Alta Mesa Holdings, L.P., Alta Mesa Acquisition Sub, LLC, the Meridian Resource & Exploration LLC Change in Control Severance Plan, and the Meridian Resource & Exploration, LLC v. Steven Ives and Lloyd Delano

Affirmed in Part as Modified, Reversed and Rendered in Part, and Opinion filed
April 14, 2016.
In The
Fourteenth Court of Appeals
NO. 14-14-00739-CV
ALTA MESA HOLDINGS, L.P., ALTA MESA ACQUISITION SUB, LLC, THE
MERIDIAN RESOURCE & EXPLORATION LLC CHANGE IN CONTROL
SEVERANCE PLAN, AND THE MERIDIAN RESOURCE & EXPLORATION,
LLC, Appellants
V.
STEVEN IVES AND LLOYD DELANO, Appellees
On Appeal from the 152nd District Court
Harris County, Texas
Trial Court Cause No. 2011-06887
OPINION
Appellees, Steven Ives and Lloyd Delano, sued appellants, Alta Mesa Holdings,
L.P. (Holdings), Alta Mesa Acquisition Sub, LLC (Acquisition Sub), The Meridian
Resource & Exploration LLC Change in Control Severance Plan (the Severance Plan),
and The Meridian Resource & Exploration, LLC (TMRX), for breach of their
employment agreements as well as claims under the Employee Retirement Income
Security Act (ERISA).1 Appellees sought severance benefits under both their
employment agreements and the Severance Plan. After a bifurcated trial in which the
employment agreement claims were tried to a jury and the ERISA claims were tried to
the bench, the trial court rendered judgment awarding appellees damages on both the
breach of contract and ERISA claims. In three issues and multiple sub-issues,
appellants contend that the trial court erred in awarding appellees damages under the
Severance Plan, damages under the employment agreements, and attorney’s fees under
Chapter 38 of the Texas Civil Practice and Remedies Code. We affirm in part and
reverse and render in part.
I. Background
In 2010, appellees were officers and employees of TMRX, which at the time was
a subsidiary of The Meridian Resource Corporation (Meridian). Appellees both entered
employment agreements with TMRX and were covered by the Severance Plan. In May
2010, Meridian merged into Acquisition Sub, which was itself a subsidiary of Holdings
created for purposes of the merger.2
Both the employment agreements and the Severance Plan permitted appellees to
resign for “Good Reason” and thereafter receive severance benefits. Both men tendered
their resignations on February 1, 2011, citing Good Reason for doing so. They
subsequently asserted that their job responsibilities had been significantly reduced post-
merger, which they contend constituted Good Reason for the resignations under both the
1
29 U.S.C. §§ 1001–1461.
2
Employee-friendly severance plans and employment agreements, such as the ones at issue in
this case, are often used by companies anticipating a change in control in order to retain key executives
during the uncertainty of a potential merger or acquisition. Such agreements are commonly referred to
as “golden parachutes.” See Elloway v. Pate, 238 S.W.3d 882, 887 n.1 (Tex. App.—Houston [14th
Dist.] 2007, no pet.); Greathouse v. Glidden Co., 40 S.W.3d 560, 566 (Tex. App.—Houston [14th
Dist.] 2001, no pet.).
2
Severance Plan and the employment agreements. Appellees filed the present lawsuit on
the same day that they tendered their resignations. Appellants to date have not paid
appellees benefits under either the Severance Plan or the employment agreements.
By its terms, the Severance Plan is administered by a committee, which was
defined to consist of Joseph Reeves, Meridian’s founder and one-time chief executive
officer, and Michael Mayell, Meridian’s president and chief operating officer. The plan
further provided that upon a “Change in Control,” defined so as to include a merger, the
committee would include “such individuals as may be appointed by Joseph Reeves and
Michael Mayell.” It is undisputed that at no point have Reeves and Mayell appointed
anyone else to be on the committee.
Post-merger, TMRX attempted to appoint its new manager, Harlan Chappelle, as
the sole member of the committee. TMRX further attempted to adopt a series of three
amendments to the plan documents. The validity of Chappelle’s appointment and the
three amendments was a principal dispute below and continues to be so in this appeal.
The first amendment, made at the same time as Chappelle’s appointment and
executed by him as TMRX’s manager, redefined committee to mean “one or more
individuals as may be appointed by the Board of Managers of TMRX to serve as the
Committee until such time as removed or replaced by the Board of Managers of TMRX
in its discretion.” The second amendment, purportedly authorized by Chappelle as the
sole member of the new committee, prohibited employees from recovering severance
benefits under both the plan and an employment agreement.3 The third amendment
added claim procedures that included a requirement that a claimant must file a claim
within six months for any benefits he or she contends were not provided in accordance
3
The second amendment specifically stated that
in the event that a Participant is eligible to receive payments and benefits under both (i)
this Plan and (ii) any other severance or change-of-control plan, program, contract, or
agreement . . . then any monetary benefits provided under this Plan will be reduced and
offset by the monetary benefits due and payable from the Other Source.
3
with the plan, as well as review and appeal procedures. Prior to trial, the trial court
granted appellees summary judgment, finding the three amendments void, as they were
not passed in accordance with the amendment procedures in the plan documents.
After the trial court’s summary judgment rulings, Holdings sent letters to Reeves
and Mayell, requesting that they either (1) ratify the three amendments, (2) “issue a Plan
determination [regarding appellees’ claims] as the committee,” or (3) appoint Holdings
as the new committee. At no point, however, did appellants actually file a challenge
with Reeves and Mayell or submit any evidence for their review. Reeves and Mayell
declined to ratify the amendments or name any successors to the committee. Appellants
subsequently requested that the trial court appoint a new, temporary committee to
consider appellees’ claims, which the trial court denied.
