Quanta Services Inc. v. American Administrative Group Inc.

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
December 2, 2008
No. 08-20252 Charles R. Fulbruge III
Summary Calender Clerk
QUANTA SERVICES INC
Plaintiff-Appellee
v.
AMERICAN ADMINISTRATIVE GROUP INC, formerly known as Gallagher
Benefit Administrators Inc
Defendant-Appellant
Appeal from the United States District Court
for the Southern District of Texas
Case No. 4:06-CV-1827
Before BENAVIDES, CLEMENT, and HAYNES, Circuit Judges.
PER CURIAM:*
Quanta Services, Inc. obtained a jury verdict that American
Administrative Group, Inc. (AAG) breached an oral agreement to record the
health insurance termination events of Quanta’s former employees in Quanta’s
human resources software program. Specifically, the jury found that AAG failed
to provide this service with respect to a former Quanta subsidiary employee, Roy
*
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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.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.
No. 08-10024
Stouder, causing Quanta to continue paying Stouder’s medical benefits for
fourteen months beyond his legal eligibility. AAG seeks reversal of the jury’s
verdict on a number of grounds, none of which warrant reversal. Accordingly,
we affirm the district court’s judgment.
I. FACTS
In January 2002, AAG agreed to provide third-party administrator
healthcare benefits to Quanta, a national utility contractor. AAG’s services to
Quanta included, among other things, entering COBRA health insurance
termination information into Quanta’s human resource software program,
known as the Employease program. COBRA coverage is the group health
coverage that Quanta makes available to its former employees in exchange for
a monthly premium. Quanta relies on the Employease program to pay its former
employees’ COBRA benefits. Thus, as long as a former employee remains active
in the COBRA portion of the Employease program, the employee will continue
receiving benefits despite any lapse in eligibility.
In late 2004, Quanta informed AAG that it planned to terminate AAG’s
medical third-party administrator services but requested that AAG continue
providing COBRA administrative services, including entering COBRA
termination information into the Employease program. Thereafter, Quanta
hired CIGNA as its new third-party administrator of medical benefits. In this
capacity, CIGNA relied on the information in Quanta’s Employease program to
determine which of Quanta’s former employees should receive COBRA benefits.
Although AAG submitted a proposal for AAG’s “stand alone” COBRA
administrative services in late 2004, the parties never reached a written
agreement. According to Quanta, AAG continued to provide these services
under an oral contract.
In July 2003, Stouder ceased his employment with Quanta’s subsidiary,
GEM, and elected to receive COBRA coverage. Stouder’s eligibility for COBRA
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benefits lapsed in late 2004. Quanta alleges that AAG failed to enter Stouder’s
COBRA termination information into the Employease program at this time,
although AAG did inform Stouder by letter of the lapse in his eligibility.
Nevertheless, from August 2005 through February 2006, Stouder falsely
represented to his healthcare providers that he was still a participant in
Quanta’s COBRA insurance plan. Because Stouder was incorrectly listed as
“active” for benefits in the COBRA portion of the Employease system despite the
lapse in his COBRA eligibility, CIGNA processed and paid approximately
$200,000 in medical bills incurred by Stouder from Quanta’s self-funded health
plan.
Quanta contends that it discovered AAG’s failure to terminate Stouder’s
status in the COBRA portion of the Employease program in January 2006, and
filed this lawsuit against AAG shortly thereafter. A jury returned a verdict in
Quanta’s favor, finding that AAG breached an oral agreement with Quanta to
enter COBRA termination information in the Employease program and awarded
Quanta $100,000 in damages. The district court awarded Quanta $116,767 in
attorneys’ fees and entered judgment on the verdict. AAG appeals.
II. DISCUSSION
A. Failure to Grant Summary Judgment and Directed Verdict
AAG raises a number of issues on appeal, some of which warrant more
discussion than others. Initially, AAG contends that the district court erred in
denying its motion for summary judgment and, alternatively, that the evidence
at trial was insufficient to support the jury’s verdict. Both arguments lack
merit. A party cannot challenge the denial of a motion for summary judgment
on the merits following the district court’s entry of judgment on an adverse jury
verdict. See Brown v. Slenker, 220 F.3d 411, 421 n.9 (5th Cir. 2000); Black v. J.I.
Case Co., 22 F.3d 568, 569-70 (5th Cir. 1994). Generally, we could review the
issues raised by AAG’s motion for summary judgment in the context of its
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preverdict motion for judgment as a matter of law under FED. R. CIV. P. 50(a).
Brown, 220 F.3d at 421 n.9. But AAG neither re-urged its Rule 50 motion
postverdict nor filed a motion for new trial under FED. R. CIV. P. 59, and thus
waived these challenges. Unitherm Food Sys., Inc. v. Swift-Eckrich, Inc., 546
U.S. 394, 400-01 (2006); Downey v. Strain, 510 F.3d 534, 543 (5th Cir. 2007).
