University General Hospital, L.P., University Hospital Systems, LLP, Charo Barnette, in Her Capacity as Independent of the Estate of Guy Barnette, and John E. Udeh v. Siemens Medical Solutions USA, Inc.

• Court: Court of Appeals of Texas
• Decided: May 9, 2017
• Docket: 01-14-00678-CV
• Status: Published

Opinion

Opinion issued May 9, 2017

In The

Court of Appeals For The

First District of Texas ———————————— NO. 01-14-00678-CV ——————————— UNIVERSITY GENERAL HOSPITAL, L.P.; UNIVERSITY HOSPITAL SYSTEMS, LLP; CHARO BARNETTE, IN HER CAPACITY AS INDEPENDENT EXECUTOR OF THE ESTATE OF GUY BARNETTE; AND JOHN E. UDEH, Appellants V. SIEMENS MEDICAL SOLUTIONS USA, INC., Appellee

On Appeal from the 215th District Court Harris County, Texas Trial Court Case No. 2013-18863

MEMORANDUM OPINION

This appeal arises from a dispute over a breach of a settlement agreement.

Applying the terms of the settlement, we affirm the judgment to the extent it enforced the liability of University General Hospital, L.P. and University Hospital Systems,

LLP, which agreed to be jointly and severally liable for a sum of $5,500,000. We

reverse to the extent the judgment imposed liability against Barnette and Udeh, who

were expressly excused from their obligations as individual guarantors, and we

render a take-nothing judgment in their favor. In light of our holdings, we remand

for further proceedings relating to the recovery of reasonable and necessary

attorney’s fees.

Background

This lawsuit arises out of the failed settlement of a prior suit. In 2010, Siemens

Medical Solutions USA, Inc. filed suit against University General Hospital, L.P. and

University Hospital Systems, LLP, alleging that they breached several contracts

under which Siemens provided medical equipment, information-technology

services, and maintenance. Siemens also sued Guy Barnette, John E. Udeh, and

Moien R. Butt as guarantors. The parties entered into a settlement agreement to

resolve that lawsuit.

In their settlement agreement, the parties made several commitments to one

another. University General agreed to pay Siemens $4,850,000. University General

was obligated to pay $1,000,000 the day that Siemens signed the settlement papers,

and the remainder was to be paid in 20 monthly installments. The parties agreed to

dismiss the 2010 lawsuit with prejudice upon University General’s initial $1,000,000

2 payment. University General and Siemens further agreed to execute a new health-

services agreement and several addenda to existing equipment leases.

Under the settlement agreement, so long as University General satisfied its

obligations, none of the other defendants were required to pay any portion of the

$4,850,000 settlement amount. However, all of the defendants were obligated to sign

an “Agreed Judgment” that Siemens would hold until University General had made

all of the installment payments. Execution of this Agreed Judgment extinguished the

liability of Barnette, Udeh, and Butt as guarantors of the original contracts which

gave rise to the dispute. However, if University General failed to make the required

payments or it otherwise breached the agreement and failed to cure its default after

written notice, Siemens was entitled to seek entry of the Agreed Judgment.

Under the terms of the Agreed Judgment, University General and University

Hospital would be jointly and severally liable for $5,500,000 in damages, subject to

a dollar-for-dollar credit for any payments already made by University General. In

addition, Barnette, Udeh, and Butt each would be severally but not jointly liable for

$866,667 of the $5,500,000 owed by University General and University Hospital.

Barnette, Udeh, and Butt would be entitled to a credit of 12 cents on the dollar for

any payments already made by University General.

University General paid Siemens the initial $1,000,000 required under the

agreement in mid-October 2011. When University General’s first installment

3 payment came due on October 31, it failed to pay. On November 2, Siemens notified

University General and the other parties to the settlement agreement that it intended

to file and enforce the Agreed Judgment. Nevertheless, in accord with the settlement

agreement’s terms regarding the effect of the initial $1,000,000 payment, the parties

filed an agreed motion to dismiss the 2010 lawsuit with prejudice on November 4.

The trial court dismissed the suit that same day. University General made belated

payments of $50,000 and $150,000 during November, but it again failed to make its

installment payment at the end of the month. It failed to make its next installment

payment at the end of December as well. Siemens made additional demands for

payment in December 2011 and January 2012; in these notices it restated its

intention to file and enforce the Agreed Judgment.

