Response Brief of Appellees

Employers Reinsurance Corporation v. Gordon

Description: This case involved the breach of a high-low settlement agreement entered into during the trial of a medical malpractice case. Heygood, Orr & Pearson represented the plaintiffs in the medical malpractice case. Following a verdict in favor of the plaintiffs, the defendant’s insurance carrier refused to pay the amount due under the high-low settlement agreement. Heygood, Orr & Pearson sued the defendant’s insurance carrier on behalf of the plaintiffs for breach of the agreement. Both parties sought summary judgment. The trial court granted summary judgment for the plaintiff and the defendant appealed. This brief was the appellate brief filed by Heygood, Orr & Pearson on behalf of plaintiffs.

NO. 06-06-00028-CV
IN THE COURT OF APPEALS
SIXTH DISTRICT
AT DALLAS, TEXAS
EMPLOYERS REINSURANCE CORPORATION
Appellant,v.APRIL GORDON, INDIVIDUALLY AND AS NEXT FRIEND
OF DAKOTA GORDON AND RONNIE GORDON,
Appellees.
On Appeal from the 71st District Court
of Harrison County, Texas
Cause No. 040641
(Honorable Bonnie L. Hagan)

RESPONSE BRIEF OF APPELLEES APRIL GORDON AND RONNIE GORDON

 

TO THE HONORABLE JUSTICES OF THE SIXTH COURT OF APPEALS:

Appellees, April Gordon, individually and as next friend of Dakota Gordon, a minor, and Ronnie Gordon, Plaintiffs below, respectfully submit this, their Response Brief, requesting that this Court, in all things, AFFIRM the judgment of the Trial Court in their favor and against Employers Reinsurance Corporation (sometimes referred to herein as “ERC” or “Appellant”).  In support thereof, Appellees would respectfully show as follows:

 

 

I.

 

RESPONSE TO APPELLANT’S

STATEMENT OF THE CASE AND STATEMENT OF FACTS

PURSUANT TO TEXAS RULE OF APPELLATE PROCEDURE 38.2(a)(1)(b)

 

Appellant’s Statement of the Case generally accurately sets forth the procedural history of the case, and Appellant’s Statement of Facts sets forth correct facts except for the following.  First, Appellees dispute ERC’s claim that “Masters rejected any notion for ERC to settle within the hospital’s self-insured retention layer; she did not have that authority” and its claim that “Masters never considered dropping down into the hospital’s self-insured retention and did not do it in this situation.”  (Appellant Brief, page 1).  Any testimony from Masters in this regard is at best mistaken, as evidenced by the below e-

mail she sent the night before the subject high-low agreement was executed.

(Transcript, page 109).

Furthermore, notwithstanding ERC’s suggestion to the contrary in its Statement of Facts on page 4, the fact that the judgment against Good Shepherd was less than $2 Million in no way eliminated ERC’s obligation to pay the low of $375,000.00.  Also, ERC never brought forward any competent evidence which created any genuine issues of material facts on the intent of the parties or the meaning of the agreement as claimed by ERC on page 5 of its Statement of Facts.  Lastly, Appellees did not rely upon extrinsic evidence in an improper manner as suggested by ERC on page 5 of its Statement of Facts.  To the contrary, Appellees relied upon the obvious intent of the subject agreement.  With respect to Appellees’ primary ground for summary judgment (that the high-low is unambiguous in Appellees’ favor), Appellees only relied upon extrinsic evidence on the issues of the particular business activity sought to be served and the circumstances present when the contract was entered, both of which are completely appropriate under Texas law.  Appellees did not rely upon any extrinsic evidence to vary or contradict the terms of the subject agreement.[1] With respect to Appellees’ alternative ground for summary judgment (if the high-low is ambiguous, the summary judgment evidence establishes the parties’ intent as a matter of law in Appellees’ favor), Appellees properly relied upon all of its summary judgment evidence for all purposes.

II.

RESPONSE TO ISSUES PRESENTED

Response to Appellant’s Issue No. 1:

The Trial Court properly denied ERC’s motion for summary judgment because the high-low agreement is susceptible to only one reasonable meaning in light of the circumstances: it provides for payment of $375,000.00 no matter what.  Alternatively, the Trial Court properly denied ERC’s motion for summary judgment because the high-low agreement is ambiguous.

Response to Appellant’s Issue No. 2:

The Trial Court properly granted Appellees’ summary judgment motion because the high-low agreement is susceptible to only one reasonable meaning in light of the circumstances: it provides for payment of $375,000.00 no matter what.  Alternatively, the Trial Court properly granted Appellees’ summary judgment motion because even if the high-low agreement is susceptible to more than one reasonable meaning, the summary judgment evidence established as a matter of law that the intent of the parties was that the high-low agreement required ERC to pay Appellees $375,000.00 no matter what.

 

 

 

 

III.

SUMMARY OF APPELLEES’ ARGUMENT

 

The Trial Court properly granted Appellees’ summary judgment motion because the unambiguous meaning of the subject agreement was that ERC was obligated to pay Appellees $375,000.00 no matter what.  As described throughout ERC’s brief, the subject agreement was a high-low agreement.  It did not have a payment provision trigger.  As with all high-low agreements, it provided for a “low” payment no matter what.  In the agreement, the parties agreed “to a $375,000 low and a $3.5 million high on that portion of any judgment against Good Shepherd and its nurses in excess of $2 Million….”  (CR, page 60).  If the amount in excess of $2 Million was zero (as it was), then the low of $375,000.00 was owed.  This is the nature of a high-low agreement.

Whether a contract is ambiguous is a question of law that must be decided by the Court by examining the contract as a whole in light of the circumstances present when the contract was entered. Universal Health Serv., Inc. v. Renaissance Woman’s Group, 121 S.W.3d. 742, 746 (Tex. 2003); Columbia Gas Trans. Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996).  In light of the circumstances present when the contract was entered, the high low agreement only has one reasonable construction, which is Appellees’ construction.

