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Bunker v. Strandhagen

Court of Appeals of Texas, Third District, Austin

March 3, 2017

Noah S. Bunker; Paul Carrell; Everett Brew Houston, Jr.; W. Andrew Buckholz; Scott J. Leighty; Jad L. Davis; and Holly Clause, Appellants
Tracy D. Strandhagen, Appellee


          Before Justices Puryear, Goodwin, and Bourland.


          Cindy Olson Bourland, Justice.

         This is an appeal from a declaratory summary judgment in favor of appellee Tracy Strandhagen, a physician who was formerly employed with American Anesthesiology of Texas, Inc. ("AAT"). Strandhagen sought a declaration that a liquidated-damages provision in a contract she entered into with other physicians working for AAT was an unenforceable penalty. Appellants, the physicians employed by AAT who comprise the practice group's advisory board ("board members"), challenged the ripeness of Strandhagen's claim in a plea to the jurisdiction, which the trial court denied. Strandhagen moved for summary judgment on the unenforceability of the provision, which the trial court granted. The board members appeal from the trial court's summary judgment and challenge the trial court's order denying their plea to the jurisdiction. We will reverse the summary judgment and remand.


         I. The parties executed certain contracts pursuant to the sale of their medical-practice group to AAT, including the contract at issue

         Strandhagen and approximately sixty other physicians, including the board members, were partners in Austin Anesthesiology Group ("AAG"). In 2011, those physicians sold their interests in AAG to AAT under a Membership Purchase Agreement ("purchase agreement"). In connection with that transaction, Strandhagen and the other physicians separately entered into individual employment agreements with AAT in which the physicians agreed to work for AAT. The physicians also entered into an internal-operating agreement among themselves ("operating agreement") that, among other things, created an advisory board tasked with certain responsibilities within the practice group. AAT was not a party to the operating agreement.

         Strandhagen's employment agreement with AAT ("employment agreement") specified the terms of her employment with AAT and provided for a seven-year term of employment. The physicians' operating agreement specified the terms of operation among the physicians employed by AAT. It included a liquidated-damages provision in the event that a physician's employment was terminated before the expiration of his or her employment term:

[I]f a Physician's employment with the Company is terminated for any reason during the Initial Term of a terminating Physician's Employment Agreement other than termination without cause by the company . . . then such a terminating physician . . . shall promptly pay to the non-terminating Physicians . . . as liquidated damages, and not as a penalty, the amount set forth below . . . .[1]

         The amount of damages applicable to the majority of the physicians, including Strandhagen, was $500, 000, which would be owed, not to AAT, but to the other physician signatories to the operating agreement. As Strandhagen observed in her first amended petition, each non-terminating physician would receive just under $10, 000 in the event of breach. It is undisputed that Strandhagen's employment was terminated five years before her seven-year employment term ended, though the parties dispute whether she was terminated "without cause" by AAT under the operating agreement.

         II. Strandhagen sought a declaratory judgment that the liquidated-damages provision is unenforceable

         Strandhagen initiated a declaratory-judgment action against the board members seeking a declaration that the liquidated-damages provision was unenforceable against her because (1) she was terminated "without cause" under the operating agreement and (2) the provision constituted an unenforceable penalty as a matter of law. The board members filed a plea to the jurisdiction challenging the sufficiency of the evidence showing the existence of a justiciable controversy between the parties. They claimed that she was required to prove that litigation between the parties was imminent and that she had produced no evidence that they intended to seek enforcement of the liquidated-damages provision against her.

         In response, Strandhagen alleged that she had learned that the board members had begun soliciting the support of the signatories to the operating agreement to file suit against her. She also produced uncontested evidence establishing that (1) her employment had terminated before the end of the employment term under her employment agreement and (2) AAT had advised her that it had terminated her employment "with cause" pursuant to her employment agreement, [2] facts that the board members do not dispute. The trial court denied that portion of the board members' plea.[3]

         Strandhagen then moved for summary judgment declaring that the liquidated-damages provision was an unenforceable penalty, which the trial court granted. In two issues, the board members appeal the denial of their plea to the jurisdiction and the granting of Strandhagen's motion for summary judgment.


         I. Summary judgment

         We review a trial court's summary-judgment rulings de novo. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). We take as true all evidence favorable to the non-movant and indulge every reasonable inference in the non-movant's favor. Id. The party moving for summary judgment must demonstrate that no material fact issue exists and that she is entitled to judgment as a matter of law. See Tex. R. Civ. P. 166a(c); M.D. Anderson Hosp. & Tumor Inst. v. Willrich, 28 S.W.3d 22, 23 (Tex. 2000). To prevail on summary judgment, the moving party must establish each element of her claim as a matter of law or negate an element of the respondent's claim or defense as a matter of law. See M.D. Anderson, 28 S.W.3d at 23; C.W. 100 Louis Henna, Ltd. v. El Chico Rests. of Tex., L.P., 295 S.W.3d 748, 753 (Tex. App.-Austin 2009, no pet.).