In January 2012, Siemens filed the Agreed Judgment under the same cause

number as the 2010 lawsuit and sought its entry and enforcement. In February 2012,

91 days after dismissing the suit, the trial court signed and entered the Agreed

Judgment. University General and the other defendants appealed from the Agreed

Judgment to this court. While that appeal was pending, Butt settled with Siemens for

$722,667 and was dismissed from the suit. This court subsequently vacated the

Agreed Judgment, holding that it was “void” because it had been entered by the trial

court after its plenary power expired. See Univ. Gen. Hosp. v. Siemens Med.

Solutions USA, No. 01-12-00174-CV, 2013 WL 772951, at *2–3 (Tex. App.—

4 Houston [1st Dist.] Feb. 28, 2013, no pet.) (mem. op.). The court, however, noted

that Siemens was “not left without a remedy—it can file suit to enforce the

settlement agreement.” Id. at *3.

Siemens then brought this suit against University General and the other

appellants. In its petition, Siemens once again sought entry of the Agreed Judgment.

It also alleged breach of the settlement agreement and requested a declaratory

judgment of its rights under the settlement agreement, including a declaration that it

had a right to seek entry of the Agreed Judgment. Siemens eventually moved for

summary judgment, contending that University General and the other appellants

were liable for breach of the settlement agreement and that the proper remedy was

entry of a judgment consistent with the terms of the Agreed Judgment. The trial court

entered a partial summary judgment finding University General liable to Siemens

for breach of contract and awarding damages. The remainder of Siemens’s claims,

including its request for attorney’s fees, were set for trial.

After a bench trial, the trial court entered a final judgment, which superseded

the partial summary judgment, in favor of Siemens for breach of the settlement

agreement. The trial court found that University General and University Hospital

were jointly and severally liable for $3,577,333, which the trial court calculated by

subtracting the $1,200,000 already paid by University General and the $722,667 paid

by Butt from the $5,500,000 in liability imposed by the Agreed Judgment. The trial

5 court further found Barnette and Udeh liable for $722,667 each. Consistent with the

terms of the Agreed Judgment, their personal liability comprised a portion of the

$3,577,333 award, rather than being in addition to it, and it was calculated by

applying the 12-cents-per-dollar credit to the $866,667 in individual liability stated

in the Agreed Judgment. In addition, the trial court awarded Siemens $180,155.66

for attorney’s fees incurred after University General’s breach of the settlement

agreement until the filing of the present lawsuit, $271,153.19 in attorney’s fees

incurred during this suit through summary judgment, and $244,970.03 in attorney’s

fees incurred after the summary judgment.

The trial court entered findings of fact and conclusions of law. It concluded

that University General and the other appellants agreed to the terms of the Agreed

Judgment in the event of a breach of the settlement agreement, and it therefore based

its award of damages on the Agreed Judgment’s terms. It further concluded that

Siemens was entitled to attorney’s fees under Chapters 37 and 38 of the Texas Civil

Practice and Remedies Code.

This appeal followed. University General and University Hospital filed for

Chapter 11 bankruptcy, resulting in an automatic stay. After the bankruptcy court

lifted the stay, we reinstated the appeal.

6 Analysis

I. Scope of contractual liability

University General and the other appellants contend that the trial court erred

by enforcing the terms of the Agreed Judgment instead of the terms of the parties’

settlement agreement. Siemens responds that the settlement agreement provides that

the terms of the Agreed Judgment control if University General breaches the

agreement, which it did.

The interpretation of an unambiguous contract is a question of law, which we

review de novo. Kachina Pipeline Co. v. Lillis, 471 S.W.3d 445, 449 (Tex. 2015).

The parties’ intent, as expressed in the language of their agreement, is controlling.

Plains Expl. & Prod. Co. v. Torch Energy Advisors, 473 S.W.3d 296, 305 (Tex.

2015). Extrinsic evidence may not be introduced to prove some meaning other than

what the contract states. Anglo-Dutch Petrol. Int’l v. Greenberg Peden, P.C., 352

S.W.3d 445, 451 (Tex. 2011). The contract’s language is considered as a whole,

attempting to give effect to all of its provisions so that none are rendered

meaningless. Seagull Energy E&P v. Eland Energy, 207 S.W.3d 342, 345 (Tex.

2006). Occasionally, however, the way in which parties draft an agreement may

unavoidably render a provision inoperative. E.g., Houston Expl. Co. v. Wellington

Underwriting Agencies, 352 S.W.3d 462, 473 (Tex. 2011). Unless the contract

shows that it uses a term in a technical or different sense, we give its provisions their

7 plain, ordinary, and generally accepted meaning. Valence Operating Co. v. Dorsett,

164 S.W.3d 656, 662 (Tex. 2005). Furthermore, we read the contract’s words and

phrases together and in context, not in isolation from one another. Hysaw v.