Courts should construe contracts from a utilitarian standpoint bearing in mind the particular business activity sought to be served. Reilly v. Rangers Management, Inc., 727 S.W.2d 527, 530 (Tex. 1987).  Also, the court may examine prior negotiations and all other relevant incidents bearing on the intent of the parties. Baty v. ProTech Ins. Agency, 63 S.W.3d 841, 848 (Tex. App.–Houston [14th Dist.] 2001, pet. denied);  Cook Composites, Inc. v. Westlake Styrene Corp., 15 S.W.3d 124, 132 (Tex. App.–Houston [14th Dist.] 2000, pet. dism’d).  In light of the business activity sought to be served by the subject agreement and the prior negotiations and other relevant incidents, there is only one reasonable construction: that ERC was obligated to pay Appellees $375,000.00 no matter what.

ERC’s interpretation is not a reasonable construction in light of the circumstances.  Courts should avoid when possible a construction which is unreasonable, inequitable, and oppressive.  Reilly v. Rangers Management, Inc., 727 S.W.2d 527, 530 (Tex. 1987); Mobil Exploration & Producing U.S., Inc. v. Dover Energy Exploration, 56 S.W.3d 772, 778 (Tex. App. – Houston [14th Dist.] 2001, no pet.); Columbia Gas Trans. Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996) (“It is inconceivable that the parties intended such a perverse result in this contract.”).  ERC’s asserted construction is absurd because under this construction, the benefit to Appellees under the high-low agreement was very small and unlikely to occur at all.  Yet, under this construction, the high-low agreement provided an enormous benefit to ERC by eliminating $26.5 million of very real potential liability.

Alternatively, if the high-low agreement was determined to be ambiguous, the Trial Court properly granted summary judgment in favor of Appellees because the summary judgment evidence was such that no reasonable mind could reach any conclusion but that the intent of the parties was that ERC was obligated to pay $375,000.00 no matter what.  This summary judgment evidence included, among other things, an affidavit from Michael Heygood (the attorney that negotiated the high-low agreement for Appellees) stating that it was his intention on behalf of Appellees to agree to a high-low agreement that paid $375,000.00 no matter what.  The summary judgment evidence also included an email from Ms. Masters clearly indicating she was planning on reaching a settlement by dropping into the hospital’s self-insured retention, i.e., paying Appellees an amount of money no matter what.

IV.

ARGUMENT AND AUTHORITIES

 

A.        Relevant legal principles.

 

1)        The question of ambiguity is a question of law.

Whether a contract is ambiguous is a question of law that must be decided by the Court.  Universal Health Serv., Inc. v. Renaissance Woman’s Group, 121 S.W.3d. 742, 746 (Tex. 2003); Columbia Gas Trans. Corp. V. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996).

2)        The court should consider the circumstances present when the contract was entered and the purpose of the contract both when a) determining whether the contract is ambiguous, and b) if the contract is not ambiguous in light of the circumstances, in determining the meaning of the contract.

Courts should construe contracts from a utilitarian standpoint bearing in mind the particular business activity sought to be served. Reilly v. Rangers Management, Inc., 727 S.W.2d 527, 530 (Tex. 1987); Zurich American Ins. Co. v. Hunt Petroleum (AEC), Inc., LEXIS 10512 (Tex. App. – Houston [14th Dist.] 2004); Hewlett-Packard Co. v. Benchmark Elecs., Inc., 142 S.W.3d 554, 561 (Tex. App. – Houston [14th Dist.] 2004, pet. denied); Colorado Interstate Gas Co. v. Hunt Energy Corp., 47 S.W.3d 1, 7 (Tex. App. – Amarillo 2000, pet. denied).  Although oral statements regarding the parties intentions are inadmissible to vary or contradict the terms of the agreement, the court may examine prior negotiations and all other relevant incidents bearing on the intent of the parties. Baty v. ProTech Ins. Agency, 63 S.W.3d 841, 848 (Tex. App.–Houston [14th Dist.] 2001, pet. denied);  Savage v. Doyle, LEXIS 11370 (Tex. App. – Beaumont 2004); Cook Composites, Inc. v. Westlake Styrene Corp., 15 S.W.3d 124, 132 (Tex. App.–Houston [14th Dist.] 2000, pet. dism’d).  Such an examination assists the court in ascertaining the object and purpose of the contractual language the parties chose to include in the written instrument.  Baty, 63 S.W.3d at 848.  The court should construe a contract by considering how a reasonable person would have used and understood such language, considering the circumstances surrounding its negotiation and keeping in mind the purposes which the parties intended to accomplish by entering into the contract.  Id.; see also National Union Fire Ins. Co., 955 S.W.2d at 127.  Whether a contract is ambiguous is a question of law that must be decided by the Court by examining the contract as a whole in light of the circumstances present when the contract was entered. Universal Health Serv., Inc. v. Renaissance Woman’s Group, 121 S.W.3d. 742, 746 (Tex. 2003); Columbia Gas Trans. Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996); Zurich American Ins. Co. v. Hunt Petroleum (AEC), Inc., LEXIS 10512 (Tex. App. – Houston [14th Dist.] 2004).  “Where, after considering the wording of the instrument a question relating to its meaning is presented, the Court is to take the wording of the instrument, consider the same in light of the surrounding circumstances, apply the pertinent rules of construction thereto and thus settle the meaning of the contract.”  Aetna Life & Casualty Co. v. Gunn, 628 S.W.2d 758, 759 (Tex. 1982).

3)        Courts should avoid when possible a construction which is unreasonable, inequitable, and oppressive.

 

Reilly v. Rangers Management, Inc., 727 S.W.2d 527, 530 (Tex. 1987); Mobil Exploration & Producing U.S., Inc. v. Dover Energy Exploration, 56 S.W.3d 772, 778 (Tex. App. – Houston [14th Dist.] 2001, no pet.); Columbia Gas Trans. Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996) (“It is inconceivable that the parties intended such a perverse result in this contract.”).

4)        The goal of the court in construing a contract is to determine the true intent of the parties.

National Union Fire Ins. Co. v. CBI Ind., Inc., 907 S.W.2d 517, 520 (Tex. 1995); Lenape Resources Corp. v. Tennessee Gap Pipeline Co., 925 S.W.2d 565, 573 (Tex. 1996); Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex. 1998).

