.2d at 228.

Enforcement of the Contract

In his first issue, Dr. McAnelly contends that the trial court’s JNOV was improper

because he had an enforceable agreement to receive $25,000 in exchange for contributing certain

medical supplies to Brady Medical Clinic and promising not to compete with its doctors for two

3 years. A covenant not to compete is a disfavored contract in restraint of trade and will not be

enforced unless it meets certain statutory requirements. Alex Sheshunoff Mgmt. Servs., L.P. v.

Johnson, 124 S.W.3d 678, 684 (Tex. App.—Austin 2003, pet. granted); see Tex. Bus. & Com. Code

Ann. § 15.50 (West 2002). The enforceability of a covenant not to compete is a question of law.

Light v. Centel Cellular Co. of Texas, 883 S.W.2d 642, 644 (Tex. 1994); Trilogy Software, Inc. v.

Callidus Software, Inc., 143 S.W.3d 452, 459 (Tex. App.—Austin 2004, no pet. h.). Generally, there

are two criteria for the enforceability of a covenant not to compete under section 15.50: the covenant

must (1) be ancillary to or part of an otherwise enforceable agreement at the time the agreement is

made, and (2) contain limitations as to time, geographical area, and scope of activity to be restrained

that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or

other business interest of the promisee. Light, 883 S.W.2d at 644; see Tex. Bus. & Com. Code Ann.

§ 15.50(a). The statute provides additional requirements for a covenant not to compete involving

a licensed physician. See Tex. Bus. & Com. Code Ann. § 15.50(b).

The parties disputed the terms of the alleged agreement and whether the parties to the

alleged oral agreement anticipated that they would be bound despite the fact that other terms would

have to be agreed upon later. However, even assuming that the agreement was made as Dr.

McAnelly alleges, it would be unenforceable under section 15.50 because the agreement not to

compete was not “ancillary to an otherwise enforceable agreement.” See Light, 883 S.W.2d at 644.

In order for a covenant not to compete to be ancillary to an otherwise enforceable agreement it must

be designed to enforce a contractual obligation of one of the parties. Id. at 647 (citing Business

Elecs. v. Sharp Elecs., 485 U.S. 717, 738-39 (1988)); Trilogy, 143 S.W.3d at 462. “The otherwise

4 enforceable agreement must give rise to the ‘interest worthy of protection’ by the covenant not to

compete.” Light, 883 S.W.2d at 644. “Examples of legitimate, protectable interests include business

goodwill, trade secrets, and other confidential or proprietary information.” DeSantis v. Wackenhut

Corp., 793 S.W.2d 670, 682 (Tex. 1990); see Trilogy, 143 S.W.3d at 462.

Here, the only otherwise enforceable agreement Dr. McAnelly contends was made

was the purchase of his remaining medical supplies. An agreement not to compete is wholly

unrelated to the purchase of medical supplies, and such a transaction is not an interest worthy of

protecting through a restraint of trade. See Light, 883 S.W.2d at 647; DeSantis, 793 S.W.2d at 682;

Trilogy, 143 S.W.3d at 462. Because we hold that the agreement Dr. McAnelly seeks to enforce was

an unenforceable restraint on trade, we overrule his first issue.

Promissory Estoppel

In the absence of an enforceable covenant not to compete, Dr. McAnelly contends that

he was entitled to recover $25,000 under a promissory estoppel theory. Promissory estoppel is a

cause of action available to a promisee who has acted to his detriment in reasonable reliance on an

otherwise unenforceable promise. See Wheeler v. White, 398 S.W.2d 93, 97 (Tex. 1965); Bailey v.

City of Austin, 972 S.W.2d 180, 193 (Tex. App.—Austin 1998, pet. denied). An otherwise

unenforceable promise may be binding if the promisor should reasonably expect that the promise

will induce action or forbearance, the promisee substantially relies on the promise to his detriment,

and enforcement of the promise is necessary to avoid an injustice. Bailey, 972 S.W.2d at 192.

