Gillum v. Milbank

United States Court of Appeals
Fifth Circuit
F I L E D
June 10, 2003
UNITED STATES COURT OF APPEALS
Charles R. Fulbruge III
FOR THE FIFTH CIRCUIT Clerk
_______________________
No. 02-10866
_______________________
IN RE: TRI-CITY HEALTH CENTRE, INC.,
Debtor
-------------------------------------
RANDOLPH ROYAL GILLUM; TEXAS SUMMIT
CORPORATION; SURGERY & DIAGNOSIS INCORPORATED,
Appellants,
versus
ROBERT MILBANK, JR., Trustee for Tri-City
Health Centre, Inc.; UNITED STATES OF AMERICA,
Appellees.
________________________________________________________________
Appeal from the United States District Court
for the Northern District of Texas, Dallas Division
Civil Docket 01-CV-1352
_________________________________________________________________
Before DAVIS, JONES, and BENAVIDES, Circuit Judges.
PER CURIAM:*
*
Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
Randolph R. Gillum, Texas Summitt Corporation (“TXS”),
and Surgery & Diagnosis Incorporated (“SDI”) appeal from the
district court’s affirmance of the bankruptcy court’s judgment in
favor of Tri-City Health Care Centre (“TCHC”) on its breach of
fiduciary duty and fraud claims and in favor of the United States
of America on its claims under the False Claims Act, 31 U.S.C. §
3729 et seq. (2000). We hold that the bankruptcy court and
district court erred in finding a settlement agreement to which
Gillum, TXS, and TCHC were parties did not contain a release of the
claims brought by TCHC in this case. We also hold that the
bankruptcy court and district court did not err in finding
sufficient evidence to support the verdict in favor of the
Government on its claims under the False Claims Act. Therefore, we
affirm in part, and reverse in part.
BACKGROUND
TCHC filed for Chapter 11 bankruptcy protection on July
3, 1998. On August 11, 1999 TCHC initiated an adversary proceeding
against Gillum, Karen Gillum, TXS, and SDI alleging that they
breached their fiduciary duty to TCHC, were involved in a civil
conspiracy, and were unjustly enriched by transactions between TCHC
and TXS. TCHC also asserted a fraud claim against Gillum and TXS.
On October 21, 1999, the United States of America (“Government”),
on behalf of Medicare, intervened in the lawsuit against Defendants
alleging violations of the False Claims Act (“FCA”), common law
2
fraud, and unjust enrichment. In October 2000, the bankruptcy
proceeding was converted to a Chapter 7 liquidation and Robert
Milbank, Jr. was appointed as Trustee and was substituted into the
lawsuit on behalf of TCHC.
The claims of TCHC and the Government arise out of two
sets of transactions between TCHC and TXS. At the times of these
transactions, Gillum was TCHC’s CEO and a member of its Board of
Directors. During this time period, Gillum was also the sole
shareholder and President of TXS (a subchapter S corporation).
The first transaction involves the sale of a CT Scan
machine to TCHC in 1990. The CT Scan machine was purchased by TXS
in 1988 and listed as an asset on its books; the documentation of
the sale, however, identified SDI as the seller of the machine.
TXS purchased the CT Scan machine for $145,000 and sold it to TCHC
for $893,000, for a profit of $748,000. The second set of
transactions relate to contracts wherein TCHC hired TXS to perform
construction work between 1989 and 1994. While the construction
only cost TXS $5,000,000 to perform, TXS charged TCHC over
$12,000,000, resulting in a $7,000,000 profit for TXS. Gillum
concedes that these profits were excessive and that his receipt of
the profits (through TXS) constitutes a breach of fiduciary duty.
Before the bankruptcy court, Gillum argued that TCHC’s
claims were barred by the statute of limitations and that neither
the discovery rule nor the doctrine of fraudulent concealment could
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toll the running of the statute. Gillum also argued that TCHC had
released any potential claims it had against him as both Gillum and
TCHC were parties to a settlement agreement executed to resolve a
suit brought by the Texas Attorney General (“AG”) in 1993 alleging
that Gillum, TCHC, and TXS, inter alia, “used the charitable assets
of TCHC for private gain rather than for the exclusively charitable
purposes permitted by Texas law.” The AG’s complaint included
allegations related to the construction contracts and excessive
rates charged by TXS as well as allegations related to the CT Scan
machine transaction.
