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Atrium Medical Center, LP v. Houston Red C LLC

Court of Appeals of Texas, Fourteenth District

December 21, 2017

ATRIUM MEDICAL CENTER, LP, AND TEXAS HEALTHCARE ALLIANCE, LLC, Appellants
v.
HOUSTON RED C LLC D/B/A IMAGEFIRST HEALTHCARE LAUNDRY SPECIALISTS, Appellee

         On Appeal from the 190th District Court Harris County, Texas Trial Court Cause No. 2013-04227A

          Panel consists of Chief Justice Frost, Justice Donovan, and Justice Wise

          MAJORITY OPINION

          JOHN DONOVAN, JUSTICE.

         Appellants Atrium Medical Center, L.P., and Texas Healthcare Alliance, LLC, appeal a judgment in favor of appellee Houston Red C LLC d/b/a ImageFirst Healthcare Laundry Specialists, finding that appellants breached a laundry service agreement and are jointly and severally liable for damages, costs, interest and attorney's fees. Following a bench trial, the trial court entered amended findings of fact and conclusions of law supporting the judgment for appellee. In four issues on appeal, appellants assert the trial court erred in finding breach of contract, enforcing a liquidated damages clause, applying prejudgment interest, and granting an unsegregated, contested attorney's fee application. We affirm in part and reverse and remand in part.

         I. Background

         Atrium owns and operates a sixty-bed, long-term acute care hospital in Stafford, Texas. THA is the general partner, part owner, and day-to-day manager of Atrium. ImageFirst is a rental and laundry service company.

         In November 2012, Atrium and appellee executed a five-year (260 week) laundry services agreement. The contract provides, in relevant part, the following:

The length of this agreement is for sixty (60) months from the date of the first delivery and therefore for the same time period unless cancelled by either party, in writing, at least ninety (90) days prior to any termination date. The terms of this contract shall apply to all subsequent increases or additions to such service. There will be a minimum weekly billing of 60% of this agreement value or 60% of the current invoice amount, whichever is greater. Customer may discontinue service at any time provided customer pay Company a cancellation charge of 40% of the agreement value or the current invoice amount, whichever is greater, multiplied by the number of weeks remaining under this agreement. The customer agrees that this cancellation charge is not punitive, but a reimbursement to Company for related investments to service the customer. Customer agrees to pay attorneys fees and cost necessary to collect monies due. The price in effect may be changed annually. A finance charge of 1½% per month, which is equal to 18% per year will be added to all balances not paid within terms of Net 10 EOM. If credit terms are allowed, customer agrees to pay balance due to Company within ten (10) days after the end of the month that said invoices are dated.

         In 2013, Atrium was in financial crisis, stemming from an alleged abuse of power, fraud, and embezzlement by Sohail Siddiqui, M.D., the former manager of THA. In April 2013, Atrium failed to pay appellee's invoices. Appellee continued to deliver linens without payment for several months.

         Atrium's new chief executive officer, Ahmad Zaid, testified that he tried to work out a payment plan with appellee to ensure no interruption in the delivery of linens to the hospital; however, appellee responded that it would no longer deliver linens without a payment towards Atrium's past due balance. Appellee continued to deliver linens uninterrupted.

         On or about September 11, 2013, Zaid allegedly verbally informed appellee that it would no longer use appellee's linens or services, exercising the cancellation provision of the contract. The last day appellee delivered linens to Atrium was on September 2, 2013. Appellee's last invoice to Atrium was on September 6, 2013, for $8, 066.79. At the time Atrium's CEO verbally cancelled the contract, 9 months/38-weeks had elapsed under the 60-month/260 week contract, and Atrium had not paid $165, 587.33 of the total charges invoiced by appellee.

         In November 2013, appellee filed a petition in intervention in appellants' pending lawsuit against Siddiqui in the 190th Judicial District Court of Harris County. In its second amended petition in intervention, appellee asserted claims against appellants, Siddiqui, and several other individual owners[1] for breach of contract, quantum meruit, conversion, suit on sworn account, unjust enrichment, and money had and received. Appellee claimed more than $1 million dollars in damages. After nonsuiting the individual defendants, a bench trial between Atrium, THA, and ImageFirst was held in February 2016.

         In March 2016, the trial court awarded a final judgment in favor of appellee on its breach of contract claim, finding Atrium and THA were jointly and severally liable for breach of contract and damages. The court determined that appellee was entitled to damages under the terms of the contract, including the liquidated damages provision which the trial court found was not a penalty. The trial court found appellee suffered actual damages "for those amounts due and owing as of September 2013 and for damages calculated under the liquidated damages provision." The trial court awarded the following damages:

• Actual damages: $881, 918.28
• Contractual pre-judgment interest: $375, 021.20
• Attorney's fees (trial): $110, 000.00
• Attorney's fees (appellate): $70, 000.00 Total: $1, 436, 939.48

The trial court further found that appellee was entitled to recover from appellants post-judgment interest accruing at 5% simple interest and all costs of court.

         On June 3, 2016, the trial court entered amended findings of fact and conclusions of law in support of the judgment.

         II. ISSUES AND STANDARDS OF REVIEW

         A. Issues

         Appellants challenge the trial court's judgment, claiming in their first issue that the record does not contain legally or factually sufficient evidence to support a finding that appellee should prevail on its breach of contract claim. Alternatively, appellants contend in its second issue, with multiple subparts, that we should reverse and reform the judgment by denying appellee recovery under the contract's liquidated damages clause. In their third issue, appellants maintain that we should reverse and modify the judgment by limiting the contractual prejudgment interest solely to amounts actually invoiced by appellee. Finally, appellants argue in their fourth issue that we should reverse and modify the judgment by reducing the attorney's fees award to account for fees required to be segregated.

         B. Standard or review

         Because this was a bench trial, the trial judge issued findings of fact and conclusions of law. We review the trial court's conclusions of law de novo. BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex. 2002); Johnston v. McKinney, 9 S.W.3d 271, 277 (Tex. App.-Houston [14th Dist.] 1999, pet. denied). Incorrect conclusions of law will not require a reversal if the controlling facts support a correct legal theory. Id. The findings of fact in a bench trial have the same force and dignity as a jury verdict, and we review them for legal and factual sufficiency of the evidence under the same standards we apply in reviewing a jury's findings. West v. Triple B. Servs., LLP, 264 S.W.3d 440, 445 (Tex. App.-Houston [14th Dist.] 2008, no pet.) (citing Ortiz v. Jones, 917 S.W.2d 770, 772 (Tex. 1996)).

         When conducting a legal-sufficiency review, we consider the evidence in the light most favorable to the challenged finding and indulge every reasonable inference that would support it. City of Keller v. Wilson, 168 S.W.3d 802, 823 (Tex. 2005). We must credit favorable evidence if a reasonable factfinder could and disregard contrary evidence unless a reasonable factfinder could not. See id. at 827. We must determine whether the evidence at trial would enable a reasonable and fair-minded factfinder to find the facts at issue. See id. The factfinder is the only judge of witness credibility and the weight to give to testimony. See id. at 819. Because findings of fact in a bench trial have the same force and dignity as a jury ...


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