5)        In determining if ambiguity exists, the Court must examine if the contract is susceptible to more than one reasonable meaning.

An ambiguity arises when an agreement is susceptible to more than one reasonable meaning. Universal Health Serv., Inc. v. Renaissance Woman’s Group, 121 S.W.3d. 742, 746 (Tex. 2003); Dewitt County Elec. Coop, Inc. v. Parks, 1 S.W.3d 96, 100 (Tex. 1999).  If a contract is subject to two or more reasonable interpretations after applying the pertinent rules of construction, the contract is ambiguous.  Columbia Gas Trans. Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996).

6)        In determining whether a contract is ambiguous, the Court should apply the pertinent rules of construction.

“If the contract is subject to two or more reasonable interpretations after applying the pertinent rules of construction, the contract is ambiguous, which creates a fact issue on the parties’ intent.”  Columbia Gas Trans. Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996); Aetna Life & Casualty Co. v. Gunn, 628 S.W.2d 758, 759 (Tex. 1982) (“Where, after considering the wording of the instrument a question relating to its meaning is presented, the Court is to take the wording of the instrument, consider the same in light of the surrounding circumstances, apply the pertinent rules of construction thereto and thus settle the meaning of the contract.”); see also generally National Union Fire Ins. Co. v. CBI Ind., Inc., 907 S.W.2d 517, 520 (Tex. 1995).

a)         One rule of construction is that contracts should be construed against the scrivener.

In Texas, a writing is generally construed most strictly against its author and in such a manner as to reach a reasonable result consistent with the apparent intent of the parties.  The Austin Company v. Vaughn Building Corp., 643 S.W.2d 113, 115 (Tex. 1982); Temple-Eastex Inc. v. Addison Bank, 672 S.W.2d 793, 798 (Tex. 1984); ASI Technologies, Inc. V. Johnson Equipment Co., 75 S.W.3d 545, 548 (Tex. App. – San Antonio 2002, pet. denied).

 

 

 

B.        Undisputed Facts.

 

The summary judgment evidence submitted by Appellees established the following undisputed facts which were never controverted by ERC:

1)        Appellees and ERC entered into a “high-low” settlement agreement during the trial of Cause No. 99-0700; April Gordon, et al. vs. Good Shepherd Medical Center, et al. in Harrison County (the “Lawsuit”) and memorialized such agreement in writing.  (High-Low Agreement, CR, page 60).

2)        A judgment was entered against Good Shepherd Medical Center (“Good Shepherd”) in an amount less than $2,000,000.  (Heygood Affidavit, Paragraph 13, CR, page 56);

3)        ERC was the excess insurer for Good Shepherd.  ERC’s policy covered any liability between $2,000,000 and $30,000,000.00. (Masters Depo, pgs. 11-12, CR, page 95).  The liability between $0.01 and $2,000,000.00 was a self insured retention (“SIR”);

4)        Debra Masters, the ERC adjuster on the Gordon matter, sent an e-mail the day the high-low agreement was signed indicating that ERC intended to enter into a high-low agreement with Appellees in the SIR level – meaning, because of the enormous risk exposure to ERC ($ 28 million), ERC intended to enter into a settlement at a level for which they had no contractual obligation in order to eliminate many millions of dollars in exposure.  (CR, page 109).  Mr. Doyle (the ERC attorney that drafted the high-low agreement) agrees that this is a reasonable reading of the e-mail.  (Doyle Depo, pg. 71-72, CR 87).  Said e-mail states in essence that because Good Shepherd was refusing to make an offer, ERC was going to “drop down to the SIR layer of coverage.”  (CR 109);

5)        The high-low agreement reduced ERC’s potential exposure in connection with the Lawsuit from $30,000,000.00 to $3,500,000.00.  In other words, the high-low agreement eliminated $26,500,000.00 in potential liability on the part of ERC.  (Doyle Depo, pg. 41, ln. 20, CR, page 79);

6)        ERC used as its primary negotiating argument in its efforts to convince Appellees to enter into the high-low agreement that said agreement would guarantee Appellees a recovery and guarantee that Appellees’ attorneys would recover the costs of litigating the case, which were in excess of $200,000, even if the case was lost.  (Heygood Affidavit, Paragraph 10, CR, page 55-56).

7)        The high-low agreement, under ERC’s theory, bestowed upon Appellees a benefit only on the off chance that the verdict happened to come back in the pigeonhole between $2,000,000.00 and $2,375,000.00, which ERC’s attorney and representative agrees was highly unlikely.  (Doyle Depo, pgs. 42-43, CR, page 80).  According to Mr. Doyle, the chance of hitting a 20 on a dartboard with a blindfold on would be greater than was the chance that the judgment against the Good Shepherd would come back between $2,000,000.00 and $2,375,000.00 (Doyle Depo, pg. 45, ln. 24, CR, page 80).  Then, if miracles happened and the “slim” chance of the judgment falling within the pigeonhole occurred, the maximum benefit to Appellees was $374,999.00, and possibly as little as $1.00 (Doyle Depo, pg. 43, ln. 20, CR, page 80);

8)        In the Lawsuit, the life care plan for the injured child had two options: Option 1 –   $9,216,930.38 (long term placement in a residential rehabilitation facility) and Option 2 – $4,666,005.57 (transitional rehabilitation and placement in a supervised apartment setting).  Going into the trial, Ms. Masters thought a $30,000,000.00 judgment against the hospital was a possibility.  (Masters Depo, pg. 23, ln.24, CR, page 98).  In fact, in its Brief, Appellant concedes that they believed such an outcome was possible.  (Appellant’s Brief, page 1);

9)        James Doyle, attorney for ERC at the trial, was under the impression prior to entering into the high-low agreement that the Appellees were winning and he told Mr. Heygood such.  (Doyle Depo, pg. 18, CR, page 75).  Mr. Doyle watched the entire trial (Doyle Depo, pg. 49, ln.9, CR 81);

10)      The high-low agreement was drafted by representatives for ERC and the language of such was selected by Mr. Doyle and Mr. Cooper another attorney with Mr. Doyle’s firm.  (Doyle Depo, pg. 23-24, CR, page 76);