Although Dr. McAnelly’s testimony provides some evidence that there was a promise not to compete

and that he relied on that promise by refraining from practicing medicine part time, there is no

5 evidence that Dr. McAnelly’s reliance was foreseeable. See English v. Fischer, 660 S.W.2d 521, 524

(Tex. 1984) (elements of promissory estoppel include (1) promise, (2) foreseeability of reliance

thereon by the promisor, and (3) substantial reliance by the promisee to his detriment). Dr.

McAnelly consistently stated during negotiations with Brady Medical Clinic that he intended to retire

from the practice of medicine. There is nothing in the record which indicates that Dr. McAnelly

planned to open a part-time practice after his retirement from WTMA and that he gave up that plan

based upon any promise made by Brady Medical Clinic. Furthermore, Dr. McAnelly testified that

Dr. Allen of Brady Medical Clinic informed him that the clinic would not pay him the $25,000

without a signed contract. The mere fact that Dr. McAnelly relied on an unenforceable agreement

that Brady Medical Clinic had repudiated does not make his actions foreseeable. We also cannot

conclude that the enforcement of an agreement which is essentially a naked restraint of trade is

necessary to avoid injustice. See Crossmark, Inc. v. Hazar, 124 S.W.3d 422, 434 (Tex.

App.—Dallas 2004, pet. denied) (naked restraint of trade against public policy). We therefore

overrule Dr. McAnelly’s second issue that he is entitled to recover under a promissory estoppel

theory.

Quantum Meruit

In his third issue, Dr. McAnelly contends that the trial court erred by granting JNOV

on his claim for recovery in quantum meruit for the value of the medical supplies conveyed to Brady

Medical Clinic. Quantum meruit is an equitable remedy which does not arise out of a contract but

is independent of it. Vortt Exploration v. Chevron U.S.A., Inc., 787 S.W.2d 942, 944 (Tex. 1990);

Colbert v. Dallas Joint Stock Land Bank, 102 S.W.2d 1031, 1034 (Tex. 1937). Generally, a party

6 may recover under quantum meruit only when there is no express contract covering the services or

materials furnished and when non-payment for the services or materials rendered would result in an

unjust enrichment to the party benefitted. Vortt Exploration, 787 S.W.2d at 944. The remedy is

based upon the promise implied by law to pay for materials furnished or services rendered and

knowingly accepted. Id. To recover under quantum meruit a claimant must prove that:

(1) valuable services were rendered or materials furnished;

(2) for the person sought to be charged;

(3) which services and materials were accepted by the person sought to be charged, and used or enjoyed by him;

(4) under such circumstances as reasonably notified the person sought to be charged that the plaintiff in performing such services was expecting to be paid by the person sought to be charged.

Id.

Here there is evidence in the record supporting each element of quantum meruit. Dr.

McAnelly, Dr. Castro, and WTMA administrator Tommy McMahon all testified that Dr. McAnelly

had an ownership interest in the remaining WTMA medical supplies because the cost of his share

of the supplies had been regularly deducted from his paycheck. It is also undisputed that Dr.

McAnelly sought payment from Brady Medical Clinic for the supplies as part of the agreement.

Brady Medical Clinic does not deny that they took possession of the supplies and used them. An

inventory of the supplies was taken and their value estimated. The jury concluded that Dr. McAnelly

was entitled to $2400 compensation for his share of the medical supplies accepted by Brady Medical

Clinic.

7 Viewing the record as a whole, there was more than a scintilla of evidence supporting

the jury’s verdict awarding Dr. McAnelly $2400 in quantum meruit for the medical supplies

provided to Brady Medical Clinic. We therefore reverse the trial court’s take nothing judgment

regarding the quantum meruit claim and render judgment upon the verdict in favor of Dr. McAnelly

in the amount of $2400.