Trial proceeded to a jury on the breach of the employment agreements and to the
bench on the claims for severance benefits under the plan. The jury found that TMRX,
Acquisition Sub, and Holdings failed to comply with appellees’ employment
agreements and such failures were not excused by waiver or ratification. The jury
further found Ives was entitled to $276,719 in damages for the breach, and Delano was
entitled to $422,579. The jury also calculated the amount of attorney’s fees incurred by
each appellee in prosecuting the claims.
Regarding claims under the Severance Plan, the trial court entered detailed
findings of fact, including that the Severance Plan, by its terms, created a presumption
in favor of appellees’ assertion of Good Reason for their resignations and at no point did
TMRX file a claim or any evidence with the committee purporting to challenge that
appellees had Good Reason to resign.4 In its conclusions of law, the trial court stated
4
In its definitional section, the plan states: “For purposes of any determination regarding the
existence of Good Reason, any claim by the [appellees] that Good Reason exists shall be presumed to
be correct unless the Company establishes to the Committee by clear and convincing evidence that
Good Reason does not exist.”
4
among other things that appellees “had no obligation under the Severance Plan to
engage in any administrative process beyond the assertion that Good Reason existed”;
the burden of exhausting available administrative remedies was on TMRX, and if
TMRX wanted to challenge the claim of Good Reason, it needed to do so before the 30-
day “payment deadline” had passed; and when TMRX failed to take any action to
challenge appellees’ assertion of Good Reason, the presumption favoring appellees
became conclusive. The trial court further concluded that it was without authority to
replace Reeves and Mayell with a new, temporary committee. The trial court
additionally determined that TMRX and the Severance Plan owed Ives $267,188.58 and
DeLano $399,967.12 on their ERISA claims and awarded appellees their attorney’s fees
expended in pursuing the ERISA claims.
In its final judgment, the trial court assessed damages and attorney’s fees in
keeping with the verdict and the findings of fact and conclusions of law, except that the
court did not award attorney’s fees on the breach of contract cause of action against
Holdings, apparently based on our opinion in Fleming & Associates, L.L.P. v. Barton,
425 S.W.3d 560, 574-75 (Tex. App.—Houston [14th Dist.] 2014, pet. filed) (holding that
attorney’s fees are not available in a breach of contract cause of action against a
partnership under Texas Civil Practice and Remedies Code section 38.001(8)).
II. ERISA Claims
In their first issue, appellants contend the trial court erred in awarding appellees
benefits under the Severance Plan. Specifically, appellants contend that the court
improperly (1) struck the three plan amendments as void, (2) rewrote the plan to impose
a 30-day deadline on TMRX to challenge appellees’ claims, and (3) refused to appoint a
new, temporary committee to consider appellees’ claims rather than awarding benefits.
We will begin by addressing the propriety of the three amendments and then will turn to
the 30-day deadline and proposed temporary committee.
5
A. The Three Amendments
The trial court struck all three attempted plan amendments as not properly
adopted in accordance with the terms of the plan. Under ERISA, severance plans must
provide procedures for amendment and these procedures must be followed for
amendments to be effective. See 29 U.S.C. § 1102(b)(3); Curtiss-Wright Corp. v.
Schoonejongen, 514 U.S. 73, 75 (1995); see also Depenbrock v. Cigna Corp., 389 F.3d
78, 82 (3rd Cir. 2004) (“[A]n amendment is ineffective if it is inconsistent with the
governing instruments.”); Confer v. Custom Eng’g, 952 F.2d 41, 43 (3rd Cir. 1991)
(“Only a formal written amendment, executed in accordance with the Plan’s own
procedure for amendment, could change the Plan.”).5 The Severance Plan in the present
case required amendments to be “by a written instrument that is authorized by the
committee.” Appellants do not dispute that the committee of Reeves and Mayell
declined to adopt the proposed amendments. The real dispute then is whether TMRX
had authority under the plan to change the makeup of the committee post-merger, thus
allowing the new committee to enact the amendments.
Section 2.1 of the plan defines the committee to mean “prior to a Change in
Control [i.e., in this case, the merger], Joseph Reeves and Michael Mayell” and “after a
Change in Control, . . . such individuals as may be appointed by Joseph Reeves and
Michael Mayell.” Appellees argue that since it is undisputed that Reeves and Mayell
neither approved of the three amendments nor appointed anyone else to the committee
who could have approved the amendments, the attempted amendments were void. We
agree.
In support of their position that TMRX retained authority to appoint a new
5
Because ERISA is a federal statute, we are bound by the precedents of the United States
Supreme Court and give strong consideration to opinions of the federal appellate courts. Sharp v.
Caterpillar, Inc., 932 S.W.2d 230, 235 (Tex. App.—Austin 1996, writ denied); see also Penrod
Drilling Corp. v. Williams, 868 S.W.2d 294, 296 (Tex. 1993).
6
committee, appellants point to section 10(b) of the Severance Plan which provides that
“the power to appoint the Committee . . . shall be exercised by TMRX.” Based on this
language, appellants contend that TMRX could appoint new committee members when
Reeves and Mayell failed to do so. They further assert that in holding otherwise, the
trial court rendered section 10(b) meaningless, citing Shell Oil Co. v. Khan, 138 S.W.3d
288, 292 (Tex. 2004) (“We construe contracts as a whole in an effort to harmonize and
give effect to all the provisions of the contract so that none will be rendered
meaningless.”).
