Opinion issued August 29, 2024
In The
Court of Appeals For The
First District of Texas ———————————— NO. 01-21-00008-CV ——————————— SEALY EMERGENCY ROOM, L.L.C. AND KANNAPPAN KRISHNASWAMY, M.D., Appellants v. FREE STANDING EMERGENCY ROOM MANAGERS OF AMERICA, L.L.C., DR. ATUL DHINGRA, DR. SWAPAN DUBEY, AND DR. SANJEEV DUBEY, Appellees
On Appeal from the 125th District Court Harris County, Texas Trial Court Case No. 2018-48143-A
MEMORANDUM OPINION
Appellants, Sealy Emergency Room, L.L.C. (“Sealy ER”) and Kannappan
Krishnaswamy, M.D., challenge the trial court’s rendition of summary judgment in
favor of appellees, Free Standing Emergency Room Managers of America, L.L.C. (“FERMA”), Dr. Atul Dhingra, Dr. Swapan Dubey, and Dr. Sanjeev Dubey (the
“third-party doctors”) (collectively, “appellees”), on Sealy ER’s and Dr.
Krishnaswamy’s counterclaims and third-party claims for breach of contract, fraud,
fraudulent inducement, and negligence.
On the original submission of this appeal, consistent with this Court’s
precedent, we dismissed Sealy ER’s and Dr. Krishnaswamy’s appeal for lack of
appellate jurisdiction because of the manner in which the trial court had severed the
issues on appeal from the main case. See Sealy Emergency Room LLC v. Free
Standing Emergency Room Managers of Am., L.L.C., 669 S.W.3d 488, 493–94 (Tex.
App.—Houston [1st Dist.] 2022), rev’d, 685 S.W.3d 816 (Tex. 2024). Sealy ER and
Dr. Krishnaswamy then filed a petition for review with the Texas Supreme Court,
asserting that this Court had jurisdiction over their appeal. Holding that the trial
court’s severance ruling did not determine the severed case’s appealability, the
Texas Supreme Court reversed and remanded the case for this Court to consider
Sealy ER’s and Dr. Krishnaswamy’s appeal on the merits. See Sealy Emergency
Room, L.L.C. v. Free Standing Emergency Room Managers of Am., L.L.C., 685
S.W.3d at 820–24, 826 (Tex. 2024).
In three issues, Sealy ER and Dr. Krishnaswamy contend that the trial court
erred in granting summary judgment.
We affirm.
2 Background
FERMA, a company specializing in the management of free-standing
emergency rooms, brought suit against Sealy ER and Dr. Krishnaswamy after a
dispute arose from a contractual relationship between FERMA, Sealy ER, and Dr.
Krishnaswamy for the management of Sealy ER, an emergency room facility located
in Sealy, Texas. In its first amended petition, FERMA brought claims for breach of
contract and a declaratory judgment against Sealy ER and Dr. Krishnaswamy.
In their first amended answer and counterclaim, Sealy ER and Dr.
Krishnaswamy generally denied the allegations in FERMA’s petition and brought
counterclaims against FERMA for breach of contract, fraud, fraudulent inducement,
and negligence. Sealy ER and Dr. Krishnaswamy alleged that they had entered into
a contract with FERMA, titled “The Emergency Department Amended Management
Agreement” (the “amended management agreement”) in February 2015. As to their
breach-of-contract counterclaim, Sealy ER and Dr. Krishnaswamy alleged that
FERMA had breached its contractual duties to “educate and orient new physicians
to the facility”; update the policies and procedures manual; “provide a billing liaison
representative” and “enhance cash flow”; “train and educate . . . staff”; engage in
business development and marketing initiatives; adhere to the mandated laboratory
compliance program; provide supervisory personnel; “produce copies of its
employee[s’] workman compensation/personal/professional insurances”; “keep
3 confidential proprietary information of Sealy ER”; “comply with HIPAA”; and
make “changes in . . . policies [and] procedures,” including disaster preparation
policies. As to their counterclaims for fraud and fraudulent inducement, Sealy ER
and Dr. Krishnaswamy alleged that FERMA committed fraud and fraudulently
induced them to enter the contract by falsely representing that it was proficient in
managing “billing issues”; able to provide various services, including business
development, consulting, and risk management services, and the recruitment of
“qualified and appropriate” physicians; and capable of complying with state
regulatory and licensing requirements. Such representations were made with the
intent that Sealy ER and Dr. Krishnaswamy would rely on them, FERMA knew the
representations were false, and Sealy ER and Dr. Krishnaswamy relied on the
representations. As a result, Sealy ER and Dr. Krishnaswamy suffered damages.
Finally, as to their negligence counterclaim, Sealy ER and Dr. Krishnaswamy
alleged that FERMA owed them “a duty to accomplish its tasks consistent with
standards in the industry” and by engaging in the aforementioned conduct FERMA
breached its duty, proximately causing damages to Sealy ER and Dr Krishnaswamy.