11)      James Doyle believes he alone negotiated the high-low agreement with Mr. Heygood.  (Doyle Depo, pgs. 15 & 21, CR, pages 74 &75) (See also Masters Depo, pgs. 16-17, CR, page 96).  But Ms. Masters believes she “probably did” have direct negotiations with Mr. Heygood on behalf of ERC.  (Masters Depo, pg. 17, ln. 12 and pg. 20, ln. 3, CR, pages 96-97);

12)      James Doyle does not recall the specifics of his conversations with Mr. Heygood related to the high-low agreement and cannot testify one way or the other as to the discussions between him and Mr. Heygood regarding under what circumstances Appellees would receive the $375,000.00 low (Doyle Depo, pgs. 27-30, CR, pages 77-78), not even generally (Doyle Depo, pg. 30, ln. 17, CR, page 78).  Likewise, Debra Masters cannot remember anything that she or Mr. Heygood said in their direct negotiations.  (Masters Depo, pgs. 17-18 and pg. 20, ln. 6, CR, pages 96-97);

13)      James Doyle has no memory of anything he said to Mr. Heygood or anything Mr. Heygood said to him regarding under what circumstances Appellees would receive the $375,000.00 low.  (Doyle Depo, pg. 31, ln.1 and pg. 59, CR, pages 78 & 84).  Even though Ms. Masters has no memory of her discussions with Mr. Heygood, she denies that she told Mr. Heygood that under the deal they were working on that Appellees would get $375,000.00 no matter what.  (Masters Depo, pg. 20, ln. 17, CR, page 97).  The basis of Ms. Masters’ denial is that, notwithstanding her e-mail to the direct contrary, she never would have “even considered” entering into a high-low agreement that involved the SIR.  (Masters Depo, pg. 22, ln. 20 & 25 and pg. 25, ln. 9, CR, page 98);

14)      According to Mr. Doyle, the particular business activity sought to be served by the Appellees by entering into the high-low agreement was “to get some money when possibly they wouldn’t have received any money.”  (Doyle Depo, pg. 58, ln. 3, CR, page 84);

15)      Mr. Doyle, who negotiated and primarily drafted the high-low agreement, concedes that Appellees’ construction and interpretation of the high-low agreement (i.e., Appellees were to receive the low no matter what) is reasonable and “could mean” such.  (Doyle Depo, pg. 67, ln. 17, CR, page 86).

 

 

C.        Response to Appellant’s Alleged Issues for Reversal and Rendition of Judgment.

 

 

RESPONSE TO ISSUE NO.  1:  The Trial Court properly denied ERC’s motion for summary judgment because the high-low agreement is susceptible to only one reasonable meaning in light of the circumstances: it provides for payment of $375,000.00 no matter what.  Alternatively, the Trial Court properly denied ERC’s motion for summary judgment because the high-low agreement is ambiguous.

 

1.         The high-low agreement is susceptible to only one reasonable meaning in light of the circumstances: it provides for payment of $375,000.00 no matter what

 

a) Appellees’ construction is the unambiguous meaning of the language of the high-low agreement.

As described throughout ERC’s brief, the subject agreement was a high-low agreement.  As with all high-low agreements, it provided for a minimum payment (the “low”) if the recovery to the plaintiff was zero or less than the “low.”  In the agreement, the parties agreed “to a $375,000 low and a $3.5 million high on that portion of any judgment against Good Shepherd and its nurses in excess of $2 Million….”  If the amount in excess of $2 Million was zero (as it was), then the low of $375,000.00 was owed.  This is the nature of a high-low agreement.

ERC would have this Court find that it owed Appellees nothing under the high-low agreement if Appellees lost the case against Good Shepherd or recovered a judgment against them for less than $2,000,000.00.  Under this theory of interpretation, the chance of the high-low agreement benefitting Appellees in any respect was a “needle in a hay stack.”  In order to receive any benefit under ERC’s theory, Appellees would have had to obtain a liability finding against Good Shepherd and it had to fall within the pigeonhole of $2,000,000.00 to $2,375,000.00.[2] And then, even if the needle were found, the benefit to Appellees would have been minimal (no more than $374,999.00, and possibly as little as $1.00).  But yet, under ERC’s interpretation, while providing only a slight chance of minimal benefit to Appellees, the high-low agreement with 100% certainty reduced ERC’s potential exposure by $26,500,000.00.  It is nonsensical that any litigant would agree to a settlement with such a perverse result.  See Columbia Gas Trans. Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996) (“It is inconceivable that the parties intended such a perverse result in this contract.”).  As in the Columbia Gas Trans. case, it is inconceivable that the parties to this high-low agreement intended such a perverse result.  As a result, ERC’s interpretation should be rejected by the Court because it is not a reasonable meaning.[3]

b)        The experience of Mr. Heygood and the bargaining position of the parties.

This conclusion is further buttressed by the fact that Michael Heygood, the attorney for Appellees who negotiated the agreement on their behalf, is a seasoned trial attorney.  The skill and experience of Mr. Heygood was referenced in ERC’s brief.  (Appellant’s Brief, page 2).  ERC admits in their brief that the experience level of the attorneys involved is a proper consideration.  (Appellant’s Brief, page 23 and page 11, citing Remington Rand, Inc. V. Sugarland Indus., 153 S.W.2d 477, 484 (Tex. 1941).  As to Mr. Heygood’s prowess as a trial attorney, Ms. Masters testified as follows:

Q. When you watched Mr. Heygood in trial, did you believe he was a skilled attorney?

A. Yes.

 

Q. Have you watched a lot of attorneys?

A. Yes, I have.

 

Q. How did he rank against other attorneys you’ve seen?

A. He was good.

 

(Masters Depo, pg. 87, ln. 9, CR, page 102).  Mr. Heygood, being an experienced trial attorney, never would have agreed to a deal that benefitted his client minimally only on the off chance of a statistical miracle occurring.  In fact, he did not agree to this.  Instead, he agreed to his clients getting $375,000.00 no matter what which is the only reasonable meaning of the subject high-low agreement.

