Humana Inc. v. Eyecare Network

S
In The
Court of Appeals
Fifth District of Texas at Dallas
............................
No. 05-98-01269-CV
............................
HUMANA, INC.-LOUISVILLE; HAROLD C. LEPPERT, JR.,
Individually; and HUMANA HEALTH PLAN OF TEXAS, INC., Appellants
v.
EYECARE NETWORK, INC., Appellee
.............................................................
On Appeal from the 296th Judicial District Court
Collin County, Texas
Trial Court Cause No. 296-420-95
.............................................................
OPINION
Before Justices Moseley, Roach FN:1 , and Poff FN:2
Opinion By Justice Poff

        Eyecare Network, Inc. (Eyecare) was a provider of vision care services to members of the Humana Health Plan of Texas, Inc. (HHP). Harold Leppert, Jr. was an employee of Humana, Inc.- Louisville (Humana). Eyecare's contract with HHP was terminated in 1993. Eyecare filed suit against Humana, HHP and Leppert, alleging fraud and tortuous interference with its prospective business relations contract with HHP. The jury found HHP and Leppert had committed fraud. The jury also found Leppert had interfered with Eyecare's prospective contractual relations with HHP, but the jury found that he had a good faith belief that he had right to do so. Based on the finding of fraud, the jury awarded actual and punitive damages. Leppert, HHP and Humana (appellants) perfected appeal.
        In their first point, appellants contend the court erred in failing to find all of Eyecare's claims were barred by a compromise and settlement agreement. In points two, three and four, appellants contend that the evidence was legally and factually insufficient to support the jury's findings of fraud. In five additional points, appellants contend the evidence is factually and legally insufficient to support actual and punitive damages.
        The evidence supporting the jury's finding the settlement agreement was not a bar to Eyecare's suit is legally and factually sufficient. Point one is therefore overruled. The evidence however, was legally insufficient to support to the finding of fraud. Therefore, points two, three and four are sustained. Finding no liability on the part of the appellants, it is unnecessary to address the issue of damages presented in points five, six, seven, eight and nine. See Tex. R. App. P. 47.1. The judgment for Eyecare is reversed and a take nothing judgment rendered.
        HHP is a managed care healthcare company licensed to do business in Texas. In October 1990, HHP entered into an HMO optometry and ophthalmology contract with Primary Eye Care, Inc.(PEC) to provide optometry and ophthalmology services to its HMO members in the San Antonio area. PEC was owned by Dr. Borgognoni and Dr. Phillips. The contract was for two years, but either party could terminate the contract without cause on 90 days written notice. Through a subsequent written amendment to the contract, PEC was also given the right to provide vision care services in Corpus Christi. During the term of the contract Drs. Borgognoni and Phillips decided to create a second entity, in order to separate the optometry and the ophthalmology practices. Eyecare was created as the entity to handle the ophthalmology services and PEC continued to handle the optometry services.
        In May 1991, HHP exercised its right of termination and notified PEC and Eyecare that the contract was terminated. They were, however, offered an opportunity to make a new proposal for providing the optometry and ophthalmology services. Gerald Matus operating as Professional Vision Care (PVC) also made a proposal for the Corpus Christi contract. Matus had been a former employee of Cole Vision, a national company with which Humana had done business. PVC was given the Corpus Christ market and PEC/Eyecare was given the San Antonio market. HHP chose PVC over PEC/Eyecare for Corpus Christi because PVC offered more locations than PEC/Eyecare and because Matus had worked previously with managed care HMOs and had “gatekeeper experience.”
        PEC/Eyecare's new San Antonio contract was for two years. Like the original contract, the 1991 contract gave either party the right to terminate the contract without cause on 90 days written notice. The contract also provided that it could only be modified by written amendment.
        Dr. Borgognoni was disturbed by the loss of the Corpus Christi contract. In the fall of 1992, Dr. Borgognoni began seeking a new five-year contract terminable only for cause. He also sought to resolve a dispute between PEC/Eyecare and HHP concerning a $15.00 per visit co-payment from HHP's members who were federal employees. As part of the 1991 contract, Humana had authorized PEC/Eyecare to collect a $15.00 co-pay for each visit. In its contract with its federal employee members however, Humana had failed to provide for the collection of the $15.00 co-pay.
        PEC/Eyecare agreed not to collect the co-pay from the federal employees in exchange for a promised compensation adjustment by Humana. The exact terms of the adjustment were never worked out. This disagreement over the money owed PEC/Eyecare for the co-pay prompted Dr. Borgognoni to make the offer to amended the contract. The financial disputes also gave credence to rumors Dr. Borgognoni heard that HHP was going to terminate his contract. In early 1993, Dr. Borgognoni asked Robert Horrar, the HHP assistant executive director in charge of the San Antonio market, whether there were ongoing discussions with other healthcare providers for HHP's optometry and opthamology work in San Antonio. Horrar assured him that, “Nothing specific is taking place.” This was in fact not true, for Matus had contacted Horrar in late 1992 to discuss opportunities in the San Antonio vision care business. By February 1993 Horrar and Matus were discussing specific terms of the San Antonio operation.