The Government’s FCA claims also arise out of the CT Scan
machine transaction and the construction contracts. The
Government’s claims are based upon the fact that TCHC’s payments to
TXS were reimbursed by Medicare. Because TXS and TCHC are related
parties, TCHC was only entitled to receive reimbursements for its
payments to TXS that covered TXS’s costs in providing the goods and
services. The Government alleged that TXS, Gillum, and SDI made
false statements when they failed to disclose their costs related
to these transactions to TCHC and then misled TCHC when TCHC was
required to report TXS’s and SDI’s costs to Medicare since they
were all related parties. The Government also alleged that Gillum,
TXS, and TCHC made false claims themselves by submitting vouchers
and invoices to TCHC for payment without disclosing the necessary
cost information and then misleading TCHC as to their costs.
4
With the consent of the parties, the bankruptcy court
held a jury trial on the Government’s and TCHC’s claims. The jury
returned a verdict in favor of TCHC finding the defendants liable
for breach of fiduciary duty and that Gillum and TXS had committed
fraud, and civil conspiracy, and were unjustly enriched by the
hospital. As to Gillum’s statute of limitations defense, the jury
concluded that TCHC neither knew nor should have known about its
claims related to the CT Scan machine until April 30, 1998 and the
construction contracts until March 30, 1999. Furthermore, the jury
concluded that TCHC did not release its claims against Gillum and
TXS as part of the settlement agreement with the AG.
The jury also found that Gillum, TXS, and SDI violated
the False Claims Act because each had knowingly presented a false
or fraudulent claim to Medicare; had knowingly made, used, or
caused to be made or used, a false record or statement to get a
false or fraudulent claim paid; and conspired to defraud the
government by getting a false or fraudulent claim allowed. The
jury found that Gillum, TXS, and SDI had committed common law fraud
against the Government and that they acted with malice or
willfulness as to the rights of the United States.
The bankruptcy court entered judgment in favor of TCHC
against Gillum for $7,233,500 in actual damages, $668,051.18 in
prejudgment interest, and $3,600,000 in punitive damages.
Additionally, the court entered judgment in favor of the Government
5
against Gillum, TXS, and SDI, jointly and severally for $3,000,000
in actual and treble damages. Further, the court entered judgment
in favor of the government in the amount of $1,198,500 against
Gillum, $1,190,000 against TXS, and $8500 against SDI as statutory
penalties for violating the FCA. The Defendants moved
unsuccessfully for judgment as a matter of law or new trial.
Gillum, TXS, and SDI appealed to the district court, which affirmed
the judgment of the bankruptcy court.
DISCUSSION
“Bankruptcy court rulings and decisions are reviewed by
a court of appeals under the same standards employed by the
district court hearing the appeal from bankruptcy court;
conclusions of law are reviewed de novo, findings of fact are
reviewed for clear error, and mixed questions of fact and law are
reviewed de novo.” Century Indem. Co. v. NGC Settlement Trust (In
re National Gypsum Co.), 208 F.3d 498, 504 (5th Cir. 2000).
We review a district court's ruling on a motion for
judgment as a matter of law de novo. Industrias Magromer Cueros y
Pieles S.A. v. La. Bayou Furs, Inc., 293 F.3d 912, 918 (5th Cir.
2002). Judgment as a matter of law is proper when "a party has
been fully heard on an issue and there is no legally sufficient
evidentiary basis for a reasonable jury to find for that party on
that issue." Fed. R. Civ. P. 50(a). In reviewing denial of a
motion for JMOL, the court must review the record "taken as a
6
whole." Phillips v. Monroe County, 311 F.3d 369, 373 (5th Cir.
2002) (quoting Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S.
133, 150 (2000)). In reviewing the evidence in the record, we must
"draw all reasonable inferences in favor of the nonmoving party"
and "not make credibility determinations or weigh the evidence."
Id. (quoting Reeves, 530 U.S. at 150). The court “must give
credence to the evidence supporting the nonmovant as well as any
evidence supporting the moving party that is uncontradicted,
unimpeached, and not attributable to interested witnesses.” Id.The court “must disregard all evidence favorable to the moving
party that the jury is not required to believe.” Reeves, 530 U.S.
at 151.