Dawkins, 483 S.W.3d 1, 13 (Tex. 2016).

In a suit for breach of contract, the court is confined to the parties’ bargain; it

can enforce the contract’s terms but it generally cannot modify them. In re Merrill

Lynch Tr. Co., 235 S.W.3d 185, 191 (Tex. 2007). We may not rewrite a contract or

add to its language in the guise of interpreting it. Fischer v. CTMI, L.L.C., 479

S.W.3d 231, 239 (Tex. 2016); Gilbert Tex. Constr. v. Underwriters at Lloyd’s

London, 327 S.W.3d 118, 126–27 (Tex. 2010). Therefore, if the remedies for breach

are specified in the contract, the non-breaching party ordinarily is limited to these

remedies even if another remedy would go further to make it whole. Am. Mfrs. Mut.

Ins. Co. v. Schaefer, 124 S.W.3d 154, 162 (Tex. 2003).

In sum, contract rights ordinarily arise directly from the agreement’s

language, not principles of equity. Fortis Benefits v. Cantu, 234 S.W.3d 642, 647

(Tex. 2007). Thus, unambiguous contracts usually are enforced as written even if

one or more of the parties made a poor bargain or created hardships for themselves.

Venture Cotton Coop. v. Freeman, 435 S.W.3d 222, 228 (Tex. 2014). The role of

courts is to enforce valid contracts, not to protect parties from their own agreements.

El Paso Field Servs. v. MasTec N. Am., 389 S.W.3d 802, 810–11 (Tex. 2012).

8 If the terms of the settlement agreement had been fulfilled, University General

alone would have been obligated to pay Siemens $4,850,000. Of that amount,

University General had to pay the first $1,000,000 the day that Siemens signed the

agreement. Upon payment of that $1,000,000, the parties agreed to execute and file

papers dismissing the 2010 lawsuit with prejudice. University General paid the

$1,000,000, the parties filed the dismissal papers, and the court dismissed the suit

with prejudice.

University General was obliged to pay the remainder of the settlement amount

over a period of 20 months. So long as University General did so, the other appellants

had no payment obligations. However, to protect Siemens, under the settlement

agreement University General and the other appellants were required to sign and

tender to Siemens an “Agreed Judgment” in the amount of $5,500,000 and in a

specified form. The Agreed Judgment bore the style and cause number of the 2010

lawsuit, and it provided that University General and University Hospital would be

jointly and severally liable for $5,500,000 and that the individual appellants each

would be liable for $866,667 of this total amount, subject to offsets for any amounts

previously paid in settlement. Siemens agreed not to file or seek entry of this Agreed

Judgment unless University General breached the settlement agreement.

Once University General paid the full settlement amount of $4,850,000,

Siemens was obligated to return the executed Agreed Judgment to University

9 General, and the appellants then would have had no further liability under the

settlement agreement or the Agreed Judgment. University General, however, failed

to make the installment payments required by the agreement and litigation ensued—

first Siemens’s unsuccessful attempt to enforce the Agreed Judgment after the trial

court’s plenary power in the 2010 suit had expired, and now this suit seeking to

enforce the terms of the settlement agreement.

Siemens contends that the plain language of the settlement agreement

provides it with the same remedy for University General’s breach as specified in the

Agreed Judgment. We agree with Siemens in part. In the event of a breach, the

agreement provided without qualification that University General and University

Hospital “will be jointly and severally liable for the full amount of the Agreed

Judgment.” By this language, these entities contractually committed to pay Siemens

$5,500,000 (“the full amount of the Agreed Judgment”) in the event of a breach of

the settlement agreement, regardless of whether the Agreed Judgment itself

remained independently enforceable. The subsequent unenforceability of the Agreed

Judgment due to the expiration of the trial court’s plenary power is immaterial to

this separate and distinct contractual commitment. Indeed, the settlement

agreement’s severability clause explicitly provided that if any part is held “void or

unenforceable for any reason,” the remainder would remain valid and enforceable

“to the greatest possible degree.” Accordingly, University General and University

10 Hospital are jointly and severally liable for the sum of “the full amount of the Agreed

Judgment”—$5,500,000—notwithstanding the unenforceability of the Agreed

Judgment document.