        On March 11, 1993, Dr. Borgognoni and Horrar had two meetings. It was the Doctor's intent to resolve the dispute over the federal employee co-pay and to persuade Horrar to give PEC/Eyecare a five year contract which was terminable only for cause. The first meeting was between Horrar and Dr. Borgognoni. After that meeting, Horrar and Dr. Borgognoni met with Dr. Phillips, Chuck Leppert, and Sue Tate, an employee of Cole Vision. At this meeting Horrar reaffirmed his statement that HHP was not discussing the San Antonio vision care market with any other providers. Leppert, said nothing to contradict or confirm this misstatement.
        On March 15, 1993, Leppert prepared for Horrar an analysis of the proposals from PEC/Eyecare and PVC. Leppert also included the existing contract in the analysis. Leppert concluded that PVC's proposal was superior to the current contract with PEC/Eyecare and superior to PEC/Eyecare's new proposal. Leppert concluded that the PVC proposal would save HHP $226,405 per year over the existing contract. He also noted that PVC offered more locations than did PEC/Eyecare. Horrar accepted Leppert's recommendation and forwarded his and Leppert's recommendation to Mike McCallister, the HHP executive with the authority to make the selection. McCallister agreed with Horrar and Leppert that a new contact should be awarded to PVC. The new contract was for two years and it was terminable without cause on 90 days written notice.
        On April 26, 1993, Horrar called Dr. Borgognoni and told him that Eyecare's and PEC's contracts were going to be terminated. By letter dated April 27, PEC/Eyecare was given 90 days notice that the contracts were terminated effective July 27. HHP then entered into a contact with PVC effective August 1. PEC/Eyecare threatened litigation, but after several months of negotiations a settlement was reached. In exchange for a release of “all claims relating to or arising from the Contracts,” HHP paid PEC/Eyecare $468,397. A settlement agreement and release were prepared by PEC/Eyecare's counsel, signed by PEC and Eyecare, and delivered to HHP on December 29, 1993. HHP failed to sign the settlement agreement, but it did forward a check for $468,397 to PEC/Eyecare. The check was cashed by PEC/Eyecare.
        In April 1995, Eyecare filled the present suit on its own behalf and as an assignee of PEC. Eyecare sued Humana, Leppert, Matus, and PVC for tortuously and maliciously interfering with Eyecare's and PEC's contracts with HHP. Eyecare later added HHP as a defendant, asserting a fraud count based on Horrar's February and March 1993 statements that HHP was not negotiating with other providers for the San Antonio vision care business. Eyecare also alleged that Leppert was guilty of the March misrepresentation. Eyecare settled with PVC before trial. At trial the court charged the jury on Eyecare's (1) fraudulent misrepresentation claims against HHP, (2) fraud by nondisclosure claim against Leppert, (3) tortuous interference claim against Leppert, and (4) breach o f contract claims against HHP.
         The jury found against Eyecare on its breach of contract claim and its tortuous interference with existing contract claim. Further, the jury found Leppert had tortuously interfered with the prospective contract, but also found Leppert had acted in good faith. The good faith finding justified the interference and thereby negated the finding of tortuous interference. Lastly, the jury found in favor of Eyecare on its fraud claims against HHP and Leppert. Based on those findings, the jury awarded actual and punitive damages against HHP, Humana, and Leppert.
        In their first point of error, appellants contend the court erred in not finding the settlement agreement barred Eyecare's suit. They also contend that there was legally and factually insufficient evidence to support the jury's finding that Eyecare and HHP did not agree to settle all claims against each other in exchange for the payment of $468,397. Because release is an affirmative defense, the appellants had the burden to either prove the defense conclusively or obtain adequate jury findings establishing it.
        When an appellant attacks the legal sufficiency of an adverse answer to an issue on which he had the burden of proof, the appellant must overcome two hurdles. See Victoria Bank & Trust Co. v. Brady, 811 S.W.2d 931, 940 (Tex. 1991). First, the record must be examined for evidence that supports the finding, while ignoring all evidence to the contrary. Second, if there is no evidence to support the finding, then the entire record must be examined to see if the contrary proposition is established as a matter of law. See id.; Sterner v. Marathon Oil Co., 767 S.W.2d 686, 690 (Tex. 1989). Likewise when a party with the burden of proof contends that there is insufficient evidence to factually support an answer, we must consider and weigh all of the evidence that tends to prove the existence of a vital fact as well as the evidence that tends to disprove its existence. See Ames v. Ames, 776 S.W.2d 154, 158-59 (Tex. 1989); Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986). So considering the evidence, if a finding is so contrary to the great weight and preponderance of the evidence as to be manifestly unjust, the point should be sustained, regardless of whether there is some evidence to support it. See Watson v. Prewitt, 159 Tex. 305, 320 S.W.2d 815, 816 (1959); In re King's Estate, 150 Tex. 662, 244 S.W.2d 660, 661 (1951).
        In examining the record for evidence supporting the jury's finding that Eyecare's acceptance of the $468,397 did not settle all claims between HHP and Eyecare, the record reveals evidence of the following:
    (1) The agreement recited the dispute to be resolved related to the October 1, 1990 and the February 1, 1992 contracts between the parties, referred to as the Contracts.