ERC also admits in its Brief that the “bargaining position” of the parties is a proper consideration.  (Appellant’s Brief, page 11, citing Remington Rand, Inc. V. Sugarland Indus., 153 S.W.2d 477, 484 (Tex. 1941).  The attorney for ERC, Mr. Doyle, told Mr. Heygood prior to negotiation of the agreement that he felt like Mr. Heygood was winning the trial.  (Doyle Depo, pg. 18, CR, page 75).  Ms. Masters’ evaluation of the case was 8 to 12 million, and possibly as high as 30 million.  The defense had lost key evidentiary issues concerning the hospital’s “glucose policy” leading to the hospital’s defense attorney stating that Appellees’ claims related to the glucose policy could not be defended.  (Masters Depo, pg. 86, CR, page 351).  Thus, to contend that Mr. Heygood, being an experienced attorney in an excellent bargaining position, agreed to a deal that benefitted ERC by over 26 million and involved only a “needle in a haystack” chance of benefitting Appellees is nonsensical. 

c)         Appellees’ construction is the unambiguous meaning in light of the circumstances and the purpose of the agreement.

As referenced above, the “particular business activity sought to be served” should be consulted when determining the intent of the subject high-low agreement.   Reilly, 727 S.W.2d at 530; Hewlett-Packard Co., 142 S.W.3d at 561; Colorado Interstate Gas Co., 47 S.W.3d at 7.  Further, as indicated above, courts should construe contracts by considering how a reasonable person would have used and understood such language, considering the circumstances surrounding its negotiation and keeping in mind the purposes which the parties intended to accomplish by entering into the contract.  Id.; see also National Union Fire Ins. Co., 955 S.W.2d at 127.  Thus, this Court should consider the “particular business activity sought to be served” via the high-low agreement.

In this regard, the “purpose” of the high-low agreement and the “business activity sought to be served” was obviously to reduce each side’s risk in the Lawsuit.  According to Mr. Doyle, who negotiated and primarily drafted the high-low agreement on behalf of ERC, the particular business activity sought to be served by the Appellees by entering into the high-low agreement was to get some money when possibly they wouldn’t have received any money.  (Doyle Depo, pg. 58, ln. 3, CR, page 84).  In this regard, Mr. Doyle testified as follows:

Q. And what was the particular business activity sought to be served for the plaintiffs by entering into Exhibit 1, if you know of any?

A. I think they were just trying to get some money when possibly they wouldn’t receive any money.

(Id.).  If the high-low agreement was meant as ERC now contends, the high-low agreement would not have fulfilled the purpose of providing Appellees with some money when possibly they would not receive any.  To the contrary, it would have provided them money only if they recovered a judgment in excess of $2,000,000.00.  And then, it would only have benefitted them possibly as little as $1 only on the off chance such judgment happened to fall into the narrow gap of $2,000,000.00 and $2,375,000.00.  Thus, ERC’s current interpretation is contrary to the “purpose”of the subject high-low agreement as admitted by the ERC representative who negotiated and drafted it.  Whereas, Appellee’s position is in complete alignment with Mr. Doyle’s testimony.  Specifically, if Appellee’s lost the trial, they would get the low of $375,000.00 (i.e., they would get $375,000.00 no matter what).

Further, in light of the authority cited above, although oral statements regarding the parties intentions are inadmissible to vary or contradict the terms of the high-low agreement, the Court should examine prior negotiations and all other relevant incidents bearing on the intent of the parties.  Baty, 63 S.W.3d at 848; Cook Composites, Inc., 15 S.W.3d at 132.   Such an examination assists the Court in ascertaining the object and purpose of the contractual language the parties chose to include in the written instrument.  Baty, 63 S.W.3d at 848.

In this case, during the negotiations leading up to the high-low agreement, Ms. Masters, the ERC adjuster on the Gordon matter, wrote the following email to her supervisor:

(CR, page 109).  The import of this email is fully appreciated when Ms. Masters’ deposition is considered congruently.  In this regard, Ms. Masters testified as follows:

Q. What does dropping down to the SIR level of coverage mean?

A. That you would pay an amount within the insured’s self-insured retention.

 

(Masters Depo, pg. 24, ln. 11, CR, page 98).[4] Thus, in her email, Ms. Masters clearly indicated that because Good Shepherd was not making a settlement offer, ERC was going to “drop down to the SIR layer of coverage.”  This email clearly indicates that ERC was planning to enter into a high-low agreement in the SIR layer.  It stated that ERC had no obligation to “drop down to the SIR layer of coverage, however in this instance … we felt the need….”  There is no possible reading of this email other than, while ERC doesn’t routinely do so, in this case (given the enormous exposure), ERC was planning to drop down into the SIR layer unless Good Shepherd made a settlement offer in the SIR layer first.

Further, if this email did not mean that ERC was going to make an offer in the SIR layer, then there would have been no reason to mention ERC backing away from negotiations if Good Shepherd agreed to fund the high-low agreement.  If the high-low agreement was only in ERC’s layer, then Good Shepherd would have had to be hit with a judgment in excess of $2 million dollars before the low would become payable and thus the high-low would have been of no benefit to Good Shepherd since any liability of Good Shepherd was capped at the first $2 million.  No litigant would ever agree to pay a $375,000 low after having paid their maximum liability of $2 million.

In addition to the above, ERC used as its primary negotiating argument, that the high-low agreement would guarantee Appellees a recovery and guarantee that Appellees’ attorneys would recover the costs of litigating the case, which were in excess of $200,000, even if the case was lost.  (Heygood Affidavit, Paragraph 10, CR, pages 55-56).  Mr. Doyle and Ms. Masters cannot deny this fact since they conveniently cannot remember any of the discussions with Mr. Heygood.  This is evidenced by their testimony as follows:

Mr. Doyle:

Q. Prior to putting anything in writing, you and Mr. Heygood had agreed to the $375,000 figure, right?

A. I don’t recall specific discussions….

(Doyle Depo, pg. 29, ln. 17, CR, page 77).

 

Q.  Am I correct that you can’t tell us, one way or the other, as to any such discussions about under what circumstances the plaintiffs would get the $375,000?

A. That’s correct I can’t remember any specific conversation regarding that.

 

Q. Can you remember any general conversations [regarding same]?

A. No, I cannot.

(Doyle Depo, pg. 30, ln. 12, CR, page 78).