By contrast, in the event of a breach, the settlement agreement did not commit

Barnette, Udeh, or Butt to pay any amount to Siemens apart from their obligations

under the Agreed Judgment, which turned out to be unenforceable. The settlement

agreement expressly provided for the dismissal of the original litigation with

prejudice. The settlement agreement also expressly specified that Barnette, Udeh,

and Butt “are not jointly and severally liable . . . for the full amount of the Agreed

Judgment” along with University General and University Hospital in the event of a

breach. Instead, the personal liability of Barnette, Udeh, and Butt was repeatedly

characterized as arising solely “under the Agreed Judgment.” Moreover, under the

settlement agreement, the execution of the Agreed Judgment expressly extinguished

their personal liability as guarantors. Accordingly, given that the Agreed Judgment,

which this court has held to be “void,” was the only source of their continuing

liability, Barnette, Udeh, and Butt are no longer personally liable for any sum as a

result of University General’s breach of the settlement agreement.

Siemens argues that an interpretation of the agreement that does not

incorporate all of the terms of the Agreed Judgment improperly renders them

meaningless. We disagree. The settlement agreement required University General to

11 make installment payments and provided for dismissal of the underlying suit with

prejudice once it made the initial $1,000,000 payment. The agreement further

provided for the execution of the Agreed Judgment and specified the circumstances

under which Siemens could seek its entry. University General defaulted after making

the initial payment. Siemens then notified the parties that it would seek entry of the

Agreed Judgment, but it did not do so during the period in which the trial court

retained plenary power. See TEX. R. CIV. P. 329b(d), (e). The trial court could have

entered the Agreed Judgment had Siemens sought this relief within this period; thus,

the Agreed Judgment’s provisions were not meaningless. Even after the Agreed

Judgment was no longer enforceable due to the expiration of the trial court’s plenary

power, Siemens continued to have a contractual remedy against University General

and University Hospital. Because we cannot rewrite the parties’ settlement

agreement or add to its terms, we reject Siemens’s position that it continues to be

entitled to the greater relief that would have been available under the Agreed

Judgment. See Fischer, 479 S.W.3d at 239; Gilbert Tex. Constr., 327 S.W.3d at 126–

27.

Accordingly, we hold that the parties’ settlement agreement made University

General and University Hospital “jointly and severally liable for the full amount of

the Agreed Judgment.” Calculation of the “full amount of the Agreed Judgment”

incorporates a dollar-for-dollar credit for any sums already paid by University

12 General. The “full amount of the Agreed Judgment” also factors in a deduction for

any amount paid by Barnette, Udeh, or Butt. Reducing $5,500,000 by the sums

already paid by University General—$1,200,000—and the amount paid in

settlement by Butt—$722,667—results in University General and University

Hospital being jointly and severally liable for $3,577,333 under the parties’

settlement agreement. Consequently, we overrule the challenge to the portion of the

trial court’s judgment decreeing that University General and University Hospital are

jointly and severally liable to Siemens in the amount of $3,577,333. However, we

sustain the challenge to that portion of the judgment which held Barnette and Udeh

individually liable.

II. Attorney’s fees

University General and the other appellants contend that the trial court erred

by awarding attorney’s fees to Siemens for services that were neither necessary nor

reasonable in amount. Their primary complaint on appeal is that the trial court

impermissibly awarded attorney’s fees that Siemens incurred in its unsuccessful

attempt to enforce the Agreed Judgment. Siemens responds that all of the attorney’s

fees awarded were for necessary legal services and reasonable in amount.

We review the amount of a fee award for an abuse of discretion. See Ventling

v. Johnson, 466 S.W.3d 143, 154 (Tex. 2015). The reasonableness and necessity of

attorney’s fees generally are questions of fact. Bocquet v. Herring, 972 S.W.2d 19,

13 21 (Tex. 1998). Under some circumstances, however, attorney’s fees may be

unreasonable or unnecessary as a matter of law. For example, fees incurred by a

plaintiff in pursuit of claims against defendants who are not liable under a contract

may not be recouped from other defendants who are liable because the legal services

relating to the former were unnecessary to the recovery obtained. See Varner v.

Cardenas, 218 S.W.3d 68, 69 (Tex. 2007) (per curiam). Similarly, an award that

includes fees for legal services performed in pursuit of other parties who settled

generally is not reasonable. See Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1,

10–11 (Tex. 1991). A fee also may be unreasonable in amount as a matter of law if

the plaintiff obtained substantially less relief than it sought but was awarded all of

the fees it incurred. See Smith v. Patrick W.Y. Tam Tr., 296 S.W.3d 545, 547–49

(Tex. 2009).