         II. Plea to the jurisdiction

         A plea to the jurisdiction may challenge the plaintiff's pleading or the existence of the jurisdictional facts alleged in the pleading. Texas Dep't of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 226 (Tex. 2004). When the defendant challenges the latter, as here, the defendant must meet the summary-judgment standard of proof. Id. at 227-28. Under that standard, the defendant must present conclusive proof regarding a jurisdictional fact. See id.; see also Just Energy Tex. I Corp. v. Texas Workforce Comm'n, 472 S.W.3d 437, 440 (Tex. App.-Dallas 2015, no pet.). If the defendant meets that burden, the plaintiff must present evidence showing a disputed issue of material fact regarding the jurisdictional issue. Miranda, 133 S.W.3d at 228; Just Energy, 472 S.W.3d at 440. If the defendant fails to present conclusive proof of a fact negating jurisdiction, the plaintiff has no burden to present evidence on the jurisdictional issue. Just Energy, 472 S.W.3d at 440. If the relevant evidence is undisputed or fails to raise a fact question on the jurisdictional issue, the trial court rules on the plea to the jurisdiction as a matter of law, which is subject to de novo review. Miranda, 133 S.W.3d at 228.


         I. Strandhagen's claim is ripe for review

         In their second issue, the board members challenge the trial court's denial of their plea to the jurisdiction. They contend that the enforceability of the liquidated-damages provision is not ripe for review because the record does not demonstrate a justiciable controversy. We disagree.

         A. Ripeness in declaratory-judgment actions

         The UDJA provides that "[a] person interested under a . . . written contract . . . may have determined any question of construction or validity arising under the . . . contract . . . and obtain a declaration of rights, status, or other legal relations thereunder." Tex. Civ. Prac. & Rem. Code § 37.004. In a declaratory-judgment action, a claim is ripe if, at the time the plaintiff files a petition for declaratory relief, the plaintiff has incurred or caused[4] injury, or injury is likely to occur. Waco Indep. Sch. Dist. v. Gibson, 22 S.W.3d 849, 851-52 (Tex. 2000) (citing Patterson v. Planned Parenthood of Hous. & Se. Tex., Inc., 971 S.W.2d 439, 442 (Tex. 1998)). A claim is not ripe if it is based on hypothetical or contingent facts that may not occur as anticipated or may not occur at all. Id. at 852. "[A] matured breach [of contract] is explicitly covered by the [Declaratory Judgments] Act." MBM Fin. Corp. v. Woodlands Operating Co., 292 S.W.3d 660, 667 (Tex. 2009) (citing Tex. Civ. Prac. & Rem. Code § 37.004(b)); see also 26 C.J.S. Declaratory Judgments § 28 ("A controversy is ripe if the facts on which a legal decision is demanded have accrued.").

         B. The record demonstrates a justiciable controversy

         Here, the evidence is undisputed, thus review of the trial court's ruling is de novo. See Miranda, 133 S.W.3d at 228. The record contains evidence demonstrating the contentious circumstances surrounding Strandhagen's early termination. The parties do not dispute that (1) Strandhagen's employment had terminated before the expiration of her employment term as defined under the employment agreement and (2) AAT had taken the position that it had terminated her for cause. Those facts gave rise to a cause of action in favor of the board members against Strandhagen for breach of the operating agreement and thus rendered ripe the issue of enforceability of the liquidated-damages provision contained in that agreement. See MBM Fin. Corp., 292 S.W.3d at 667-68 (parties may seek declaration of rights under contract after matured breach) (citing Tex. Civ. Prac. & Rem. Code § 37.004(b)); Gibson, 22 S.W.3d at 851-52 (injury must have occurred or be likely to occur at time UDJA action filed).

         The board members, however, cite cases suggesting that a showing of imminent litigation is a prerequisite to jurisdiction. See Paulsen v. Texas Equal Access to Justice Found., 23 S.W.3d 42, 46 (Tex. App.-Austin 1999, pet. denied); Texas Dep't of Pub. Safety v. Moore, 985 S.W.2d 149, 153-54 (Tex. App.-Austin 1998, no pet.). But in those cases, the plaintiff was required to show at least "ripening seeds of a controversy"-such as the threat of imminent litigation upon injury-because an injury had not yet occurred.[5]Paulsen, 23 S.W.3d at 46-47 (no justiciable controversy where no evidence of actual breach or threat of litigation); Moore, 985 S.W.2d at 154 (when record does not demonstrate fully ripened cause of action, justiciable controversy may be shown by evidence of threatened imminent litigation).[6] Because the record in this case shows that the facts giving rise to a cause of action for breach of the operating agreement had occurred and were not remote or contingent, Strandhagen was permitted to seek a declaration of her rights and duties ...

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