 

Ms. Masters:

Q. Did you have discussions with Mr. Heygood leading up to the signing of Exhibit Number 1?

A. I assume we did.

 

Q. And that’s what I’m talking about.  The stuff before Exhibit 1 was signed.  During those discussion – you have no memory of those discussions, correct?

A. No independent recollection, no.

(Masters Depo, pg. 20, ln. 3, CR, page 97).

 

Q. Since you don’t remember the negotiations, you cannot tell us anything about them?

A. Well, I guess, correct.

(Masters Depo, pg. 17, ln. 16, CR, page 96).

 

Of course, if the intent of the high-low agreement were as ERC contends, then neither of the benefits of the high-low agreement that ERC was espousing as the reasons why it should be accepted would have been applicable.  Thus, the negotiations which lead to the subject high-low agreement clearly indicate that the true intent of the parties was that Appellees were to receive the “Low” no matter what.  Thus, ERC’s motion for summary judgment contending otherwise should be denied.

The negotiations leading up to the agreement also indicate that ERC was very worried about a judgement far in excess of the hospital’s SIR.  (Masters Depo, pg. 31, ln. 1, CR, page 100).  The hospital, however, was refusing to make a settlement offer within their SIR.  (Masters Depo, pgs. 34-35, CR, page 338).  ERC therefore wanted to bypass the hospital and obtain a much lower cap on their potential liability.  (CR, page 109).  Thus, the purpose of the high-low agreement, as shown by the summary judgment evidence, was to step into the shoes of the hospital and agree to pay Appellees an amount that ERC felt like the hospital should be offering.  This purpose and ERC’s purported construction of the high-low agreement are mutually exclusive.  Thus, if the purpose of the agreement is considered (which is proper and required under Texas law), then there is only one reasonable meaning – that Appellees were to receive the $375,000.00 no matter what.

d)        Appellees did not rely upon any extrinsic evidence in an improper manner.

Appellees agree that a litigant is not permitted to rely upon extrinsic evidence to contradict or vary the express terms of a contract.  See Nat’l Union fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 521 (Tex. 1995).  However, contrary to ERC’s assertions, Appellees have not done this.  Appellees rely upon extrinsic evidence to demonstrate that the intent of the subject agreement is clear when considered in light of the purpose of the agreement and the circumstances and negotiations leading up to the agreement.  Appellees are not trying to contradict the clear terms of an agreement as the parties in the cases cited by ERC were trying to do.  See Remington Rand, Inc. v. Sugarland Indus., 153 S.W.2d 477 (Tex. 1941) (attempting to contradict language that required 30 days notice to cancel a lease); Punts v. Wilson, 137 S.W.3d 889 (Tex. App. – Texarkana 2004, no pet.) (attempting to contradict language that required that the funds in an account pass directly to Wilson after the death of the account holder).

e)         ERC is the one re-writing the agreement.

In support of its position, ERC has argued that a judgment in excess of $2 million was a contingency necessary to be met before the provisions of the high-low agreement became operable.  In doing so, contrary to its argument that Appellees are re-writing the contract, ERC is guilty of attempting to re-write the contract by turning the $2 million judgment language into a condition precedent before the terms of the agreement became effective.  For the contract to make any sense, it is evident that the language, “on that portion of any judgment against Good Shepherd and its nurses in excess of $2 million,” applies to the phrase directly preceding it which refers to the high of $3.5 million.  ERC argues that the language at issue consists of a subject (parties), a verb (agree), and three prepositional phrases:

i. To a $375 Thousand Low and a $3.5 Million High

ii. On That Portion of any Judgment against Good Shepherd and its Nurses in Excess of $2 Million

iii. After all appeals are exhausted

The more accurate description of the language, and the one that does not involve moving the language around is that the language consists of a subject (parties), a verb (agree), a preposition (to) and two objects of the preposition:

i. a $375 Thousand Low

ii. a $3.5 Million High on That Portion of any Judgment against Good Shepherd and its Nurses in Excess of $2 Million.

ERC claims that the prepositional phrase “on That Portion of any Judgment against Good Shepherd and its Nurses in Excess of $2 Million” modifies both the $375 Thousand Low and the $3.5 Million High.  However, this makes no sense in common every day language.  If one were to say – “Jack tripped a boy and a girl with long hair,” the “with long hair” prepositional phrase does not modify “boy” as claimed by ERC.  In the subject high-low agreement, the “boy” of the language is the “$375 Thousand Low” and the “girl” is “a $3.5 Million High.”  As admitted by ERC in its Brief, “applying the structure of the settlement agreement to a more common situation” is demonstrative.  (Appellant’s Brief, page 24).[5]

Appellees agree with ERC that the “$375 Thousand Low” and the “$3.5 Million High” have equal grammatical rank.  The disagreement arises on ERC’s claim that “on That Portion of any Judgment against Good Shepherd and its Nurses in Excess of $2 Million” modifies both the $375 Thousand Low and the $3.5 Million High.  ERC cites no authority for this claim either by way of grammar books or case law.[6]

Further, ERC’s punctuation arguments bear no relevance to the intent of the parties unless there were summary judgment evidence that the parties to and drafters of the agreement were aware of the technical punctuation principles cited by ERC.  The clear language of the high-low agreement is that ERC’s liability would be one of two things: 1) a low of $375,000 or 2) a high of $3.5 million in excess of any judgment over $2 million.

The language of the high-low agreement reads in pertinent part:

“Parties Agree: (1) To a $375 thousand low and a $3.5 million high on that portion of any judgment against Good Shepherd and its nurses in excess of $2 Million, after all appeals are exhausted.”

ERC’s strained argument of the conjunctive properties of the word “and” is improper.  ERC erroneously attempts to link “and” with the clause referring to a judgment “in excess of $2 million” in an attempt to make the $2 million a threshold requirement that must be met with regard to both the high and the low.  This is not correct.  The use of the word “and” and its conjunctive nature refers to the preceding language “Parties Agree.”  The parties agreed to two terms in the agreement; thus, “and” has been properly used.  Appellees and ERC agreed to a possible low number ($375,000) and a possible high number ($3.5 million in excess of any judgment over $2 million).  In effect, ERC agreed to, at least, pay $375,000 in exchange for capping their possible $30 million exposure at $3.5 million.  This is the unambiguous meaning of the contract and should be given effect.