The trial court’s judgment subject to this appeal purported to enforce the

Agreed Judgment and thereby imposed liability on University General, University

Hospital, Barnette, and Udeh consistent with that document’s terms. Accordingly,

the trial court’s award of attorney’s fees included fees that Siemens incurred in

connection with its effort to enforce the Agreed Judgment, including:

● $20,448.21 in fees and expenses incurred after University General’s nonpayment under the settlement agreement through original entry of the subsequently vacated Agreed Judgment; ● $87,108.47 in fees and expenses incurred in post-judgment activities after original entry of the subsequently vacated Agreed Judgment; and

14 ● $68,148.20 in fees and expenses incurred in connection with the previous appeal in which this court vacated the Agreed Judgment as “void.”

“Necessary” ordinarily means “something that is essential or needed for some

purpose.” Sw. Bell Tele. v. Emmett, 459 S.W.3d 578, 584 (Tex. 2015). Fees incurred

in an unsuccessful lawsuit are neither essential nor needed for some purpose.

Therefore, we hold that the aforementioned fees, which were incurred by Siemens

in its unsuccessful attempt to enforce the Agreed Judgment, were unnecessary as a

matter of law. See Varner, 218 S.W.3d at 69. It became unenforceable because the

court lost jurisdiction.

In addition, the trial court awarded $4,450.78 in fees and expenses relating to

Siemens’s work obtaining a settlement from Butt during the prior lawsuit. These fees

ordinarily would not be recoverable from University General or University Hospital,

because it would be unreasonable to impose on them fees that Siemens incurred

pursuing a settling party. See Stewart Title, 822 S.W.2d at 10–11. These fees also

were unnecessary as a matter of law. We have held that only University General and

University Hospital continue to be liable under the settlement agreement. Therefore,

fees for legal services undertaken in pursuit of the other parties are not recoverable.

See Varner, 218 S.W.3d at 69. Likewise, because the trial court rendered judgment

against Barnette and Udeh, whom we have held are not liable under the settlement

agreement on appeal, its fee award included unnecessary fees incurred by Siemens

for services performed in its pursuit of them. See id.

15 In sum, the trial court’s fee award includes attorney’s fees that were neither

necessary nor reasonable in amount. Therefore, we hold that the trial court abused

its discretion. However, on this record we are unable to identify all of the

unnecessary or unreasonable fees. For example, we cannot distinguish the fees

incurred by Siemens in pursuit of Barnette and Udeh, who are not liable under the

settlement agreement, from the fees incurred by Siemens in pursuit of University

General and University Hospital, which are liable under the settlement agreement.

Nor has the trial court had the opportunity to evaluate the reasonableness and

necessity of the fees incurred by Siemens under the proper interpretation of the

parties’ settlement agreement, under which only University General and University

Hospital are liable for breach of contract. Thus, remand for reevaluation of the

amount of attorney’s fees recoverable is necessary. See A.G. Edwards & Sons v.

Beyer, 235 S.W.3d 704, 710 (Tex. 2007) (remanding for new trial on attorney’s fees

where recoverable fees were not segregated from unrecoverable ones).

III. Prejudgment interest

The trial court’s judgment references an award of prejudgment interest, but it

does not award any amount of prejudgment interest in the portion decreeing the relief

granted to Siemens. University General and the other appellants contend that the trial

court therefore did not award prejudgment interest. Siemens disagrees with this

16 contention. However, no party actually argues that the trial court would have erred

by awarding prejudgment interest for breach of the settlement agreement.

To the extent the parties disagree about the meaning of the judgment, the trial

court will have the opportunity to clarify its meaning on remand. We therefore need

not reach the parties’ contentions concerning prejudgment interest. See Long v.

Griffin, 442 S.W.3d 253, 256 (Tex. 2014) (per curiam).

Conclusion

We reverse the portion of the trial court’s judgment awarding damages and

postjudgment interest against Barnette and Udeh, and we render a take-nothing

judgment in their favor. We reverse the portion of the trial court’s judgment

awarding Siemens its attorney’s fees and remand for a new trial on the issue of

reasonable and necessary attorney’s fees consistent with this opinion. We affirm the

remaining portions of the trial court’s judgment.

Michael Massengale Justice

Panel consists of Justices Massengale, Brown, and Huddle.