In its amended third-party petition, Sealy ER brought third-party claims for
fraud, fraudulent inducement, and negligence against the third-party doctors. As to
its third-party claims for fraud and fraudulent inducement, Sealy ER alleged that the
same conduct that served as the basis for its counterclaims against FERMA served
4 as the basis for its third-party fraud and fraudulent-inducement claims. As to its
third-party negligence claim, Sealy ER alleged that the third-party doctors had a
“duty to accomplish [their] tasks with standards in the industry.” According to Sealy
ER, the third-party doctors “had personal knowledge of the need to have the Sealy
ER [l]aboratory in compliance with state laboratory requirements,” yet “Texas
compliance authorities . . . failed Sealy ER” “on two separate occasions.” And
although the third-party doctors were “aware of state and federal[] . . . HIPAA
requirements,” they “failed to obtain proper administrative HIPAA consent to avoid
impermissible use or disclosure of clinical information that compromise[d] the
security [and] privacy of . . . patients’ health information.” That breach “placed in
jeopardy” Sealy ER’s ability to operate. As a result of the third-party doctors’
negligence, Sealy ER suffered damages.
Appellees filed a motion for partial summary judgment against Sealy ER and
Dr. Krishnaswamy, asserting that they were entitled to judgment as a matter of law
on Sealy ER’s and Dr. Krishnaswamy’s counterclaim against FERMA for breach of
contract and Sealy ER’s and Dr. Krishnaswamy’s counterclaims and third-party
claims against appellees for fraud, fraudulent inducement, and negligence.
According to appellees, in 2014, FERMA and Sealy ER entered a contract “in which
FERMA agreed to manage Sealy ER in exchange for a monthly payment of
$40,000.” In February 2015, “due to Sealy ER’s worsening financial condition, the
5 parties negotiated” the amended management agreement, in which “FERMA agreed
to reduce its monthly fee.” The parties performed under that contract until 2018. In
spring 2018, Dr. Krishnaswamy approached FERMA “and asked if FERMA would
mutually agree to terminate” the amended management agreement, but FERMA
declined to do so. Then, Dr. Krishnaswamy “wrongfully terminated” the amended
management agreement, which led FERMA to file suit against Sealy ER and Dr.
Krishnaswamy for breach of contract and a declaratory judgment. Sealy ER and Dr.
Krishnaswamy then filed counterclaims and thirty-party claims against appellees.
In their partial-summary-judgment motion, appellees argued that (1) Sealy
ER’s and Dr. Krishnaswamy’s breach-of-contract counterclaim against FERMA
failed as a matter of law because Sealy ER and Dr. Krishnaswamy did not identify
any existing contractual obligation that was breached; (2) Sealy ER’s and Dr.
Krishnaswamy’s fraud and fraudulent-inducement counterclaims and third-party
claims against appellees failed as a matter of law because Sealy ER and Dr.
Krishnaswamy did not identify any false representation upon which they relied in
entering into the amended management agreement; (3) Sealy ER’s and Dr.
Krishnaswamy’s negligence counterclaim and third-party claim against appellees
failed as a matter of law because Sealy ER and Dr. Krishnaswamy “admitted that no
harm actually occurred as a result of FERMA’s and the [third-party doctors’] alleged
6 negligent actions”; and (4) Sealy ER’s and Dr. Krishnaswamy’s tort counterclaims
and third-party claims were barred by the economic loss doctrine.
In their response to the partial-summary-judgment motion, Sealy ER and Dr.
Krishnaswamy argued that appellees were not entitled to judgment as a matter of
law on the counterclaims and third-party claims because genuine issues of material
fact existed. According to Sealy ER and Dr. Krishnaswamy, their fraud and
fraudulent-inducement counterclaims and third-party claims were not barred by the
economic loss doctrine and Sealy ER’s and Dr. Krishnaswamy’s counterclaims and
third-party claims were based on “fraud outside of [the] contract.” Further, Sealy
ER and Dr. Krishnaswamy asserted that the damages they sought in their
counterclaims and third-party claims for negligence, fraud, and fraudulent
inducement against appellees were not limited to contractual expectancy damages.
And FERMA breached the contract. Sealy ER and Dr. Krishnaswamy attached
various exhibits to their response.1
The trial court granted appellees’ partial-summary-judgment motion on Sealy
ER’s and Dr. Krishnaswamy’s counterclaims and thirty-party claims for breach of
contract, fraud, fraudulent inducement, and negligence. Appellees then moved for
severance of the partial summary judgment on Sealy ER’s and Dr. Krishnaswamy’s
1 We note that the parties filed additional replies and responses. 7 counterclaims and third-party claims, and Sealy ER and Dr. Krishnaswamy moved
the trial court to reconsider its partial-summary-judgment ruling.
The trial court granted appellees’ motion for severance, and severed Sealy
ER’s and Dr. Krishnaswamy’s counterclaims and third-party claims against
appellees for breach of contract, fraud, fraudulent inducement, and negligence,
making its ruling a final judgment for purposes of this appeal.2
Standard of Review
We review a trial court’s summary judgment de novo. Valence Operating Co.
v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005); Provident Life & Accident Ins. Co. v.
Knott, 128 S.W.3d 211, 215 (Tex. 2003). In conducting our review, we take as true
all evidence favorable to the non-movants, and we indulge every reasonable
inference and resolve any doubts in the non-movants’ favor. Valence Operating,
164 S.W.3d at 661; Knott, 128 S.W.3d at 215. If a trial court grants summary
judgment without specifying the grounds for granting the motion, we must uphold
the trial court’s judgment if any of the asserted grounds are meritorious. Beverick v.
Koch Power, Inc., 186 S.W.3d 145, 148 (Tex. App.—Houston [1st Dist.] 2005, pet.
denied).