    (2) The parties agreed to release all claims for any conduct “from the beginning of time to July 31, 1993, relating to or arising from the Contracts.”

    (3) HHP did not sign the release, even though the release required the signature of all parties to be effective.

    (4) Eyecare contended the $468,397 it received was money owed Eyecare under the co-pay provision of the contract.

        Clearly the recitals in the settlement agreement show that the parties only intended to release claims arising from or related to the existing contracts. While the release is certainly broad enough to include fraudulent conduct, the agreement by its terms could only release fraud relating to or arising from the 1990 and 1992 contracts. The wording of the agreement cannot be stretched to include HHP's or any other party's alleged fraudulent conduct in the granting of the new contract to PVC. Likewise the agreement would have released any tortuous interference with the existing contract, but it would not have released any tortuous interference with the granting of the new contract. FN:3 Our reading of the agreement convinces us that the trial court was correct in concluding that the settlement agreement did not release the appellants from their conduct in the granting of the new contract to PVC. Our review of the record also convinces us that there was legally sufficient evidence to support the jury's finding.
        In conducting our factual sufficiency review we look at all the evidence, both the evidence tending to prove and disprove the disputed fact. The following tends to disprove the jury's finding:
    (1) the release covered all types of conduct including fraud and tortuous interference;
    (2) the alleged fraudulent and tortuous conduct took place during the time period covered by the release; and