Attorney’s Fees

Dr. McAnelly also challenges the trial court’s JNOV on his claim for attorney’s fees.

Dr. McAnelly prevailed on his quantum meruit claim but did not prevail on his contract and

promissory estoppel claims. Because we render judgment in favor of Dr. McAnelly on his quantum

meruit claim, he is entitled to some attorney’s fees. See Young v. Neatherlin, 102 S.W.3d 415, 421-

22 (Tex. App.—Houston [14th Dist.] 2003, no pet.); Exxon Corp. v. Breezevale, Ltd., 82 S.W.3d

429, 442 (Tex. App.—Dallas 2003, pet. denied); City of Denton v. Mun. Admin. Servs., Inc., 59

S.W.3d 764, 772 (Tex. App.—Fort Worth 2001, no pet.). When a party seeks to recover attorney’s

fees in a case involving multiple claims, one of which he prevailed on and one of which he did not,

the party must offer evidence segregating attorney’s fees among the various claims. Beard Family

Partnership v. Commercial Indem., 116 S.W.3d 839, 850 (Tex. App.—Austin 2003, no pet.); see

also Houston Livestock Show & Rodeo, Inc. v. Hamrick, 125 S.W.3d 555, 585 (Tex. App.—Austin

2003, no pet.). But see Gorman v. Countrywood Property Owners Ass’n, 1 S.W.3d 915, 918 (Tex.

App.—Beaumont 1999, pet. denied); Aetna Cas. & Sur. v. Wild, 944 S.W.2d 37, 41 (Tex.

App.—Amarillo 1997, writ denied).

8 Dr. McAnelly’s attorney testified at trial that the issues raised were “inextricably

intertwined” and that segregation was impossible. An exception to the duty to segregate arises when

the attorney’s fees are in connection with claims arising out of the same transaction and are so

interrelated that their prosecution entails proof of essentially the same facts. Stewart Title Gaur. Co.

v. Sterling, 822 S.W.2d 1, 11 (Tex. 1991); Hamrick, 125 S.W.3d at 585. Whether fees can be

segregated between various claims is a question for the court. Hamrick, 125 S.W.3d at 585.

Contrary to the testimony of Dr. McAnelly’s attorney, we find that the proof necessary for the

prosecution of McAnelly’s quantum meruit claim differs substantially from that required to prove

his contract and promissory estoppel claims. The majority of the evidence in the record is devoted

to whether the alleged agreement was for Dr. McAnelly’s goodwill or a covenant not to compete.

The issues related to the ownership, transfer, and value of the medical supplies were relatively

undisputed and had little to do with the negotiations of the parties. We therefore conclude that the

attorney’s fees are capable of segregation and that Dr. McAnelly is only entitled to those fees

attributable to the prosecution of his quantum meruit claim. See Sterling, 822 S.W.2d at 11-12.

Here, the jury found that Dr. McAnelly’s attorney’s fees were $32,000 for preparation

and trial on all claims and $5000 each in the event of an appeal to this court and the supreme court.

Among the factors considered by the jury in determining a reasonable award of attorneys fees was

“the amount involved and the results obtained.” The jury was not asked to segregate the attorney’s

fees. The determination of reasonable attorney’s fees is a question for the trier of fact. Sterling, 822

S.W.2d at 12. Because there has been no determination of the reasonable attorney’s fees attributable

9 to the quantum meruit claim, we remand the issue of attorney’s fees to the trial court for further

consideration consistent with this opinion.

CONCLUSION

We affirm the trial court’s judgment denying Dr. McAnelly’s contract and promissory

estoppel claims, we reverse and render judgment in the amount of $2400 on Dr. McAnelly’s

quantum meruit claim, and we remand the issue of attorney’s fees to the trial court for further

Bea Ann Smith, Justice

Before Justices Kidd, B. A. Smith and Pemberton

Affirmed in Part; Reversed and Rendered in Part; Reversed and Remanded in Part

Filed: November 12, 2004