TCHC’s Claims
Gillum argues that TCHC released the claims upon which it
recovered in this case as part of a settlement agreement arising
out of the AG’s 1993 lawsuit against both parties. The AG’s 1993
suit alleged that TCHC, TXS, and Gillum “used the charitable assets
of TCHC for private gain rather than for the exclusively charitable
purposes permitted by Texas law.” The settlement agreement
includes pre-printed and handwritten provisions. Paragraph 4 of
the settlement agreement stated that
The Parties agree to release, discharge, and forever hold
the other harmless from any and all claims, demands or
suits, known or unknown, fixed or contingent, liquidated
or unliquidated, whether or not asserted in the above
case, as of this date, arising from or relating to the
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events and transactions which are the subject matter of
this case, except for the following: or alleged in any
manner in connection with this case.1
The settlement agreement defines “party” as all named parties to
the case. TCHC, TXS, and Gillum were all named as defendants in
the AG’s suit. In addition to this general release, there are also
handwritten, specific releases of claims among Gillum, TXS, and
TCHC.2
The bankruptcy court held that the settlement agreement
was ambiguous as a matter of law because in its view the general
release and the specific releases within the settlement agreement
were contradictory. In light of its conclusion, the bankruptcy
court allowed the jury to hear extrinsic evidence that the
settlement agreement only intended to release the claims of the AG
1
The strikeout appears in the original.
2
There are nine handwritten paragraphs appended to the
settlement agreement form. The first three paragraphs state that
1. Texas Summitt Corporation and/or Randolph R. Gillum,
D.O. will agree to release to Tri-City Health Centre,
Inc. all remaining claims for payment for construction
and back management fees including fees owing to Texas
MRI.
2. Randolph R. Gillum, D.O. and/or Texas Summitt
Corporation will agree to release to Tri-City Health
Centre, Inc. all claims for reimbursement for the
hospital’s use of aircraft.
3. Randolph R. Gillum, D.O. will agree to pay to Tri-City
Health Centre, Inc. $100,000 and to pay to the Attorney
General $30,000 on or before April 1, 1994.
8
against TCHC, Gillum, and TXS, but not any claims that might exist
among TCHC, Gillum, and TXS. The jury found that TCHC did not
release its claims against Gillum as part of the 1993 settlement
agreement.
Gillum challenges the bankruptcy court’s holding that the
settlement agreement was ambiguous. To the contrary, Gillum argues
that if correctly interpreted, the agreement provides that TCHC
released Gillum from any claims arising out of the CT Scan
transaction or the construction contracts. We agree with Gillum
that the settlement agreement is not ambiguous and under its plain
meaning TCHC released the claims it brought against Gillum in this
case.
“Like any other agreement, a release is subject to the
rules of construction governing contracts.” Baty v. Protech Ins.
Agency, 63 S.W.3d 841, 848 (Tex. App.–Houston [14th Dist.] 2001,
pet. denied). “A contract is ambiguous only if ‘it is reasonably
susceptible to more than one meaning.’” Matador Petroleum Corp. v.
St. Paul Surplus Lines Ins. Co., 174 F.3d 653, 657 (5th Cir. 1999)
(quoting Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983)). Parol
or extrinsic evidence may not be used to create an ambiguity; it
may be used to interpret a contract only where the court first
determines that the contract is in fact ambiguous. Leasehold
Expense Recovery, Inc. v. Mothers Work, Inc., 2003 WL 21136731, at
9
*5 (5th Cir. May 19, 2003); Nat'l Union Fire Ins. Co. v. CBI
Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995).
The settlement agreement explicitly states that the
parties to the agreement, which included TCHC, Gillum, and TXS,
release all claims arising out of the events and transaction which
were the subject matter of the AG’s suit. The petition filed by
the AG included allegations of wrongdoing by TXS and TCHC related
to the CT Scan transaction and the construction contracts at issue
in this case. Thus, the settlement agreement on its face plainly
constitutes a release by TCHC in favor of TXS and Gillum on the
claims brought by TCHC in this case.
TCHC makes two arguments supporting an ambiguity in the
language of the settlement agreement. TCHC first argues that the
settlement agreement is ambiguous because reading the general
release to cover all claims between TCHC and Gillum/TXS would
render the specific release clauses meaningless. Thus, to preserve
the meaning of the specific releases, the general release could
reasonably be construed only to release the AG’s claims against
Gillum, TCHC, and TXS but not the claims among Gillum, TCHC, and
TXS.
This argument lacks merit. It is certainly true that
specific contractual terms control over the general terms.
O'Connor v. O'Connor, 694 S.W.2d 152, 155 (Tex. App.–San Antonio
1985, writ ref'd n.r.e.). But, it is also a fundamental principle
10
of contract interpretation that every clause of a contract is
intended to have some effect. Calpetco 1981 v. Marshall
Exploration, Inc., 989 F.2d 1408, 1413 (5th Cir. 1993) (citing
Westwind Exploration, Inc. v. Homestate Sav. Ass'n, 696 S.W.2d 378(Tex. 1985)). In this case, there is no conflict between the
general and specific releases in the settlement agreement. The
specific releases dispose of certain potential, specifically
identified claims that TCHC could bring while the general release
covers all other claims. While the general release covers the
claims addressed in the specific releases, it does not render them
a nullity.