Furthermore, even if the phrase “in excess of $2 Million” applied to both the low of $375,000 and the high of $3.5 Million, the result is still the same and Appellees should have received the $375,000 no matter what.  The amount of the judgment in excess of $2 Million was zero, thus Appellees are entitled to the low of $375,000.  The subject agreement does not state and was not intended to be void if the judgment did not exceed $2 Million.  The agreement does not state that Appellees forfeit the low if the judgment fell short of $2 Million.  If that was the intent, then the agreement would have read as follows:

“If the judgment in this case falls below $2 Million, then Appellees receive nothing from ERC.  If and only if the judgment exceeds $2 Million, then Appellees are entitled to $375,000 from ERC as a minimum.  However, if the judgment falls between $2,375,000 and $5,500,000, then Appellees shall receive the amount of the judgment, less $2,000,000 from ERC.  If the judgment exceeds $5,500,000, then Appellees shall receive $3.5 Million from ERC and no more.”

Clearly, the agreement was not intended to be of no effect if the judgment was less than $2,000,000 and thus ERC’s motion for summary judgment should be denied and Appellees should be granted summary judgment.

f)         ERC’s purported meaning is contrary to the well-defined and recognized concept of a “high-low” agreement.

Additionally, a “high-low” agreement is exactly what it says.  It means that a party will pay the low – no matter what – and will never have to pay more than the high.  ERC’s theory of interpretation is contrary to the well defined and recognized concept of a “high-low” agreement.  (Heygood Affidavit, Paragraph 17, CR, page 57).  ERC essentially now wants to redefine the concept and definition of a “high-low” agreement.  ERC’s asserted interpretation of the high-low agreement is contrary to decades of settlement practices in Texas.  (Id.).  Further, ERC submitted no summary judgment evidence to controvert Mr. Heygood’s testimony regarding high-low agreements.  Thus, the unambiguous meaning of the high-low agreement was clearly for Appellees to receive $375,000.00 no matter what which is consistent with the very nature of a “high-low” agreement.  Thus, ERC’s motion for summary judgment contending otherwise should be denied.

2.         Even if the high-low agreement does not have an unambiguous meaning as contended by Appellee  (ERC pays $375,000.00 no matter what), clearly Appellee’s interpretation is “a” reasonable interpretation and the high-low agreement is thus ambiguous, resulting in a fact question which required the Trial Court to deny ERC’s motion for summary judgment.

 

Even if this Court concludes that there is another reasonable meaning and interpretation to the high-low agreement other than Appellees’ interpretation (that Appellees were to receive $375,000 no matter what), and if the Court concludes that such “other reasonable meaning” was the meaning that ERCs have suggested in their Motion, it cannot be reasonably disputed that Appellees’ interpretation and meaning of The high-low agreement is also “a” reasonable meaning.  That Appellees’ interpretation is “a” reasonable meaning is supported by the language of the subject agreement, the negotiations of the parties leading  up to the execution of the agreement, the admitted purpose of the agreement, and the circumstances present at the time said agreement was executed.  Furthermore, any meaning other than Appellees’ interpretations would be ” unreasonable, inequitable, and oppressive.”  See Reilly v. Rangers Management, Inc., 727 S.W.2d 527, 530 (Tex. 1987); Mobil Exploration & Producing U.S., Inc. v. Dover Energy Exploration, 56 S.W.3d 772, 778 (Tex. App. – Houston [14th Dist.] 2001); Columbia Gas Trans. Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996) (“It is inconceivable that the parties intended such a perverse result in this contract.”).

According to Mr. Doyle, who negotiated and primarily drafted the high-low agreement on behalf of ERC, the particular business activity sought to be served by the Appellees by entering into the high-low agreement was “to get some money when possibly they wouldn’t have received any money.”  (Doyle Depo, pg. 58, ln. 3).  Further, Mr. Doyle believes that the language of the high-low agreement “could mean” that the low is $375,000.00 on the one hand, and that the high, on the other hand, is $3,500,000.00.   (Doyle Depo, pg. 67, ln. 17).  Thus, the very person who negotiated the high-low agreement admits that Appellees’ interpretation is “a” reasonable meaning.  As a result, ERC’s motion for summary judgment was properly denied.

 

RESPONSE TO ISSUE NO. 2:  The Trial Court properly granted Appellees’ summary judgment motion because the high-low agreement is susceptible to only one reasonable meaning in light of the circumstances: it provides for payment of $375,000.00 no matter what.  Alternatively, the Trial Court properly granted Appellee’s summary judgment motion because even if the high-low agreement is susceptible to more than one reasonable meaning, the summary judgment evidence established as a matter of law that the intent of the parties was that the high-low agreement required ERC to pay Appellee $375,000.00 no matter what.

 

As established above, the unambiguous meaning of the subject high-low agreement is the meaning espoused by Appellees.  ERC’s purported meaning is absurd.  Such an interpretation would defeat the intent of a high-low agreement and turn decades of well-established settlement practice concerning “high-low” agreements on its head.  If ERC’s meaning is accepted as a reasonable meaning, then Appellees were foregoing the possibility of a $30 million excess policy in exchange for the remote possibility of the jury returning a verdict between $2 million and $2.375 million whereby they would benefit, at the most, by $374,999.  Such a result is preposterous and is not a reasonable meaning for the agreement.  Thus, the Trial Court properly granted Appellee’s summary judgment motion.

Alternatively, even if the high-low agreement has two reasonable interpretations (which Appellees strongly dispute), the summary judgment evidence on the intent of the parties is so overwhelming in favor of Appellees that the trial court properly ruled that Appellees were entitled to summary judgment.[7] The two meanings being argued in this case are:

1)        Appellees were to receive $375,000 no matter what;

2)        Appellees received money only if the judgment fell between $2 million and $2,375,000.