Accordingly, our review is limited to plain error. Polanco v. City of Austin, 78
F.3d 968, 974 (5th Cir. 1996). Under this standard, we ask “only whether the
plaintiff has presented any evidence in support of his claim.” Id. (emphasis in
original). Applying this deferential standard, the evidence was plainly sufficient
to support the jury’s verdict.1
B. Exclusion of Testimony
AAG also contends that the district court erred in excluding the testimony
of former Quanta employee Kristi Prevost, who was not disclosed in discovery
or on AAG’s witness list.
At trial, one of AAG’s principle defenses was Quanta’s purported failure
to mitigate its damages by ceasing payment of Stouder’s COBRA benefits at an
earlier date. In support of this argument, AAG relied on a January 11, 2006
email chain between Quanta employees Kristi Prevost and Denise Schoth,
arguing that certain statements made by Prevost in the emails demonstrated
Quanta was aware of the lapse in Stouder’s COBRA eligibility months before it
stopped paying his benefits. In contrast, Quanta argued that the email chain
itself was the first notice it received of the lapse in Stouder’s COBRA eligibility,
and Quanta elicited testimony to this effect at trial. According to AAG, this
testimony was an “unexpected” and “surprising” interpretation of the email
1
AAG points to testimony stating that its employee Betsy Shelton had the authority
to generate and negotiate the provision of COBRA services but lacked the authority to sign an
agreement to provide such services. However, the jury was adequately instructed on both
actual and apparent authority. AAG does not contend that Shelton lacked apparent authority
and has not otherwise briefed the issue.
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No. 08-10024
chain that contradicted its plain meaning. Accordingly, AAG attempted to call
Prevost, a witness it had not previously disclosed, to rebut the testimony of
Quanta’s witnesses.
The district court excluded Prevost’s testimony based, in part, on AAG’s
failure to disclose Prevost on the pretrial witness list.2 We will not disturb “a
trial court’s decision to exclude evidence as a means of enforcing a pretrial order
. . . absent a clear abuse of discretion.” Geiserman v. MacDonald, 893 F.2d 787,
790 (5th Cir. 1990). AAG argues that it was not required to include Prevost on
the pretrial witness list because the parties’ joint pretrial order permitted the
calling of previously undisclosed “rebuttal or impeaching witnesses, the necessity
of whose testimony [could not] reasonably be anticipated before the time of trial.”
We disagree that Prevost constituted a rebuttal or impeaching witness in this
situation. As the pretrial order recognizes, “a defense witness whose purpose is
to contradict an expected and anticipated portion of the plaintiff’s case in chief
can never be considered a ‘rebuttal witness,’ or anything analogous to one.”
Morgan v. Commercial Union Assurance Cos., 606 F.2d 554, 556 (5th Cir. 1979).
Here, Quanta specifically argued in its summary judgment motions that the
January 11, 2006 email chain was the first notice it received that Stouder
continued to receive COBRA benefits despite the lapse in his eligibility. Thus,
it should have been clear to AAG that the proper interpretation of the January
11, 2006 email chain was very much in dispute and that Quanta would attempt
to elicit testimony contradicting what AAG perceived to be the email chain’s
plain meaning. Accordingly, Prevost was a witness that AAG had to disclose on
2
The district court also excluded Prevost’s testimony because AAG had knowledge of
Prevost’s current contact information yet failed to provide it to Quanta as required by FED. R.
CIV. P. 26(a). FED. R. CIV. P. 37(C)(1) imposes a mandatory sanction prohibiting the
introduction of evidence that, without substantial justification, has not been disclosed as
required by Rule 26(a) unless the failure to disclose is harmless. AAG has not substantially
justified its failure to provide Quanta with this information and Quanta alleges that it did not
have the information prior to trial. Accordingly, the failure to disclose was not harmless.
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the pretrial witness list. We conclude that the district court properly exercised
its discretion in excluding Prevost’s testimony.
C. Jury Charge
AAG also maintains that the district court erred by failing to submit
certain proposed questions and instructions to the jury.
1. Standard of Review
District courts enjoy substantial latitude in formulating jury instructions.
Kanida v. Gulf Coast Med. Pers. LP, 363 F.3d 568, 578 (5th Cir. 2004). We
review the jury charge and the verdict form for abuse of discretion. Gen.
Universal Sys., Inc. v. Lee, 379 F.3d 131, 153 (5th Cir. 2004). In resolving a
challenge to the district court’s instructions, we apply a two-part test. The party
challenging the instructions must first “demonstrate that the charge as a whole
creates substantial and ineradicable doubt whether the jury has been properly
guided in its deliberations.” Russell v. Plano Bank & Trust, 130 F.3d 715, 719
(5th Cir. 1997) (internal quotation marks omitted). Second, even where a jury
instruction was erroneous, “we will not reverse if we determine, based upon the
entire record, that the challenged instruction could not have affected the
outcome of the case.” Id. (internal quotation marks omitted).