To accept TCHC’s argument would require this court to
state that any settlement agreement which contains a general
release followed by specific releases is ambiguous per se. This is
wrong. There is nothing inherently ambiguous about a settlement
agreement that contains both a general release of claims between
parties and specific releases regarding some claims that would fall
within the terms of the general release.
TCHC’s second argument is that the settlement agreement
was ambiguous based on the facts and circumstances present at the
time the settlement agreement was executed. TCHC points out that
TXS, Gillum, and TCHC presented a joint defense, were never adverse
to one another, and never filed cross-claims against one-another.
Further, there was never any discussion of releasing claims among
11
themselves during the pendency of the 1993 AG’s suit. Thus, TCHC
concludes that the scope of the general release is ambiguous.
It is true that "whether a contract is ambiguous is a
question of law for the court to decide by looking at the contract
in light of the circumstances existing at the time the contract was
entered into." U.S. Quest, Ltd. v. Kimmons, 228 F.3d 399, 403 (5th
Cir. 2000) (quoting Reilly v. Rangers Mgmt., Inc., 727 S.W.2d 527,
529 (Tex. 1987)). The circumstances that TCHC calls to the court’s
attention, however, do not render the settlement agreement
ambiguous. “Where the contract language is clear and definite, the
contract is not ambiguous and the court must apply the plain
language as a matter of law.” Int'l Turbine Servs., Inc. v. VASP
Brazilian Airlines, 278 F.3d 494, 497 (5th Cir. 2002) (citing
DeWitt County Elec. Co-op., Inc. v. Parks, 1 S.W.3d 96, 100 (Tex.
1999)). Here the language plainly releases TCHC’s claims arising
out of the CT Scan transaction and the construction contracts.
That TCHC was not adverse to Gillum and TXS in 1993 with respect to
the AG suit does not prove that the parties did not intend to
release any claims they may have among one another arising out of
the transactions at issue in the AG’s suit. In fact, the
settlement agreement explicitly provides for Gillum and TXS
releasing claims to TCHC. The plain language is binding.
Since the 1993 settlement agreement constituted a release
by TCHC of the claims it made against Gillum and TCHC in this case,
12
the bankruptcy court erred in finding the settlement agreement to
be ambiguous and allowing the introduction of parol evidence to
interpret the agreement. The entry of judgment in favor of TCHC
must be reversed.3
Government’s Claims
Gillum, TXS, and SDI challenge the sufficiency of the
evidence supporting the jury’s verdict that they knowingly caused
to be presented to Medicare a false or fraudulent claim for payment
in violation of 31 U.S.C. § 3729(a)(1) and that they knowingly,
made, used, or caused to be made or used a false record or
statement to get a false or fraudulent claim paid by Medicare in
violation of 31 U.S.C. § 3729(a)(2).4 The FCA claims relate to the
3
Since we hold that the judgment in favor of TCHC must be
reversed based upon the settlement agreement, we need not reach
whether the claims against Gillum and TXS were barred by the
statute of limitations.
4
(a) Any person who--
(1) knowingly presents, or causes to be presented, to an officer
or employee of the United States Government or a member of the
Armed Forces of the United States a false or fraudulent claim for
payment or approval;
(2) knowingly makes, uses, or causes to be made or used, a false
record or statement to get a false or fraudulent claim paid or
approved by the Government;
(3) conspires to defraud the Government by getting a false or
fraudulent claim allowed or paid;
...
is liable to the United States Government for a civil penalty of
not less than $ 5,000 and not more than $ 10,000, plus 3 times the
amount of damages which the Government sustains because of the act
of that person.
31 U.S.C. § 3729(a) (2000).
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same CT Scan and construction transactions as TCHC’s claims. At
trial, the government adduced evidence of two different types of
false claims: Medicare Cost Reports filed by TCHC from 1990-1996
and the accompanying HCFA 339 forms submitted by TCHC to Medicare
and invoices submitted by TXS and SDI for CT Scan machine and the
construction work provided by TXS. Having reviewed the briefs and
the record, we find that there is sufficient evidence to support
the verdict in favor of the government.
CONCLUSION
For the foregoing reasons, we reverse and render judgment
in favor of Gillum and TXS on TCHC’s claims and we affirm the
judgment for the United States.
AFFIRMED IN PART, REVERSED IN PART.
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