2 See Sealy Emergency Room, L.L.C. v. Free Standing Emergency Room Managers of Am., L.L.C., 685 S.W.3d 816, 820–22, 826 (Tex. 2024). 8 To prevail on a matter-of-law summary-judgment motion, the movants must
establish that no genuine issue of material fact exists and the trial court should grant
judgment as a matter of law. See TEX. R. CIV. P. 166a(c); Cathey v. Booth, 900
S.W.2d 339, 341 (Tex. 1995). When the defendants move for a matter-of-law
summary judgment, they must either: (1) disprove at least one essential element of
the plaintiffs’ cause of action, or (2) plead and conclusively establish each essential
element of an affirmative defense, thereby defeating the plaintiffs’ cause of action.
See Cathey, 900 S.W.2d at 341; Centeq Realty, Inc. v. Siegler, 899 S.W.2d 195, 197
(Tex. 1995). Once the movants meets their burden, the burden shifts to the
non-movants to raise a genuine issue of material fact precluding summary judgment.
See Siegler, 899 S.W.2d at 197; Transcon. Ins. Co. v. Briggs Equip. Tr., 321 S.W.3d
685, 691 (Tex. App.—Houston [14th Dist.] 2010, no pet.). The evidence raises a
genuine issue of fact if reasonable and fair-minded fact finders could differ in their
conclusions in light of all of the summary-judgment evidence. Goodyear Tire &
Rubber Co. v. Mayes, 236 S.W.3d 754, 755 (Tex. 2007).
Summary Judgment
A. Breach of contract
In their first issue, Sealy ER and Dr. Krishnaswamy argue that the trial court
erred in granting summary judgment on their breach-of-contract counterclaim
9 against FERMA because they had “raised a material question of fact on contractual
duties” and damages.
A breach-of-contract claim requires proof of four elements: (1) the existence
of a valid contract; (2) performance or tendered performance by the plaintiffs;
(3) breach of the contract by the defendant; and (4) damages sustained by the
plaintiffs as a result of the defendant’s breach. See B & W Supply, Inc. v. Beckman,
305 S.W.3d 10, 16 (Tex. App.—Houston [1st Dist.] 2009, pet. denied).
When, as here, the parties’ dispute is rooted in a disagreement about the
meaning of their contract, this Court’s “primary objective is to ascertain and give
effect to the parties’ intent as expressed in the instrument.” URI, Inc. v. Kleberg
Cnty., 543 S.W.3d 755, 763 (Tex. 2018). We read the text “without rendering any
portion meaningless, and not in the abstract but in the context in which the words
appear and were written—the realities they were meant to address.” Bd. of Regents
of Univ. of Tex. Sys. v. IDEXX Lab’ys, Inc., 691 S.W.3d 438, 445 (Tex. 2024).
Courts must enforce a contract as written. See BlueStone Nat. Res. II, LLC v.
Randle, 620 S.W.3d 380, 387 (Tex. 2021); see also In re Davenport, 522 S.W.3d
452, 457 (Tex. 2017). We cannot rewrite the contract or add to its language under
the guise of interpretation. Fischer v. CTMI, L.L.C., 479 S.W.3d 231, 239 (Tex.
2016); see also In re Davenport, 522 S.W.3d at 457; Great Am. Ins. Co. v. Primo,
512 S.W.3d 890, 893 (Tex. 2017) (“A contract’s plain language controls, not what
10 one side or the other alleges they intended to say but did not.” (internal quotations
omitted)). We “presume parties intend what the words of their contract say and
interpret contract language according to its plain, ordinary, and generally accepted
meaning unless the instrument directs otherwise.” URI, Inc., 543 S.W.3d at 764
(internal quotations and footnotes omitted).
When contract language can be given a certain or definite legal meaning or
interpretation, courts determine that meaning as a matter of law. See Perthuis v.
Baylor Miraca Genetics Lab’ys, LLC, 645 S.W.3d 228, 235 (Tex. 2022). Contract
terms are not ambiguous simply because they are unclear or the parties disagree
about how to interpret them. IDEXX Lab’ys, 691 S.W.3d at 443. Only if ambiguity
remains “after applying the pertinent rules of construction” can there be a fact
question about intent. Id. (internal quotations omitted).
In its partial-summary-judgment motion, FERMA argued that Sealy ER’s and
Dr. Krishnaswamy’s breach-of-contract counterclaim failed as a matter of law
because “none of the allegedly-breached obligations actually exist in the [a]mended
[m]anagement [a]greement.” But according to Sealy ER and Dr. Krishnaswamy,
they produced evidence raising a fact issue that FERMA failed to comply with
various provisions of the amended management agreement and the policies and
procedure manual, and they identified several requirements set forth in the amended
management agreement’s management services provision as the basis for their
11 breach-of-contract counterclaim. We address each of the provisions relied on by
Sealy ER and Dr. Krishnaswamy in turn.
1. Laboratory compliance Sealy ER and Dr. Krishnaswamy assert that FERMA breached the
management services provision’s laboratory compliance requirement by “missing
API tests and failing QC’s,”3 which were “deficiencies” that “risked closure of the
laboratory.” The amended management agreement’s section 2.3, the provision
invoked by Sealy ER and Dr. Krishnaswamy, requires FERMA to:
comply with all [p]olicies as may be amended from time to time, provided that [Sealy ER] shall first notify [FERMA] of such amendments in writing. [FERMA] also shall comply with all applicable local, state, and other governmental authorities and shall cause its employees and representatives to comply with the same.