Article 10, entitled “Adoption of Plan by Affiliates,” concerns the possible
adoption of the Severance Plan by entities affiliated with TMRX. Section 10(a) permits
such affiliates to adopt the plan. Section 10(c) states that, for ERISA purposes, the plan
when adopted by affiliates shall still constitute a single plan rather than a separate plan
for each affiliate. Section 10(b), the one relied upon by appellants, states in full: “The
provisions of the Plan shall apply separately and equally to each adopting Affiliate in
the same manner as is expressly provided for the Company, except that the power to
appoint the Committee and the power to amend or terminate the Plan shall be exercised
by TMRX.”
Appellants do not dispute that the only way provided in the plan for TMRX to
amend the plan was by “a written instrument that is authorized by the Committee,” as
provided in article IX; however, they nonetheless contend section 10(b) permits TMRX
to change the makeup of the committee. We disagree with appellants’ construction.
The plan contains no suggestion that TMRX could change the membership of the
committee after a merger other than as expressly provided, through the actions of
Reeves and Mayell. Just as TMRX could act only through the committee to enact any
plan amendments, it could act only through Reeves and Mayell to name a new
committee post-merger. Section 10(b) does not change this.
The better reading of section 10(b) is that it prevents “adopting affiliates” from
7
amending the plan or appointing a new or different committee. Section 10(b) has no
application to the situation here, where there has been a merger rather than an adoption
by an affiliate; this is highlighted by the fact the plan already provides specific
instructions regarding the makeup of the committee after a merger. See McCreary v.
Bay Area Bank & Trust, 68 S.W.3d 727, 731-32 (Tex. App.—Houston [14th Dist.]
2001, pet. dism’d) (“One general rule of construction is that when there is a conflict
between two provisions, the specific provision controls over the general provision.”).6
Appellants complaints about the attempted plan amendments are without merit.
Because TMRX was without authority to amend the plan, the trial court properly struck
the attempted amendments as void. See 29 U.S.C. § 1102(b)(3); Schoonejongen, 514
U.S. at 75; Confer, 952 F.2d at 43.
B. 30-Day Deadline & New Temporary Committee
Appellants next contend that even assuming the amendments were not valid, the
trial court erred in (1) implying a 30-day deadline for TMRX to contest appellees’
benefits claims and (2) refusing to appoint a new temporary committee for the purpose
of determining appellees’ rights to benefits. In discussing these contentions, it is
important to note findings that appellants do not dispute. While appellants argue that
the trial court erred in holding that TMRX waived any contest to appellees’ assertion of
6
Appellants further argue that if TMRX did not have the authority to appoint new committee
members, the plan would have been left in the impossible situation of having no active committee
when Reeves and Mayell failed to appoint successors post-merger. Appellants suggest that this would
have caused TMRX to breach its fiduciary duty as plan administrator. These arguments, however, are
speculative, incomplete, and multifarious. Except to the extent that they are repeated in appellants’
argument that the trial court should have appointed a new, temporary committee to consider appellees’
benefits claims, we decline to address the merits of these contentions. See Tex. R. App. P. 38.1(i)
(“The brief must contain a clear and concise argument for the contentions made, with appropriate
citations to authorities and to the record.”); Jones v. Villages of Town Ctr. Owner’s Ass’n, No. 14-12-
00306-CV, 2013 WL 2456873, at *6 (Tex. App.—Houston [14th Dist.] June 6, 2013, pet. denied) (“If
the appellate court concludes that a point of error is multifarious, it may refuse to review or it may
consider the point of error if it can determine with reasonable certainty the error about which complaint
is made.”); In re A.R., 236 S.W.3d 460, 477 (Tex. App.—Dallas Oct. 19, 2007, no pet.) (mem. op.)
(holding that issue could not be considered because it was multifarious and inadequately briefed).
8
Good Reason by not submitting such contest to the committee within 30 days,
appellants do not dispute that (1) appellees asserted Good Reason for resigning in their
resignation letters and (2) TMRX never submitted a claim or took any other action with
the Reeves and Mayell committee contesting appellees’ assertion of Good Reason.7 As
will be explained, these other findings, fully supported by the record, render the trial
court’s finding of a 30-day deadline irrelevant.8 Additionally, appellees have shown no
grounds requiring appointment of a new, temporary committee by the trial court.
Under article II of the unamended plan, any claim of Good Reason by a
participant ”shall be presumed to be correct unless the Company establishes to the
Committee by clear and convincing evidence that Good Reason does not exist.”9 Thus,
as the trial court concluded, once appellees submitted their resignation letters citing
Good Reason and seeking benefits, the burden shifted to TMRX to dispute those claims
with the committee. On the same day that he received appellees’ letters, Chappelle,
TMRX’s manager, replied in letter form, stating that he accepted their resignations but
7
Appellants, of course, contend that TMRX validly changed the makeup of the committee and
disputed appellees’ claims for benefits with the newly installed committee. As detailed in the prior
section of this opinion, however, TMRX’s attempt to change the makeup of the committee was
ineffective. Appellants do not dispute that they never submitted a claim or took any other action with
the Reeves and Mayell committee contesting appellees’ assertion of Good Reason.