    (3) Eyecare accepted the amount of money agreed to in the settlement agreement.
        A review of this evidence reinforces appellants' argument that the unsigned agreement was in fact a binding release. This evidence does not address the question of whether the claims Eyecare brings in this suit were claims which were meant to be settled. After reviewing all the evidence, we still find no evidence the release was applicable to the appellants' conduct in conjunction with the new contract. As noted in the quoted portion of the agreement the “subject” of the release was the 1990 and 1992 contracts, not the new contract. The appellants' conduct that Eyecare contends cost it the new contract did not arise from or relate to the existing contracts referred to in the release.
        As broad as the agreement was - from the beginning of time until July 31, 1993 - it only covered the relations within that time period which related to the subject contracts. The trial court did not err in finding that the release and settlement agreement did not bar Eyecare's suit against the appellants. Likewise, the jury's answer that the payment of the $468,397 did not settle all claims between Eyecare and HHP was not so against the great weight and preponderance of the evidence as to be manifestly unjust. The evidence supporting the finding was factually sufficient.
        In light of our determination that the evidence is legally and factually sufficient to support the jury's finding Eyecare's acceptance of the $468,397 did not release all claims Eyecare might have against HHP, we need not discuss, Leppert's and Humana, Inc.'s contention they were released from any liability they incurred during these negotiations. Since neither of them was named in the agreement as parties to the agreement, any protection the release would have afforded them was derivative from HHP. The decision of the court and the finding of the jury being founded on legally and factually sufficient evidence, point one is overruled.         In their second point, HHP contends the evidence is legally and factually insufficient to support the finding in jury question one that HHP committed fraud against Eyecare. Because Eyecare had the burden of proof on this issue, HHP contends that there is “no evidence” to support the jury finding. We consider all of the evidence in the light most favorable to the party in whose favor the judgement has been rendered (Eyecare) and indulge every reasonable inference from the evidence in that party's favor. See Formosa Plastics Corp. v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 48 (Tex. 1998); Merrell Dow Pharm., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997); In re King's Estate, 150 Tex. 662, 244 S.W.2d 660, 661 (Tex. 1951). If there is more than a scintilla of evidence to support the finding, the claim is sufficient as a matter of law, and any challenges go merely to the weight to be accorded the evidence. See Formosa Plastics Corp., 960 S.W.2d 48; Leitch v. Hornsby, 935 S.W.2d 114, 118 (Tex 1996).
        A “no evidence” point may only be sustained when the record disclosed one of the following: (1) a complete absence of evidence of a vital fact; (2) the court is barred by rules of law or evidence from giving weight to the only evidence offered to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a mere scintilla of evidence; or (4) the evidence establishes conclusively the opposite of a vital fact. See Merrell Dow Pharm., 953 S.W.2d. at 711. There is some evidence when the proof supplies a reasonable basis on which reasonable minds may reach different conclusions about the existence of the vital fact. See Orozco v. Sander, 824 S.W.2d 555, 556 (Tex. 1992). When we sustain a no evidence point it is our duty to render judgment for the appellant because that is the judgment the trial court should have rendered. See Tex. R. App. P. 43.3; Vista Chevrolet, Inc. v. Lewis, 709 S.W.2d 176, 176 (Tex. 1986) (quoting Nat'l Life & Accident Ins. Co. v. Blagg, 438 S.W.2d 905, 909 (Tex. 1969)).         To recover for fraudulent misrepresentation, Eyecare was required to prove, as essential elements of its claim, that HHP made a material misrepresentation which was false, which was known to either be false when made or was asserted without knowledge of the truth, which was intended to be relied upon, which was relied upon and which proximately caused damages. See Formosa Plastics Corp., 960 S.W.2d at 49; Johnson & Johnson Med., Inc. v. Sanchez, 924 S.W.2d 925, 929-30 (Tex. 1996). Eyecare contends HHP, through its employee, Horrar, misrepresented the fact that (1) it was negotiating with other providers for the San Antonio contract and (2) it would enter into a five year, no-cut contract with Eyecare on the terms proposed by Eyecare on March 11. Eyecare also contends that HHP misrepresented the fact that it would not terminate a provider except for serious performance failure.