Sealy ER and Dr. Krishnaswamy point to the language that required FERMA to
“comply with all applicable local, state, and other governmental authorities,” but
they do not identify any statute or regulation that was violated by any testing
deficiencies or show any damages that resulted from testing deficiencies, and they
acknowledge that any testing deficiencies that occurred under FERMA’s
3 Sealy ER and Dr. Krishnaswamy concede that the terms “API test” and “QC” are nowhere defined in the record, but the context in which they are used indicates that at least API testing is somehow related to state regulation. They note that the parties appear to have used the acronyms “without confusion,” but the parties’ apparent understanding does not assist the Court in determining whether Sealy ER and Dr. Krishnaswamy raised an issue of material fact which would avoid summary judgment on their breach-of-contract counterclaim.
12 management fell short of requiring the laboratory’s closure. As such, Sealy ER’s
and Dr. Krishnaswamy’s vague allusions to testing deficiencies and general
governmental compliance requirements do not raise a genuine issue of material fact
as to whether FERMA’s conduct constitutes a breach of the laboratory compliance
provision of the amended management agreement that would entitle them to
damages.
2. Insurance coverage
Sealy ER and Dr. Krishnaswamy assert that FERMA’s failure to “provide a
copy” of its worker’s compensation insurance “policy to [Sealy ER]” raises a fact
issue as to whether FERMA breached the amended management agreement’s section
2.7, which provides:
[FERMA] will obtain, provide and maintain customary worker’s compensation insurance coverage for [FERMA-] employed personnel and comprehensive general liability insurance. [FERMA] shall give [Sealy ER] notice of any material changes in the status of its coverage. [FERMA] will secure and maintain [Sealy ER] as an additional insured on all of its insurance policies.
According to Sealy ER and Dr. Krishnaswamy, the requirement that FERMA “give
[Sealy ER] notice of any material changes in the status of its coverage” “would be
illusory if [Sealy ER] never knew what coverage had been obtained or maintained
when the insurance policy was not provided to [Sealy ER] in the first place.” But
the requirement to “obtain, provide and maintain” insurance coverage does not
include a requirement that FERMA provide Sealy ER with a copy of any insurance 13 policy, and being given a copy of an insurance policy is not the only way that
FERMA could have notified Sealy ER about changes in coverage. That Sealy ER
would have preferred to receive a copy of FERMA’s insurance policies is not a
reason to read an entirely new obligation into an unambiguous contract term. See
IDEXX Lab’ys, 691 S.W.3d at 443. Thus, Sealy ER and Dr. Krishnaswamy have
not raised a fact issue on their counterclaim that FERMA breached the amended
management agreement’s insurance coverage provision.
3. Physician education
Sealy ER and Dr. Krishnaswamy assert that FERMA breached the amended
management agreement’s section 2.1(a) by failing to “train and educate” physicians
employed by Sealy ER. Section 2.1(a) of the amended management agreement
provides that “[FERMA] shall communicate and coordinate with [Sealy ER] and
[Sealy ER’s] clinical personnel concerning the emergency medical services provided
at the [emergency room].”
In its partial-summary-judgment motion, FERMA argued that it did not
breach the cited provision because section 2.1(a) did not require FERMA to provide
any particular “education” or “orientation.” But according to Sealy ER and Dr.
Krishnaswamy, the “gravamen of [their breach-of-contract counterclaim] [wa]s that
FERMA was failing to do the training it was obligated to coordinate.”
14 Sealy ER and Dr. Krishnaswamy argue that FERMA was not entitled to
summary judgment on this issue because FERMA did not explain “why its duty to
‘communicate and coordinate’ with personnel concerning the [emergency services]
being provided d[id] not include educating or orienting those personnel.” But
“communicate” and “coordinate” does not mean the same thing as “educate” and
“orient,” nor are the terms “communicate” and “coordinate” reasonably understood
to encompass education and orientation. We “presume parties intend what the words
of their contract say and interpret contract language according to its plain, ordinary,
and generally accepted meaning unless the instrument directs otherwise.” URI, Inc.,
543 S.W.3d at 764 (internal quotations and footnotes omitted); see also Fischer, 479
S.W.3d at 237 (terms of contract must be sufficiently definite to confirm that parties
intended to be bound, to enable court to understand parties’ obligations, and to
provide appropriate remedy if terms are breached). Thus, Sealy ER and Dr.
Krishnaswamy failed to raise a fact issue about whether FERMA failed to comply
with the amended management agreement’s section 2.1(a).
4. Policy updates
Sealy ER and Dr. Krishnaswamy also argue that FERMA failed to comply
with the amended management agreement’s section 2.1(b), which required FERMA
to “recommend, implement and update [Sealy ER’s] policies and procedures that
meet the applicable standard of care for the [emergency room],” because “after
15 repeated requests,” FERMA did not provide “a single update.” FERMA, in its
partial-summary-judgment motion, explained though that the amended management
agreement did not require “FERMA to provide updates, so long as Sealy [ER]’s
existing policies and procedures met the applicable standard of care.” According to
Sealy ER and Dr. Krishnaswamy, summary judgment was not proper on this alleged
breach of the amended management agreement because it required an “assumption
that the standard of care was already met.” But FERMA was not required to prove
a negative. See 20801, Inc. v. Parker, 249 S.W.3d 392, 397 (Tex. 2008) (noting in
determining burden allocation of fact party must prove, courts consider:
(1) comparative likelihood certain situation may occur in reasonable percentage of
cases and (2) difficulty in proving a negative). Because there was no definite
periodic update required or date certain on which FERMA was required to update
the policies and procedures, it was incumbent on Sealy ER and Dr. Krishnaswamy,
as the plaintiffs asserting breach, to raise a fact issue showing that a change to the
standard of care had occurred. Cf. Envt’l Processing Sys., L.C. v. FPL Farming Ltd.,
457 S.W.3d 414, 424 (Tex. 2015) (rejecting argument defendant should bear burden
of proving authorization, or consent, as affirmative defense to trespass, where
“unauthorized entry” was essential element of trespass cause of action). Instead, the
only evidence was that Sealy ER had “repeated[ly] request[ed]” updates. Because
the plain language of the amended management agreement does not require FERMA
16 to update the policies and procedures at Sealy ER’s request, Sealy ER and Dr.