8
Unchallenged findings of fact are binding on an appellate court unless the contrary is
established as a matter of law or there is no evidence to support the finding. McGalliard v. Kuhlmann,
722 S.W.2d 694, 696 (Tex. 1986). However, even if appellants had challenged these findings, they
were supported by legally and factually sufficient evidence, as presented below. See generally City of
Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005) (addressing standards of review for legal
sufficiency of the evidence); Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986) (standards of review for
factual sufficiency).
9
Article II additionally states that in a claim of Good Reason, “any position taken by the
Participant shall be presumed to be correct unless the Company establishes to the Committee by clear
and convincing evidence that such position is not correct.” As set forth above, in its findings of fact
and conclusions of law, the trial court noted that under the plan, a presumption was created that
favored appellees “declaration of resignation for Good Reason,” appellees had no obligation to engage
in any administrative process beyond their assertion that Good Reason existed, and TMRX carried the
burden of exhausting any administrative process. The court additionally concluded that because
TMRX failed to take any action to challenge the assertion of Good Reason, the plan’s presumption was
conclusive.
9
also that “the Company reserves its right to invoke any relevant section under [the] Plan,
including the separation for cause provisions.” Appellants, however, do not assert that
TMRX ever followed up by contesting the assertion of Good Reason with the
committee of Reeves and Mayell.
The record further supports the conclusion that TMRX never submitted a claim or
took any other action with the Reeves and Mayell committee contesting appellees’
assertion of Good Reason. As discussed above, in November 2013, Holdings sent a
letter to Reeves and Mayell requesting that they either (1) ratify the three amendments,
(2) “issue a Plan determination as the committee,” or (3) appoint Holdings as the new
committee. This letter does not constitute a challenge by TMRX to appellees’ assertion
of Good Reason for several reasons, including that (1) it was on behalf of Holdings and
not TMRX; (2) although it asked, as one alternative, that Reeves and Mayell make a
determination under the plan, it does not actually challenge appellees’ assertion of Good
Reason in any manner or suggest what determination the committee should make; and
(3) it contains an offer to send “an administrative record” only if Reeves and Mayell
decided to issue a determination. In response, Reeves and Mayell declined to take any
of the proposed actions; however, such response did not convert the letter into a
challenge to appellees’ claims for benefits. Appellants do not cite any other evidence
that they contested appellees’ assertion of Good Reason.10 As the trial court found,
under the terms of the Severance Plan, because TMRX failed to establish the contrary
with the committee by clear and convincing evidence, appellees’ assertion of Good
Reason for resigning was presumed correct.11 The record supports this conclusion
10
Prior to the trial court’s summary judgment ruling, which determined the three attempted
amendments were invalid, appellants apparently had operated under the assumption that the
amendments were valid. Under the proposed amendments, TMRX was not required to contest
appellees’ benefits claims with the committee of Reeves and Mayell and, thus, they had not done so.
11
As the trial court stated: “Because TMRX failed to file any claim or otherwise take any
action with the Committee challenging the Plaintiff’s Good Reason, the Severance Plan’s presumption
that Plaintiffs’ resigned for Good Reason is conclusive.”
10
regardless of the trial court’s additional finding that if TMRX had wanted to contest the
assertion of Good Reason, it needed to do so within 30 days. Therefore, appellants’
challenge to that finding is irrelevant. See, e.g., Norred v. Hartsfield, 360 S.W.3d 583,
586-87 (Tex. App.—Dallas 2011, no pet.) (disregarding challenge to trial court’s
finding where finding had no effect on the judgment); Cooke Cty. Tax Appraisal Dist. v.
Teel, 129 S.W.3d 724, 731 (Tex. App.—Fort Worth 2004, no pet.) (same).
Appellants additionally assert, however, that filing a challenge with the
committee of Reeves and Mayell would have been futile because the pair had exhibited
an unwillingness to act as the committee. On that basis, appellants argue that the trial
court should have appointed a new, temporary committee to consider whether appellees
were entitled to benefits, and they request that this court remand the case back to the
trial court with instructions to appoint a new, temporary committee. While courts
applying ERISA have recognized the possibility that seeking recourse with the
appropriate administrative body under a plan might become futile under certain
circumstances, the remedy provided in such cases is not court appointment of a new
administrative body, but an ability to seek redress in court without having first
exhausted the administrative process. See, e.g., Hall v. Nat’l Gypsum Co., 105 F.3d
225, 232 (5th Cir. 1997); B & S Welding LLC Work Related Injury Plan v. Oliva-
Barron, 447 S.W.3d 425, 429 (Tex. App.—Dallas 2014, no pet.). Thus, appellants’
ERISA-based arguments that they were, and are, entitled to appointment of a new,
temporary committee are not well-founded.12 Appellants exercised the remedy to which
12
Appellants additionally argue that without a determination by the committee, there is nothing
for this court to review under the appropriate “arbitrary and capricious” standard because appellees
failed to exhaust the available administrative remedies. See generally Napoli v. Johnson & Johnson,
Inc., 624 Fed. App’x 861, 863 (5th Cir. 2015) (explaining that when an ERISA plan administrator is
given discretionary authority, its decisions within the scope of that authority should be overturned if
the administrator acted arbitrarily or capriciously); Bourgeois v. Pension Plan for the Emp’ees of Santa
Fe Int’l Corps., 215 F.3d 475, 479 (5th Cir. 2000) (discussing requirement that a claimant exhaust
available administrative remedies before bringing suit for benefits). However, it was TMRX that
failed to exhaust its available administrative remedies, not appellees. The trial court determined that
11
they were entitled—they got their day in court.