        HHP denied making any statements regarding its contracts only being terminated for serious performance failures. Even if HHP made such statements, however, Eyecare could not have reasonably relied on them in light of the provision in their written contract which provided for termination without cause. See Airborne Freight Corp. v. C.R. Lee Enters., Inc., 847 S.W.2d 289, 297 (Tex. App_El Paso 1992, writ denied) (oral assurances of job security were no basis for a fraud allegation, in light of contract provision providing for termination without cause); see also Bluebonnet Sav. Bank, F.S.B. v. Grayridge Apartment Homes, Inc., 907 S.W.2d 904, 908-09 (Tex. App._Houston [1st Dist.] 1995, writ denied); Webber v. M.W. Kellogg Co., 720 S.W.2d 124, 128 (Tex. App._Houston [14th Dist.] 1986, writ ref'd. n.r.e.).
        Likewise HHP denied ever promising Eyecare a five-year no-cut contract. Other disinterested witness at the March 11, meeting recalled Eyecare wanted such a contract, but they did not recall HHP promising such a contract. Even if such a promise was made, it would have been unenforceable because it was an oral contract for more than one year. See Tex. Bus. & Com. Code Ann. § 26.01(b)(6) (Vernon 1987); Gold Kist, Inc. v. Carr, 886 S.W.2d 425, 430 (Tex. App._Eastland 1994, writ denied). Just as the plaintiff in Gold Kist v. Carr, Eyecare was attempting to rely on an alleged oral promise for enforcement of an unenforceable contract. By basing its fraud allegation on the alleged promise to make a five year contract, Eyecare is seeking to recover what it would have gained had the promise been performed. Even if there was evidence that Eyecare relied on the representations regarding a five year contract, such reliance on an unenforceable promise will not form the basis for a fraud claim. See Gold Kist, Inc., 866 S.W.2d at 431. There can be no recovery for a fraud which is founded upon the breach of an unenforceable promise. Id.; see also Webber, 720 S.W.2d at 128.
        HHP concedes that its employee, Horrar, made a false and misleading statement when he told Eyecare that HHP was not negotiating with any other providers for the San Antonio vision care contract. In fact HHP was negotiating with Matus. HHP argues, however, that it was disingenuous for Eyecare to contend that it made what it describes as a noncompetitive offer because it believed it had no competition for the contract. As noted Eyecare made the offer in an attempt to resolve the co-pay problem and to secure a longer contract which could only be terminated for cause. The offer was made before the misrepresentation. In its brief Eyecare states “Had Eyecare not been defrauded into making an amalgamated offer to deal with noncompetitive issues, its competitive bid would have met Humana's criteria . . . .” We find this argument unpersuasive in light of the fact that it was Eyecare who sought to renegotiate the contract and it was Eyecare's decision to submit an “amalgamated offer.” Eyecare argues that even if it did not rely on the misrepresentation in making its proposal, it relied on the misrepresentation in not making its proposal better. It therefore concludes that it reasonably relied on the misrepresentation to its detriment. Eyecare cites Formosa Plastics Corp. v. Presidio Eng'rs and Contractors, Inc., 960 S.W.2d. 41 (Tex. 1998) as authority for its position that if a party fraudulently induces another party to make a bid that results in the bidding party suffering damages, the damages are compensable under a theory of fraud.
        In Formosa Plastics, the court allowed Presidio to recover damages caused by factual misrepresentations Formosa made while taking bids for a construction project at its plant. Presidio was the low bidder for the project. After the bid was let, Formosa failed to keep certain promises it had made during the bidding process. As a result of Formosa's misrepresentations, Presidio had difficulty completing the contract, and thereby suffered substantial damages. Clearly Formosa Plastics stands for the principal that when a person invites others to bid on a contract, the person issuing the invitation owes a duty to the bidding parties to not misrepresent the contract. In Formosa Plastics, the Court made it clear that misrepresentations made during a bid process may be actionable fraud.