Krishnaswamy failed to raise a fact issue as to this alleged breach.
5. Billing
Sealy ER and Dr. Krishnaswamy assert that they raised a fact issue as to their
claim that FERMA breached the amended management agreement’s section 2.1(c)
by terminating the employment of its billing liaison and failing to rehire for that
position. Amended management agreement section 2.1(c) required FERMA to “use
commercially reasonable best efforts to timely bill and collect all facility and other
applicable fees for all reimbursable emergency health care services provided at the
[emergency room].” In its partial-summary-judgment motion, FERMA asserted that
“[n]othing in [the amended management agreement’s section 2.1(c)] required
FERMA to actually employ a billing liaison, and nothing in the agreement obligated
FERMA to ‘enhance cash flow.’”
In the trial court, Sealy ER and Dr. Krishnaswamy invoked the amended
management agreement’s section 2.6(c), which provides that FERMA “is
responsible for the salaries of [its] management team,” including a “[b]illing
[l]iaison,” and they asserted that “‘commercially reasonable best efforts to timely
bill’ would logically require hiring a person to actually make those efforts.” But
Sealy ER and Dr. Krishnaswamy did not identify any provision that required
FERMA to employ a billing liaison. Their argument suffered from the same logical
17 fallacy as the argument that they made about the insurance coverage provision—i.e.,
employing a billing liaison was not the only way for FERMA to provide billing and
fee collection services.
Further, to the extent that Sealy ER’s and Dr. Krishnaswamy’s
breach-of-contract counterclaim relies on FERMA’s obligation to use its
“commercially reasonable best efforts to timely bill and collect” fees, we note that
while best-efforts clauses may be enforceable, the contract nevertheless must set
some kind of goal or guideline against which best efforts may be measured. See
Spain ex. rel. Linda & Barry Spain Tr. v. Phoenix Elec., Inc., No. 01-22-00656-CV,
2024 WL 971661, at *8 (Tex. App.—Houston [1st Dist.] Mar. 7, 2024, no pet.)
(mem. op.); CKB & Assocs., Inc. v. Moore McCormack Petroleum, Inc., 809 S.W.2d
577, 581 (Tex. App.—Dallas 1991, writ denied).
In Spain, this Court considered the enforceability of a contract provision that
required the purchaser of a company that performed electrical work for commercial
and multifamily residential construction projects to “use its best efforts in the
operation of the [c]ompany’s business” “in a manner that maximize[d] the
[e]arn-[o]ut [p]ayments to the [seller], provided that [p]urchaser [would] not be
required to enter into any agreement that d[id] not meet its historical profitability
requirements.” 2024 WL 971661, at *2 (internal quotations omitted). A few years
after the parties entered the contract, the seller sued the purchaser for breach of
18 contract, alleging that contrary to growing the company’s business following the
sale, the purchaser did not maintain proper staffing levels at the company, and the
company submitted far fewer bids on projects. Id. The purchaser then moved for
summary judgment, and the trial court granted the motion. Id. at *3. The seller
appealed, asserting that Texas law did not require a best-efforts provision to contain
a specific goal or guideline to be enforceable. Id. This Court disagreed, concluding
that the best-efforts provision was too indefinite to be enforced. Id. at *9–10.
Like the best-efforts provision in Spain, the amended management agreement,
even when read together with the policies and procedures manual, does not set out
any kind of goal or guideline against which FERMA’s best efforts can be measured.
Consistent with Spain, we conclude that the amended management agreement’s
best-efforts provision is too indefinite to be enforceable and thus cannot be read to
require FERMA to have hired a new billing liaison.
6. Staff training
Sealy ER and Dr. Krishnaswamy next assert that they raised a fact issue as to
whether FERMA breached the amended management agreement’s section 2.1(d) by
failing to train and educate Sealy ER staff. Section 2.1(d) states that “[FERMA]
shall coordinate training and continuing education for all staff providing [s]ervices
at [Sealy ER’s] expense.” Sealy ER and Dr. Krishnaswamy also point to provisions
in the policies and procedures manual that:
19 • require all “clinical personnel who provide direct patient care” to be “CPR certified on a biennial basis” and note that “[c]ompliance with this policy can be achieved by attending and successfully passing the American Heart Association ACLS/BCLS/PALS course or other equally qualified training every two years”;
• require “[a]ll employees with occupational exposure . . . to participate in a training program . . . [p]rior to initial assignment of tasks where exposure takes place” and “annually thereafter”;
• designate the “Director of Nursing and/or his/her designee” as being responsible for Sealy ER’s employee-training program and requires “each new employee” to “attend an OSHA compliant training orientation”; and
• require pharmacy personnel to “receive documented on-the-job training” as to “pharmacy operations.”