Appellants do not offer any other authority supporting the creation of a new
temporary committee under similar circumstances. Appellants chiefly cite cases in
which appellate courts have sent ERISA disputes back to plan administrators because a
benefits decision was not made according to proper procedures, but none of the cited
cases remotely involved a situation such as this, in which the employer failed to contest
a presumption favoring the claimant, nor did they involve appointment of new plan
administrators. See Shelton v. ContiGroup Cos., 285 F.3d 640, 643-44 (8th Cir. 2002)
(ordering remand to plan administrator for decision on the merits where employer rather
than administrator had previously removed claimant from plan); Sanford v. Harvard
Indus., Inc., 262 F.3d 590, 594-98 (6th Cir. 2001) (affirming remand to plan
administrator because decision to revoke claimant’s benefits had originally been made
by employer rather than by authorized body). Because none of appellants’ arguments
concerning the award of benefits under the Severance Plan have merit, we overrule their
first issue.
III. Employment Agreement Claims
Under their second issue, appellants raise two arguments related to the award of
damages to appellees based on alleged breaches of their employment agreements. The
jury found that TMRX, Acquisition Sub, and Holdings all failed to comply with the two
agreements, and the trial court awarded damages against those entities in keeping with
the jury’s findings. Appellants first assert that, as a nonsignatory to the agreements,
Holdings cannot be held liable for breach of those agreements. Second, appellants
appellees did everything administratively required of them under the plan when they filed resignation
letters citing Good Reason, and this conclusion is supported by the plan documents themselves. See
generally Hall, 105 F.3d at 231 (explaining that a trial court’s decision regarding exhaustion is
reviewed under an abuse of discretion standard). Under the plan, this created a presumption in
appellees’ favor unless and until TMRX challenged the assertion of Good Reason by filing evidence
with the committee, something TMRX has never done.
12
contend the trial court erred in rejecting their proposed jury instruction that would have
excluded Holdings as part of “the Company” as that term is used in the employment
agreements. Appellants request a remand for a new trial on the issue of liability under
the employment agreements.
A. Alta Mesa Holdings’ Liability
Appellants contend that Holdings cannot be held liable for breach of the
employment agreements because it was neither a party to the agreements nor was it
bound by them post-merger. We agree.
Among other elements, a plaintiff in a breach of contract cause of action must
prove that a valid contract existed between the plaintiff and the defendant. E.g., West v.
Triple B Servs., LLP, 264 S.W.3d 440, 446 (Tex. App.—Houston [14th Dist.] 2008, no
pet.). In other words, the plaintiff must show that the defendant has obligated itself
under the contract. E.g., Interstate Inv. Corp. v. Rillo, No. 01-03-00818-CV, 2005 WL
267663, at *3 (Tex. App.—Houston [1st Dist.] Feb. 3, 2005, no pet.); Miles v. Plumbing
Servs. of Houston, Inc., 668 S.W.2d 509, 512 (Tex. App.—Houston [14th Dist.] 1984,
writ ref’d n.r.e.); see also Baylor Univ. v. Sonnichsen, 221 S.W.3d 632, 635 (Tex. 2007)
(“Evidence of mutual assent in written contracts generally consists of signatures of the
parties and delivery with the intent to bind.”). The only signatories to the employment
agreements at issue in this case were appellees and TMRX.
Although at the time the agreements were executed, TMRX was a subsidiary of
Meridian and Meridian and all of its subsidiaries were subsequently merged into
Acquisition Sub which was itself a subsidiary of Holdings, the mere existence of a
corporate relationship between Holdings and TMRX is not enough to make Holdings
liable on TMRX’s contracts. See In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185,
191 (Tex. 2007) (“[C]orporate affiliates are generally created to separate the businesses,
liabilities, and contracts of each. Thus, a contract with one corporation . . . is generally
13
not a contract with any other corporate affiliates.”). Courts generally will not disregard
the corporate fiction and hold a parent corporation liable for the obligations of a
subsidiary unless something more is presented, such as evidence supporting an agency
relationship or grounds for piercing the corporate veil. See, e.g., Lucas v. Tex. Indus.,
Inc., 696 S.W.2d 372, 374-75 (Tex. 1984) (discussing circumstances under which
corporate fiction may be disregarded in order to hold parent liable for obligations of
subsidiary whether contractual or tortious in nature); see also Hanson Sw. Corp. v. Dal-
Mac Constr. Co., 554 S.W.2d 712, 716-19 (Tex. App.—Dallas 1977, writ ref’d n.r.e.)
(holding plaintiff failed to establish liability of parent corporation under alter ego or
agency theories for construction contract entered into with subsidiary, even though
parent guaranteed purchase money loan for shopping center site, controlled flow of
funds to subsidiary, and owned all of subsidiary’s stock, and representations were made
that parent or related companies owned the shopping center). Here, appellees did not
plead, attempt to prove, or argue any theory of piercing the corporate veil or agency.
See In re Merrill Lynch, 235 S.W.3d at 191 (declining to disregard corporate structure
where plaintiffs made no allegations supporting that outcome).