Meaning one involves “dropping down into the SIR”and meaning two does not.  As referenced above, Ms. Masters, the ERC adjuster, wrote an email just the night before the high-low agreement was executed indicating ERC’s intention to “drop into the SIR layer of coverage.”  Thus, Ms. Masters indicated that her intention was to enter into the high-low agreement as Appellees interpret the agreement.  Further, the affidavit of Mr. Heygood indicates that both Ms. Masters and Mr. Doyle stated to him that the agreement was that Appellees would receive the $375,000 no matter what.  Ms. Masters and Mr. Doyle cannot dispute this evidence since they have no memory of their discussions with Mr. Heygood.  In light of the above summary judgment evidence, no reasonable fact finder could conclude anything other than Appellees were to receive the “low”of the agreement no matter what.  Thus, the Trial Court properly granted Appellees’ summary judgment motion.

ERC’s claim that this is a “he said/she said” dispute could not be further from the truth.  Rather, this is a “he said/he and she can’t remember” dispute.  As established above, neither Ms. Masters or Mr. Doyle have any memory of what happened.  As Mr. Doyle testified, he cannot say “one way or the other” or recall any specifics or generalities.  (Doyle Depo, pg. 30, ln. 12, CR, page 78).  Likewise, Ms. Masters can only “assume” she had discussions with Mr. Heygood, she has “no independent recollection,” and she “cannot tell us anything about them.”  (Masters Depo, pg. 20, ln. 3, CR, page 97 and Masters Depo, pg. 17, ln. 16, CR, page 96).

 

V.

CONCLUSION

The Trial Court properly granted Appellees’ motion for summary judgment and denied ERC’s motion.

 

VI.

PRAYER

WHEREFORE, PREMISES CONSIDERED, Appellees respectfully pray that this Court AFFIRM the judgment of the Trial Court, and for their costs, and for such other and further relief to which they may show themselves to be justly entitled.

Respectfully submitted,
HEYGOOD, ORR & PEARSON
2331 W. Northwest Highway
Second Floor
Dallas, Texas 75220
(214) 237-9001 (Telephone)
(214) 237-9002 (Telecopier)


[1] For example, if a contract stated that 50 pigs were to be sold and a party submitted parol evidence that the number was supposed to be 100 pigs, that would constitute improper extrinsic evidence to vary or contradict the terms of a contract.  Appellees have not relied upon any extrinsic evidence in this case for such an improper purpose.  However, if the purchaser presented extrinsic evidence that the pigs were supposed to be bacon pigs (pigs for eating) as opposed to lard pigs (pigs for cooking fat and lubricant) in the form of evidence that the seller knew that the purchaser was a meat packing plant, such would be completely proper because it does not vary or contradict the contract.

[2] The fact that the chance of the high-low agreement benefitting Appellees under ERC’s alleged interpretation was a “needle in a hay stack” is supported by numerous undisputed facts, including: a) Appellees’ economic damages alone were between $9,216,930.38 and $4,666,005.57 (Heygood Affidavit, paragraph 15, CR, page 56), thus any judgment against Good Shepherd falling in the range of $2,000,000.00 to $2,375,000.00, less than half of the economic damages, was slight; b) Debra Masters was of the view that a $30,000,000.00 judgment was a possibility (Masters Depo, pg. 23, ln.24, CR, page 98) and her evaluation of the likely verdict range was 8 to 12 million dollars (Masters Depo, pgs. 28-29, CR, page 97), thus if $30 Million was possible and 8 to 12 million was likely, then $2,000,000.00 to $2,375,000.00 was remote; c) Mr. Doyle thought the possibility of the judgment falling between $2,000,000.00 to $2,375,000.00 was slim (Doyle Depo, pg. 43, ln. 20, CR, page 80) and less than the chances of hitting a 20 on a dart board blindfolded (Doyle Depo, pg. 45, ln. 24, CR, page 80).

[3] ERC claims that their interpretation does not produce a perverse result because Appellee’s could potentially have gained $374,999.99, approximately two-thirds of the damages assessed by the jury against the hospital.  First, juries obviously don’t assess damages against a party.  The Trial Court does.  ERC is actually referring to the judgment obtained against the hospital which was limited because the jury placed more of the blame on a co-defendant physician.  Second, ERC conveniently omits any reference to the probabilities of the $374,999.99 coming to fruition.  To claim that the high-low agreement is as ERC states is like claiming that someone agreed to pay $500,000 for a Texas lottery ticket when the jackpot is only $1 million.  Yes, a million dollars is a significant amount of money, but not a single person on earth would pay $500,000 for a chance to win it in the Texas lottery.

[4] ERC claims in its Brief that ERC “had never settled an excess claim within its insured’s self-insured retention.”  ERC did not submit any competent summary judgment evidence on this issue.  The only evidence on the subject is from Ms. Masters who states that “to [her] knowledge” ERC has never “settled a case within the SIR amount.”  (Masters Depo, pg. 43, ln. 4, CR, page 340).  Obviously, in light of the email where Ms. Masters indicates that was exactly her intent in this case, her claim in this regard is dubious at best.

[5] ERC “common situation” analogy of mowing and irrigating is not instructive because it involves verbs “mow” and “irrigate” as opposed to nouns such “$375 Thousand Low” and “$3.5 Million High.”

[6] ERC shows a “literal rewrite” of the high-low agreement in their Brief.  (Appellant’s Brief, page 19).  This admission proves Appellees’ point.  ERC has to “rewrite” the agreement to have it mean as ERC contends.

[7] Clearly, when the credible evidence is so overwhelming in favor of one side of an issue, the Trial Court is permitted to decide the issue as a matter of law.  See Triton Oil & Gas Corp. v. Marine Contractors & Supply, Inc., 644 S.W.2d 443, 446, 26 Tex. Sup. Ct. J. 73 (Tex. 1982) (“An issue is conclusively established when the evidence is such that there is no room for ordinary minds to differ as to the conclusion to be drawn from it.”); Island Recreational Dev. Corp. v. Republic of Texas Sav. Asso., 710 S.W.2d 551, 564 (Tex. 1986); De La Garza v. De La Garza, 185 S.W.3d 924, 926 (Tex. App. – Dallas 2006, no pet.).