In its partial-summary-judgment motion, FERMA maintained that the plain
language of section 2.1(d) did not obligate it to “train and educate” Sealy ER’s staff,
only to “coordinate” any training and education. And as for Sealy ER’s policies and
procedures manual, FERMA asserted that Sealy ER did not provide any evidence as
to any obligations created by the manual that FERMA had breached.
The trial court was correct in concluding, consistent with the plain language
of the amended management agreement’s section 2.1(d), that FERMA did not breach
the requirement that it “coordinate” training and continuing education by failing to
train and educate Sealy ER’s staff. “Courts may not rewrite the parties’ contract,
nor should courts add to its language.” In re Davenport, 522 S.W.3d at 457; see also
Fischer, 479 S.W.3d at 239. “We cannot make new contracts between the parties
20 and must enforce the contract as written.” In re Davenport, 522 S.W.3d at 457; see
also BlueStone Nat. Res. II, 620 S.W.3d at 387. The plain language of section 2.1(d)
did not require FERMA to “train and educate” Sealy ER’s staff.
The policies and procedures manual provisions cited by Sealy ER and Dr.
Krishnaswamy go no further in imposing an obligation on FERMA to educate and
train Sealy ER’s staff. For the most part, they require the employees themselves to
obtain specific training. Further, the provision that identifies “the Director of
Nursing,” a member of FERMA’s management team, “and/or his/her designee,” as
the party responsible for Sealy ER’s employee-training program does not require
that the party do more than “coordinate” staff training and education.
Thus, we conclude that Sealy ER and Dr. Krishnaswamy failed to raise a fact
issue to support its breach-of-contract counterclaim on this issue.
7. Marketing services
Sealy ER and Dr. Krishnaswamy assert that FERMA breached the amended
management agreement by failing to replace its marketing director, who left in early
2018. According to Sealy ER and Dr. Krishnaswamy, FERMA’s obligation to do
so is based on the amended management agreement’s section 2.2(c), which requires
FERMA to “participate in [Sealy ER’s] Quality Improvement and Utilization
Review programs designed to ensure regulatory compliance and enhance the quality
of patient care.” Sealy ER and Dr. Krishnaswamy read this provision in conjunction
21 with the policies and procedures manual provision stating that one of the objectives
of “high quality health care” was to “[d]evelop a marketing plan.”
But, as FERMA correctly noted in its partial-summary-judgment motion, the
amended management agreement’s section 2.2(c) does not require FERMA to
perform any marketing services; it applies solely to regulatory compliance and
patient care. Further, the aspirational statement in the policies and procedures
manual that the development of a marketing plan was an objective of “high quality
health care,” is not definite enough to create a binding contractual obligation. See,
e.g., N.Y. Life Ins. Co. v. Miller, 114 S.W.3d 114, 123 (Tex. App.—Austin 2003, no
pet.) (vague assertion plaintiff’s business would be “protected” to some unspecified
degree was “far too indefinite” to create binding contractual obligation); see also
T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 221 (Tex. 1992) (if
essential terms are not definite, certain, and clear, contract is unenforceable). Thus,
the trial court did not err in concluding that Sealy ER and Dr. Krishnaswamy failed
to raise a fact issue as to whether FERMA failed to comply with the amended
management agreement’s section 2.2(c).
8. HIPAA
Sealy ER and Dr. Krishnaswamy assert that one of the third-party doctors
negligently misplaced a HIPAA acknowledgement form signed by a Sealy ER
employee which, according to Sealy ER and Dr. Krishnaswamy, constituted a breach
22 by FERMA of the amended management agreement’s section 7.3. Under section
7.3, FERMA agreed to execute a HIPAA business associate agreement which
required it “to use appropriate safeguards to prevent use or disclosure of the
[HIPAA-protected] information other than as provided for by th[e] [a]greement.”
Sealy ER and Dr. Krishnaswamy, though, admitted that they suffered no injury or
damages as a result of the alleged misplacement of the HIPAA acknowledgment
form. Such admission precluded Sealy ER and Dr. Krishnaswamy from raising a
fact issue on an essential element of their breach-of-contract counterclaim based on
this provision. See B & W Supply, Inc., 305 S.W.3d at 16.
Based on the foregoing, we hold that the trial court did not err in granting
summary judgment in favor of FERMA on Sealy ER’s and Dr. Krishnaswamy’s
breach-of-contract counterclaim.
We overrule Sealy ER’s and Dr. Krishnaswamy’s first issue.
B. Fraud and fraudulent inducement
In their second issue, Sealy ER and Dr. Krishnaswamy argue that the trial
court erred in granting summary judgment against appellees on Sealy ER’s and Dr.
Krishnaswamy’s fraud and fraudulent-inducement counterclaims and third-party
claims because they “raised a material question of fact on misrepresentations.”
To prevail on a claim for fraud, the plaintiffs must prove that: (1) the
defendants made a material misrepresentation; (2) the defendants knew the
23 representation was false or made the representation recklessly without any
knowledge of its truth; (3) the defendants made the representation with the intent
that the plaintiffs would act on that representation or intended to induce the
plaintiffs’ reliance on the representation; and (4) the plaintiffs suffered harm by
actively and justifiably relying on that representation. Exxon Corp. v. Emerald Oil
& Gas Co., 348 S.W.3d 194, 217 (Tex. 2011); Spencer & Assocs., P.C. v. Harper,
612 S.W.3d 338, 347 (Tex. App.—Houston [1st Dist. 2019, no pet.). Fraudulent
inducement is a type of fraud relating specifically to a contract and requires the
claimant to establish the elements of fraud “as they relate to an agreement between
the parties.” Haase v. Glazner, 62 S.W.3d 795, 798–99 (Tex. 2001). Fraudulent
inducement thus shares the same basic elements with a common-law fraud claim,
but it also requires the existence of a contract as an essential element of proof.