Instead, appellees point to section 4.8 of the employment agreements as imposing
liability for breach on Holdings. Section 4.8 states that: “For the purposes of this
Agreement, Company shall include any parent, subsidiary division of the Company, or
any entity, which directly or indirectly, controls, is controlled by, or is under common
control with the Company.” Although this statement clearly encompassed Meridian at
the time of execution and arguably encompassed Holdings post-merger (see discussion
below), the fact remains that the only signatory defendant was TMRX and, as stated,
appellees did not press any theory to pierce the corporate veil or establish an agency
relationship. The beginning of each of the employment agreements states that the
agreement is between TMRX and the respective employee, Ives or Delano. The term
“Company” is elsewhere used in the agreements to specify various rights and
14
obligations, including who the employer was, who pays the salaries, who can terminate
the agreements, and who has to pay benefits upon termination by the employee for
Good Reason. However, just because the contract states that a nonparty to the contract
is required to pay under the contract doesn’t make that party liable. See In re Merrill
Lynch, 235 S.W.3d at 191; Lucas, 696 S.W.2d at 374-75. Neither Meridian nor
Holdings made any promises in the employment agreements; they were not parties to
those agreements.
Appellees additionally argue that in the merger, Holdings, through Acquisition
Sub, obtained the assets and liabilities of TMRX, which would include liabilities to
appellees under their employment agreements. This conclusion, however, is contrary to
the express terms of the merger agreement. Section 2.1 of the merger agreement states
that
[u]pon the terms and subject to the conditions hereof, at the Effective Time,
Target [Meridian] shall merge with and into Merger Sub [Acquisition Sub]
and the separate corporate existence of Target shall thereupon cease and
Merger Sub shall be the surviving company in the Merger (sometimes
referred to herein as the “Surviving Company”). The Merger shall have the
effects set forth in . . . Section 10.008 of the [Texas Business Organizations
Code], including the Surviving Company’s succession to and assumption
of all rights and obligations of Target.13
13
Section 10.008 of the Organizations Code concerns the consequences of a merger; among
other things, it provides that “all liabilities and obligations of each organization that is a party to the
merger are allocated to one or more of the surviving or new organizations in the manner provided by
the plan of merger.” Tex. Bus. Org. Code § 10.008(a)(3). Additionally,
each surviving or new domestic organization to which a liability or obligation is
allocated under the plan of merger is the primary obligor for the liability or obligation,
and, except as otherwise provided by the plan of merger or by law or contract, no other
party to the merger, other than a surviving domestic entity or non-code organization
liable or otherwise obligated at the time of the merger, and no other new domestic entity
or non-code organization created under the plan of merger is liable for the debt or other
obligation.
Id. § 10.008(a)(4). The merger agreement clearly states that Acquisition Sub, as the “Surviving
Company,” succeeded to TMRX’s obligations under the employment agreements, a reading
reemphasized by the agreements reference to section 10.008.
15
Thus, while Holdings signed the merger agreement and was the sole owner of the shares
of Acquisition Sub, the merger agreement specified that Acquisition Sub assumed the
obligations of Meridian and its subsidiaries (including TMRX), not Holdings.14
Lastly, appellees cite the following exchange during the testimony of Harlan
Chappelle who, in addition to being manager of TMRX, was CEO of Holdings and
Acquisition Sub:
Q. Sure. Okay. So, I understand so what you are saying Alta Mesa
Acquisition Sub Company acquired the obligations under my clients’
employment agreement [sic]?
A. It did.
Q. And you’re contending, though, I think by your explanation that Alta
Mesa Holdings, L.P., did not in your opinion acquire those?
A. No. I wouldn’t suggest that at all. I was just suggesting that it flowed
through Alta Mesa Acquisition Sub’s obligation of that subsidiary.
Q. Well, I understand the flow-through portion. Let me ask the ultimate
question: Do you believe—just your opinion—that Alta Mesa Holdings,
L.P., has a contractual obligation under my clients’ employment
agreements?
A. I believe we have a responsibility to make sure that employment
agreement is upheld.
Appellees assert that this excerpt demonstrates that Holdings was in fact liable for
breach of the employment agreements because its CEO acknowledged such
responsibility. Appellants, on the other hand, suggest that Chappelle was just “acting
like any good CEO” in recognizing that he had a responsibility to ensure all of the
companies under his umbrella honored their contractual obligations. However,
14
This conclusion is also supported by the employment agreements themselves, which provide
in section 4.4 that “[i]f the Company shall at any time be merged or consolidated into or with any other
entity, the provisions of this Agreement shall survive any such transaction and shall be binding on and
inure to the benefit and responsibility of the entity resulting from such merger or consolidation.”
(Emphasis added.) As discussed, Acquisition Sub was the entity resulting from the merger, not
Holdings.
16
regardless of which interpretation of the testimony is correct, parol evidence such as this
cannot be used to contradict the unambiguous terms of the merger agreement. See Saba
Zi Expl., L.P. v. Vaughn, 448 S.W.3d 123, 131 (Tex. App.—Houston [14th Dist.] 2014,
no pet.) (“Where the parties have entered into an unambiguous written contract, the
instrument alone will be deemed to express the intention of the parties because it is the
objective intent, not subjective intent, that controls. . . . An unambiguous contract will
be enforced as written, and parol evidence will not be received for the purpose of
creating an ambiguity or to give the contract a meaning different from that which its
language imports.”). Likewise, this brief, imprecise testimony does not make Holdings
liable for the employment agreements when it was not a party to those agreements, and
appellees have not raised any theory to make Alta Mesa Holdings liable for breach as a
nonparty. See In re Merrill Lynch, 235 S.W.3d at 191; Lucas, 696 S.W.2d at 374-75.