A district court’s refusal to give a proffered question or instruction
constitutes reversible error only if the question or instruction: (1) constituted
a substantially correct statement of the law, (2) was not substantially covered
by the charge as a whole, and (3) concerned an important point in the trial such
that the failure to instruct the jury on the issue seriously impaired the party’s
ability to present a given claim or defense. Kanida, 363 F.3d at 578.
Applying these principles, we conclude that the district court properly
instructed the jury.
2. Discussion
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No. 08-10024
a. Contract Formation
AAG contends that it was prejudiced by the district court’s failure to use
the word “contract” in its charge, and by the district court’s failure to instruct
the jury regarding the elements needed to form a legally binding contract.
Specifically, AAG requested the following instruction:
Plaintiff must prove the existence of a contract that contained the
terms Quanta seeks to enforce. A contract may be either written or
oral. Creation of a contract requires an offer, an acceptance,
consideration, and a meeting of the minds.
AAG also submitted a proposed question on the contract formation issue.
The question asked the jury whether a “contract” existed between the parties in
which AAG agreed to enter COBRA termination events into Quanta’s
Employease program. The court rejected AAG’s proposed instruction and
question and instead submitted a question asking the jury whether the parties
agreed that AAG would enter COBRA termination events into the Employease
program. The court proceeded to instruct the jury as follows:
In deciding whether the parties reached an agreement, you may
consider what they said and did in light of the surrounding
circumstances, including any earlier course of dealings. You may
not consider the parties’ unexpressed thoughts or intentions.
Notably, the contract formation question and instruction submitted by the
district court came directly from the Texas Pattern Jury Charge. See TEXAS
PATTERN JURY CHARGES PJC 101.1, 101.3. While the pattern charges are not
binding, they are persuasive. Melissinos v. Phamanivong, 823 S.W.2d 339, 343
(Tex. App.–Texarkana 1991, writ denied). The district court’s charge is typical
of Texas state courts’ charges on this state law question. See, e.g., Arthur J.
Gallagher & Co. v. Dieterich, No. 05-07-00239-CV, 2008 Tex. App. LEXIS 8151,
*4 (Tex. App.–Dallas Oct. 27, 2008, no pet.) (using language identical to that
used by district court here); Bowen v. Robinson, 227 S.W.3d 86, 90 n.2 (Tex.
App.–Houston [1st Dist.] 2006, pet. denied) (same). The word “agreement” is
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No. 08-10024
commonly used because the determination of whether an agreement is a legally
binding contract is a question of law, whereas the question, when disputed, of
whether an agreement was reached is one of fact. See Komet v. Graves, 40
S.W.3d 596, 601-02 (Tex. App.–San Antonio 2001, no pet.). It can hardly be an
abuse of discretion for a federal district court to charge the jury in a manner
pervasively used by the state which provides the governing law.
Moreover, by asking the jury to look to the objective facts and determine
whether AAG and Quanta reached an agreement, the district court’s instruction
adequately encompassed the concepts of offer, acceptance, and meeting of the
minds. A “meeting of the minds” is nothing more than an agreement, see W.
Brokerage & Supply Co. v. Reclamation, 93 S.W.2d 393, 394 (Tex. 1936) (using
the terms meeting of the minds and agreement interchangeably in the contract
context), and the concepts of offer and acceptance are implicit within the
question “did the parties agree?”
AAG also faults the district court for failing to instruct the jury that a
binding contract requires consideration. Quanta contends that it reached an
oral agreement that AAG would continue services for COBRA participants on
the same terms as before, terms which included payment. AAG denied the
agreement. Thus, the question was agreement, not consideration. It is also
undisputed that Quanta paid AAG for the continued provision of its COBRA
services, and thus the evidence did not support a question on failure of
consideration. To the extent that AAG challenges the adequacy of the
consideration paid by Quanta for AAG’s provision of Employease data entry
services, that was a question of law for the court, not the jury. See Williams v.
Hill, 396 S.W.2d 911, 913 (Tex. Civ. App.–Dallas 1965, no writ.).
b. Damages
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AAG further contends that the district court failed to instruct the jury on
consequential damages. But the court instructed the jury at length regarding
damages. Those damage instructions included the following:
You may award compensatory damages only for injuries that
Plaintiff proves were proximately caused by Defendant’s allegedly
wrongful conduct. The damages that you award must be fair
compensation for all of Plaintiff’s damages, no more and no less.
Damages are not allowed as punishment and cannot be imposed or
increased to penalize the defendant. You should not award
compensatory damages for speculative injuries, but only for those
injuries which Plaintiff has actually suffered.