Anderson v. Durant, 550 S.W.3d 605, 614 (Tex. 2018); W. Loop Hosp., LLC v.
Houston Galleria Lodging Assocs., LLC, 649 S.W.3d 461, 484 (Tex. App.—
Houston [1st Dist.] 2022, pet. denied).
In their partial summary-judgment motion, appellees argued that the fraud and
fraudulent-inducement counterclaims and third-party claims of Sealy ER and Dr.
Krishnaswamy failed as a matter of law because Sealy ER and Dr. Krishnaswamy
did not identify any false representations made by appellees or damages that raised
a fact issue. Appellees pointed out that Dr. Krishnaswamy had admitted at his
24 deposition that he could not recall any false representations and that he did not speak
to two of the third-party doctors before executing the original management contract
or the amended management contract. In the affidavits of Dr. Krishnaswamy and
Jothi Kannappan, Sealy ER’s administrative manager of operations, which
accompanied Sealy ER’s and Dr. Krishnaswamy’s response, though, Dr.
Krishnaswamy and Kannappan attested that “[they] were told that FERMA had
substantial experience managing [emergency room] facilities and that [FERMA
was] expanding [its] operation to manage multiple facilities across the state” and
“FERMA was about to enter into a relationship with a Corpus Christi hospital to
manage their [emergency room].”
Sealy ER and Dr. Krishnaswamy argue that they raised a fact issue on their
fraudulent-inducement counterclaims and third-party claims because this case
involves the amended management agreement, not the original management
agreement, and Sealy ER and Dr. Krishnaswamy spoke with appellees before
executing the amended management agreement. But Sealy ER and Dr.
Krishnaswamy do not base their fraudulent-inducement counterclaims and
third-party claims on any new obligation created under the amended management
agreement. See Kajima Int’l, Inc. v. Formosa Plastics Corp., USA, 15 S.W.3d 289,
293 (Tex. 2000) (party’s asking another party for continued performance only
triggers submission of jury question on fraud when party makes knowingly
25 fraudulent misrepresentation to induce that performance); see also Spoljaric v.
Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex. 1986) (some evidence that
employer committed fraud in making oral agreement to pay bonus to employee to
induce him to continue working under written contract).4
As for Sealy ER’s and Dr. Krishnaswamy’s allegations of post-contract fraud,
the gist of the representations allegedly made by FERMA involves FERMA’s
competence and willingness to perform the duties required under the amended
management agreement. “[A]n unfulfilled promise does not, standing alone,
constitute fraud; otherwise, every breach of contract would amount to fraud.”
Kajima Int’l, 15 S.W.3d at 293.
For these reasons, we conclude that Sealy ER and Dr. Krishnaswamy have not
identified any misrepresentation of fact by appellees which induced them to agree to
4 The undisputed evidence shows that Sealy ER and Dr. Krishnaswamy, and not FERMA, initiated negotiations for the amended management agreement to change the price that Sealy ER paid for the services to be performed by FERMA under terms more favorable to Sealy ER. For the first time in their appellants’ brief, Sealy ER and Dr. Krishnaswamy assert that appellees also committed fraud by making false representations about the services they provided on their website, which did not exist when the parties entered into the amended management agreement. This is not a basis for reversal. See City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex. 1979) (summary judgment non-movant could not raise for first time on appeal additional fact issue that was not raised in its response); Texas A&M Concrete, LLC v. Brae Burn Constr., 651 S.W.3d 607, 618 (Tex. App.— Houston [1st Dist.] 2022, no pet.); Daniels v. Bertolino, No. 03-14-00671-CV, 2015 WL 4909929, at *2 (Tex. App.—Austin Aug. 12, 2015, no pet.) (mem. op.) (“A party may not raise new reasons why a summary judgment should have been denied for the first time on appeal.”). 26 a new provision in the amended management agreement or to continue performing
under the amended management agreement. Thus, we hold that the trial court did
not err in concluding that FERMA was entitled to judgment as a matter of law on
Sealy ER’s and Dr. Krishnaswamy’s counterclaims and third-party claims for fraud
and fraudulent inducement.
We overrule Sealy ER’s and Dr. Krishnaswamy’s second issue.
C. Negligence
In their third issue, Sealy ER and Dr. Krishnaswamy argue that the trial court
erred in granting summary judgment in favor of appellees on their negligence
counterclaims and third-party claims because Sealy ER and Dr. Krishnaswamy
raised a fact issue as to whether FERMA breached regulatory duties in addition to
its contractual duties.
In their partial-summary-judgment motion, appellees argued that Sealy ER’s
and Dr. Krishnaswamy’s negligence counterclaims and third-party claims failed as
a matter of law because the claims were barred by the economic loss rule. The
economic loss rule is a collection of rules that govern the recovery of economic
losses in certain areas of the law. Sharyland Water Supply Corp. v. City of Alton,
354 S.W.3d 407, 415 (Tex. 2011); W. Loop Hosp., 649 S.W.3d at 485. Generally,
the economic loss rule precludes recovery in tort for economic losses resulting from
a party’s failure to perform under a contract when the harm consists only of the
27 economic loss of a contractual expectancy. Chapman Custom Homes, Inc. v. Dallas
Plumbing Co., 445 S.W.3d 716, 718 (Tex. 2014); W. Loop Hosp., 649 S.W.3d at
485.