Accordingly, the trial court erred in awarding appellees breach of contract damages
against Holdings. We therefore sustain appellants’ second issue to the extent that it
concerns Holdings’ liability.15
B. Defining “Company”
Also under issue two, appellants contend that the trial court erred in refusing to
instruct the jury that Holdings should not be considered as part of the Company as that
term was used in the employment agreements. During the charge conference, appellants
specifically requested the following instruction or definition be included in the charge:
“‘The Company’ means The Meridian Resource & Exploration LLC (also referred to as
‘TMRX’) and Alta Mesa Acquisition Sub, LLC.” Appellants essentially urged the trial
court to rule as a matter of law that Holdings was not included in the definition of
Company in section 4.8 of the employment agreements discussed above. See generally
City of Keller v. Wilson, 168 S.W.3d 802, 814-15 (Tex. 2005) (discussing standards of
15
The appropriate appellate remedy for this error will be discussed at the conclusion of the
analysis of appellants’ second issue.
17
review in matter of law challenges). The trial judge refused the definition and submitted
TMRX and Acquisition Sub on one line and Holdings on a separate line for answers to
the liability questions.
The importance of this issue extends beyond whether Holdings could be held
liable for breach of the agreements. As we held above, as a nonsignatory, Holdings
could not be held liable for breach absent pleading or proof of some other theory of
liability. Appellants’ argument here additionally addresses whether TMRX and
Acquisition Sub could be held liable for actions or situations involving Holdings.
Appellants explain that the requested definition was necessary because it
addresses whether TMRX and Acquisition Sub had a contractual responsibility to
ensure that appellees were made officers of Holdings. Appellants argue that while, pre-
merger, Meridian may have been included under the definition of “Company” in section
4.8 as TMRX’s parent company, post-merger, it was Acquisition Sub which stepped
into Meridian’s place, not Holdings, which was further removed as a parent of
Acquisition Sub. Appellants allege that without the requested definition, the charge
permitted the jury to find a breach occurred because appellees were not made officers of
Holdings—conduct that appellants contend did not fall within the scope of the
employment agreements.16
16
The employment agreements permitted appellees to terminate the agreements and receive
benefits for Good Reason if they were removed from their executive positions. According to
appellants, the guaranteed positions were within TMRX and Acquisition Sub and appellees were not
entitled to receive positions within Holdings. As appellants state it: “the employment agreements
were drafted to ensure that [appellees] never received a demotion in rank or responsibility—not to
guarantee them promotions to more prominent positions within larger organizations.”
Appellees argue that under the employment agreements, they were entitled to be named (and
have the corresponding duties and responsibilities of) officers of Holdings, as they had been officers of
Meridian and not just TMRX before the merger. Appellees further contend it was Holdings that
diminished their job duties by reassigning those duties to other subsidiaries. Appellees also assert that
the evidence demonstrated TMRX and Acquisition Sub breached the contract in other ways as well.
We need not determine whether the evidence favors one side or the other on these allegations because
we find the trial court did not err in refusing appellants’ requested instruction.
18
Appellants correctly point out that section 4.4 of the employment agreements
potentially limits who can be held liable for breach of the agreements when it states that
“[i]f the Company shall at any time be merged or consolidated into or with any other
entity, the provisions of this Agreement shall survive any such transaction and shall be
binding on and inure to the benefit and responsibility of the entity resulting from such
merger or consolidation.” However, despite appellants’ emphasis, this section has no
apparent application to determining which entities should be included in section 4.8’s
definition of “Company” post-merger. It certainly does not redefine that term after a
merger. Appellants seek to limit the definition of Company in section 4.8 to either
TMRX or its immediate parent, Acquisition Sub, but section 4.8 is not so limited.
While section 4.8 expressly encompasses a parent organization, it additionally
encompasses “any entity, which directly or indirectly controls, is controlled by, or is
under common control with the Company.” Thus, the question inherently becomes a
fact determination as to whether any entity other than TMRX directly or indirectly
controlled TMRX or was under common control. This is as true post-merger as it was
pre-merger, and appellants cite no provision suggesting otherwise.17 Moreover,
appellants steadfastly refuse to engage the issue as a fact question, insisting, instead,
that the issue is merely one of contract interpretation.
We conclude instead that the jury was properly tasked by the trial court with
determining whether TMRX and Acquisition Sub should be held liable for actions by
Holdings under the employment agreements. The trial court therefore did not err in
refusing to instruct the jury that Holdings was excluded as a matter of law from the
definition of Company in the agreements.
17
The definition of Company within section 4.8 appears designed to prevent decisions from
being made outside of TMRX (or the surviving entity after a merger) that would defeat the benefits
and protections afforded the signatory employee. Nothing in section 4.4 changes that design. Section
4.4 only addresses which entity may be held liable post-merger; it does not create a loophole for
defeating the purposes of the agreement by permitting actions to be taken by related entities that would
otherwise have been breaches of the agreements.
19
The trial court erred in assessing liability for breach of the employment
agreements against Holdings but not in assessing that liability against TMRX and
Acquisition Sub. Although appellants have requested reversal and remand under their
second issue, we are not limited by that request and must render the judgment that the
trial court should have rendered. See Tex. R. App. P. 43.3; Garza v. Cantu, 431 S.W.3d
96, 108-09 (Tex. App.—Houston [14th Dist.] 2013, pet. denied). The appropriate
disposition under these circumstances is to reverse the portion of the judgment assessing
breach of contract liability against Holdings and render judgment appellees take nothing
against Holdings on those claims.