        We find Eyecare's reliance on Formosa Plastics is misplaced because, unlike the plaintiff in Formosa Plastics, PVC was not damaged as a result of being awarded the new San Antonio contract.
        Clearly HHP reserved the right to assess all proposals and award the contract to whomever it pleased. Neither Eyecare nor any other provider had any right to bid on the contract, much less be awarded the contract, no matter what they bid. HHP had the legal right to determine its criteria for selecting its providers and it had every right to choose the provider regardless of whether the criteria was met.
        Eyecare also argues that it was injured when its noncompetitive bid was used as the reason to deny it further business. Even if Eyecare had proven this to be true, it could not recover because HHP did not need a reason for not giving Eyecare another contract. Because Eyecare had no right to any further business, it does not matter what reason HHP used for not giving the new contract to Eyecare. This absolute right of HHP to determine with whom it contracts prevents Eyecare from establishing the causal connection between its failure to make a better bid and its failure to get the contract. We decline Eyecare's invitation to extend the Formosa Plastics holding to facts such as these. FN:4
        Viewing only the evidence supporting the fraud finding we do not find a scintilla of evidence that the misrepresentations were the proximate cause of any injuries to Eyecare. Simply put Eyecare failed to prove that but for Horrar's misrepresentation and Eyecare's reliance, HHP would have agreed to a new five year no-cut contract or any other contract with Eyecare. The evidence is therefore legally insufficient. Having found the evidence legally insufficient we need not address HHP's challenge to the factual sufficiency of the evidence. Point two is therefore sustained. Having sustained the “no evidence” point, it is our duty to render a take nothing judgment. See Bradley's Elec., Inc. v. Cigna Lloyds Ins. Co., 995 S.W.2d 675, 677 (Tex. 1999).
        In light of our holding that the evidence was legally insufficient to support the jury finding of fraud, we need not fully discuss points three and four. Our finding that Horrar's misrepresentation was not the proximate cause of Eyecare's injuries, makes it inconsequential whether Leppert participated in the misrepresentation. Because any liability on the part of Humana is premised upon the conduct of Leppert and Horrar, there can be no proximate cause linking Human to Eyecare's injuries. Points three and four are therefore sustained. Having sustained the points we reverse the judgment against Leppert and Humana.
        Points five, six, seven, eight and nine also need not be addressed since they are challenges to the awarding of damages. There being no liability on the part of any of appellants, there is no need to address the issue or the propriety of the damages. Points five, six, seven, eight and nine are therefore moot. See Tex. R. App. P. 47.1.
        The judgment against all appellants is reversed and judgment rendered that Eyecare take nothing.


                                                          H. BRYAN POFF, JR
                                                          JUSTICE, ASSIGNED

Do Not Publish
Tex. R. App. P. 47

FN:1
1 The Honorable John Roach, Justice, participated in this cause at the time it was submitted to the panel for decision. Due to Justice Roach's retirement on June 30, 2001, he did not participate in the issuance of the opinion.

FN:2
2 The Honorable H. Bryan Poff, Jr., Retired Justice, Court of Appeals, Seventh District of Texas at Amarillo, sitting by assignment.

FN:3
3 While the court erred by including in its charge jury Question 7 (involving breach of the 1992 contract) and Question 3 (tortuous interference with the 1992 contract), the jury's answers against Eyecare on these issues makes the error harmless.

FN:4
4 We also note that Eyecare did not seek to recover its costs in preparing a bid. Thus evidence of any misrepresentations that Eyecare was induced to enter into the bidding process does not support the jury award.

File Date[07/26/2001]