Whether the economic loss rule bars a tort claim is a question of law. Eagle
Oil & Gas v. Shale Expl., LLC, 549 S.W.3d 256, 268 (Tex. App.—Houston [1st
Dist.] 2018, pet. dism’d). In determining whether the rule applies, we consider the
source of the defendants’ alleged duty and the damages sought by the plaintiffs. Id.;
Levco Constr., Inc. v. Whole Foods Mkt. Rocky Mountain/Sw. L.P., 549 S.W.3d 618,
635 (Tex. App.—Houston [1st Dist.] 2017, no pet.). “[T]he nature of the injury
helps determine which duty or duties are breached and, ultimately, which damages
are appropriate.” Med. City Dallas, Ltd. v. Carlisle Corp., 251 S.W.3d 55, 61 (Tex.
2008); see also Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 12
(Tex. 2007) (stating focus of economic loss rule is “on determining whether the
injury is to the subject of the contract itself”); Jim Walter Homes, Inc. v. Reed, 711
S.W.2d 617, 618 (Tex. 1986). A party’s acts may breach duties in tort, duties in
contract, or duties in both simultaneously. Jim Walter Homes, 711 S.W.2d at 618;
W. Loop Hosp., 649 S.W.3d at 485. A claim sounds in contract when the only injury
is economic loss to the subject of the contract itself. ½ Price Checks Cashed v.
United Auto. Ins. Co., 344 S.W.3d 378, 387 (Tex. 2011); W. Loop Hosp., 649 S.W.3d
at 485. Even if the issue in dispute is the subject of a contract, though, a party states
28 a tort claim when the duty allegedly breached is independent of the contract and the
harm that is suffered is not solely the economic loss of a contractual benefit.
Chapman Custom Homes, 445 S.W.3d at 718; Eagle Oil & Gas, 549 S.W.3d at 268.
The Texas Supreme Court has explained:
Tort obligations are in general obligations that are imposed by law— apart from and independent of promises made and therefore apart from the manifested intention of the parties—to avoid injury to others. If the defendant[s’] conduct—such as negligently burning down a house— would give rise to liability independent of the fact that a contract exists between the parties, the plaintiff[s’] claim may also sound in tort. Conversely, if the defendant[s’] conduct—such as failing to publish an advertisement—would give rise to liability only because it breaches the parties’ agreement, the plaintiff[s’] claim ordinarily sounds only in contract.
Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494 (Tex. 1991) (internal quotations
and citations omitted). We look to the substance of the cause of action, not the
manner in which it was pleaded, to determine the type of action that is brought.
Peterson Grp., Inc. v. PLTQ Lotus Grp., L.P., 417 S.W.3d 46, 62 (Tex. App.—
Houston [1st Dist.] 2013, pet. denied).
Sealy ER and Dr. Krishnaswamy argue that the “economic loss rule has no
application to [their] negligence” counterclaims and third-party claims because their
claims were not based on any contractual duty, but rather on the general duty of
FERMA not to harm [Sealy ER’s and Dr. Krishnaswamy]’s emergency business.”
According to Sealy ER and Dr. Krishnaswamy, FERMA’s negligence breached not
only contractual duties but also regulatory duties, and it produced evidence of
29 remediation costs necessary to protect the emergency room from being shut down.
Specifically, Sealy ER and Dr. Krishnaswamy assert that FERMA breached its
independent duty of care by failing to operate the laboratory in compliance with
applicable regulations. As noted above, though, Sealy ER and Dr. Krishnaswamy
have not identified any harm which resulted from any regulatory lapses that
allegedly occurred while FERMA was managing the emergency room.
Sealy ER and Dr. Krishnaswamy also assert that the economic loss doctrine
does not apply because they are seeking reliance damages, not “contractual
expectancy” damages. But reliance damages are also a measure of contract
damages. See AKIB Constr. Inc. v. Shipwash, 582 S.W.3d 791, 808 (Tex. App.—
Houston [1st Dist.] 2019, no pet.). Likewise, the cost of mitigating harm flowing
from a breach of contract, such as the remediation costs sought by Sealy ER and Dr.
Krishnaswamy, is factored into recovery under a breach-of-contract theory. See
Wyde v. Francesconi, 566 S.W.3d 890, 895 (Tex. App.—Dallas 2018, no pet.)
(“Contract law broadly supports the idea that a plaintiff should minimize damages
by taking affirmative steps, when applicable, to stop the accumulation of losses.”);
see also Gunn Infiniti, Inc. v. O’Byrne, 996 S.W.2d 854, 857 (Tex. 1999). No
evidence shows that the damages allegedly caused by the breach of any independent
duty in negligence are anything more than the economic loss allegedly caused by the
30 breach of contract. See ½ Price Checks Cashed, 344 S.W.3d at 387; W. Loop Hosp.,
649 S.W.3d at 485.
Accordingly, we hold that the trial court did not err in granting summary
judgment in favor of appellees on Sealy ER’s and Dr. Krishnaswamy’s negligence
counterclaims and third-party claims.
We overrule Sealy ER’s and Dr. Krishnaswamy’s third issue.
Conclusion
We affirm the order of the trial court. All pending motions are dismissed as
moot.
Julie Countiss Justice
Panel consists of Justices Goodman, Landau, and Countiss.