We conclude that the district court adequately instructed the jury on
damages.
c. Commercial Impracticability
AAG further contends that the district court erred in refusing to submit
to the jury AAG’s defense of commercial impracticability. AAG asserts that an
instruction on the defense was warranted because the evidence at trial showed
that the Employease program did not always properly save inputted data.
Although the doctrine of commercial impracticability constitutes a defense
to the performance of a contract under Texas law, Centex Corp. v. Dalton, 840
S.W.2d 952, 954 (Tex. 1992), we do not find the doctrine applicable to these facts.
The Texas Supreme Court has adopted the Restatement’s articulation of the
doctrine: “Where . . . a party’s performance is made impracticable . . . by the
occurrence of an event the non-occurrence of which was a basic assumption on
which the contract was made, his duty to render that performance is discharged
. . . .” Id. (quoting RESTATEMENT (SECOND) OF CONTRACTS § 261 (1981)). The
comment under § 261 states that events that come within the rule are generally
due either to “acts of God” or to acts of third parties. RESTATEMENT (SECOND) OF
CONTRACTS § 261 cmt. d. In contrast, “[i]f the event that prevents the obligor’s
performance is caused by the obligee, it will ordinarily amount to a breach by the
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No. 08-10024
latter.” Id. Here, AAG’s argument is that Quanta’s system did not perform
adequately. Commercial impracticability simply does not fit the facts presented.
Thus, the district court did not abuse its discretion in excluding AAG’s
commercial impracticability question.
D. Attorney’s Fees
Finally, AAG contends that the district court abused its discretion by
awarding excessive attorney’s fees to Quanta. AAG notes that while Quanta
sought close to $200,000 in damages, the jury awarded only $100,000, and thus
AAG argues that Quanta should receive only half of the $116,767.68 that the
district court awarded in fees.
In diversity cases such as these, attorney’s fees awards, which are
“entrusted to the sound discretion of the trial court,” are governed by state law.
Tex. Commerce Bank Nat’l Ass’n v. Capital Bancshares, Inc., 907 F.2d 1571, 1575
(5th Cir. 1990). In determining whether attorney’s fees are excessive, this Court
is “entitled to look at the entire record and to view the matter in light of the
testimony, the amount in controversy, the nature of the case, and our common
knowledge and experience as lawyers and judges.” Mid-Continent Casualty Co.
v. Chevron Pipe Line Co., 205 F.3d 222, 232 (5th Cir. 2000) (quoting Giles v.
Cardenas, 697 S.W.2d 422, 429 (Tex. App.–San Antonio 1985, writ ref’d n.r.e.)).
The factors articulated by this Court in Johnson v. Ga. Highway Express, Inc.,
488 F.2d 714, 717-19 (5th Cir. 1974), to the extent adopted by the Texas
Supreme Court in Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812,
818 (Tex. 1997), are all relevant to this inquiry. While the amount of damages
that a plaintiff recovers is certainly relevant to the proper award of attorney’s
fees, it “is only one of many factors that a court must consider when calculating
an award of attorneys’ fees.” Saizan v. Delta Concrete Prods. Co., 448 F.3d 795,
803 n.42 (5th Cir. 2006) (citation omitted). But see Northwinds Abatement, Inc.
v. Employers Ins. of Wausau, 258 F.3d 345, 354 (5th Cir. 2001) (noting that the
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No. 08-10024
“degree of success obtained” by a prevailing plaintiff is the “most critical factor”
in determining an award of attorney’s fees). Under Texas law, disproportion
alone will not render an attorney fee award excessive. See Northwinds, 258 F.3d
at 355 (citing Gorman v. Countrywood Prop. Owners Ass’n, 1 S.W.3d 915 (Tex.
App.–Beaumont 1999, pet. denied)); Saizan, 448 F.3d at 803 (noting that “there
is no per se proportionality rule”). Indeed, Texas appellate courts have found
awards reasonable even in situations where the amount of attorney’s fees far
surpasses the amount of actual damages. See, e.g., Bencon Mgmt. & Gen.
Contracting, Inc. v. Boyer, Inc., 178 S.W.3d 98, 209-10 (Tex. App.–Houston [14th
Dist.] 2005, no pet.).
In making its fee award, the district court noted that the case involved
hundreds if not thousands of documents, written discovery, several depositions,
and lengthy competing motions for summary judgment and responsive motions.
The court observed that nothing in Quanta’s billing records suggested a lack of
reasonableness or necessity to the work it performed. Under these
circumstances, we agree with the district court that the lack of proportionality
between Quanta’s attorneys’ fees and its actual damages does not alone render
the fee award excessive. The award is sustained.
III. CONCLUSION
The judgment of the district court is AFFIRMED.
11