IV. Attorney’s Fees
In their third issue, appellants contend that the trial court erred in awarding
attorney’s fees to appellees under Chapter 38 of the Civil Practice and Remedies Code
against TMRX and Acquisition for breach of the employment agreements. Under the
“American Rule,” “litigants may recover attorney’s fees only if specifically provided for
by statute or contract.” Epps v. Fowler, 351 S.W.3d 862, 865 (Tex. 2011). Appellees
cited Chapter 38 as the sole basis to recover attorney’s fees on their claims for breach of
the employment agreements. Section 38.001 provides that “[a] person may recover
reasonable attorney’s fees from an individual or corporation, in addition to the amount
of a valid claim and costs, if the claim is for: . . . (8) an oral or written contract.” Tex.
Civ. Prac. & Rem. Code § 38.001(8). Appellants contend that as limited liability
companies, TMRX and Acquisition Sub are excluded from the entities against which
attorney’s fees may be recovered under section 38.001: individuals and corporations.
We agree.
The availability of attorney’s fees under a particular statute is a question of law
for the court. Holland v. Wal–Mart Stores, Inc., 1 S.W.3d 91, 94 (Tex. 1999). In
construing a statute, our main goal is to determine and give effect to the Legislature’s
intent. Nat’l Liab. & Fire Ins. Co. v. Allen, 15 S.W.3d 525, 527 (Tex. 2000). To do so,
20
we look primarily to the language of the statute itself, as we consider it “a fair
assumption that the Legislature tries to say what it means, and therefore the words it
chooses should be the surest guide to legislative intent.” Fitzgerald v. Advanced Spine
Fixation Sys., Inc., 996 S.W.2d 864, 866 (Tex. 1999). If a statute defines a term, courts
are bound to construe that term by its statutory definition. Tex. Gov’t Code §
311.011(b); Tex. Dep’t of Transp. v. Needham, 82 S.W.3d 314, 318 (Tex. 2002).
In our recent opinion in Fleming & Associates, L.L.P. v. Barton, we held that
under the plain language of section 38.001, a court could not order a partnership
(specifically a limited liability partnership) to pay attorney’s fees. 425 S.W.3d 560,
574-75 (Tex. App.—Houston [14th Dist.] 2014, pet. denied). Appellants contend that
the same reasoning that applied to partnerships in that case applies to limited liability
companies in the present case. In Fleming, we explained that neither “individual” nor
“corporation” was defined in the Code Construction Act or Chapter 38, so the ordinary
meaning of those terms should be applied in construing section 38.001. Id. at 575. We
then noted that research did not reveal any definition of “individual” or “corporation”
that included any type of partnership, and that the statutory interpretation doctrine
“expressio unius est exclusion alterious”—meaning the expression of one concept
implies the exclusion of another—suggests the legislature did not intend section 38.001
to apply to partnerships because it did not use any term encompassing partnerships. Id.
Applying that analysis to the present case, it appears that the question of whether
an LLC is contained within the term “corporation” is a closer call than whether
partnership is included within “individual” or “corporation.”18 The additional difficulty
lies with the fact “company” and “corporation” are sometimes used synonymously. See,
18
In light of our analysis in Fleming, appellees do not contend that the term “individual,” as
used in section 38.001, should be read so as to encompass LLCs. Moreover, neither the dictionary
definition of “individual” nor the typical legal usage of the term encompasses legal entities. See
Hoffman v. L&M Arts, No. 3:10-CV-0953-D, 2015 WL 1000838, at *4-10 (N.D. Tex. Mar. 6, 2015)
(mem. op.) (holding section 38.001 does not authorize the recovery of attorney’s fees from LLCs).
21
e.g., Black’s Law Dictionary 117 (2d Pocket ed. 2001) (defining “company” as “[a]
corporation . . . that carries on a commercial or industrial enterprise”); Roget’s II: The
New Thesaurus 81, 96 (3d ed. 1996) (including “corporation” among the synonyms for
“company,” and for “corporation,” it just says “see company”). That cannot be said for
“partnership” and “individual” or “corporation.”
However, despite this loose relationship between the common usage of the terms
“company” and “corporation,” it is clear that as used in Texas statutes, the legal entities
identified by the terms “corporation” and “limited liability company” are distinct
entities with some but not all of the same features. See generally SJ Med. Ctr., L.L.C. v.
Estahbanati, 418 S.W.3d 867, 874–75 (Tex. App.—Houston [14th Dist.] 2013, no pet.)
(“Limited liability companies have been said to offer ‘the best of both worlds—the
limited liability of a corporation and the favorable tax treatment of a partnership.’”)
(quoting Historic Boardwalk Hall, LLC v. Comm’r, 694 F.3d 425, 429, n.1 (3d Cir.
2012)); Shook v. Walden, 368 S.W.3d 604, 613 n.10 (Tex. App.—Austin 2012, pet.
denied) (“LLCs are a comparatively recent innovation in business organizational form,
in essence affording the corporation-like benefit of limited liability but with partnership
tax treatment.”). Corporations and LLCs are indeed governed by separate titles within
the Business Organizations Code. See Tex. Bus. Orgs. Code §§ 20.001-23.110 (Title 2,
governing corporations), 101.001-.621 (Title 3, governing LLCs). In other words, the
use of one of the terms does not encompass the other type of entity.
Appellees emphasize that under both Texas law and Delaware law—the latter
being the law of TMRX’s creation—LLCs are treated the same as corporations for
certain purposes. See, e.g., Tex. Bus. Orgs. Code § 101.002(a) (providing that specified
sections of Title 2 apply to LLCs); Poore v. Fox Hollow Enters., No. C.A. 93A-09-
0051994 WL 150872, at *2 (Del. Super. Ct. Mar. 29, 1994) (explaining that LLCs
afford liability limitations for members and managers similar to those afforded to
shareholders and directors of a corporation). However, far from demonstrating that the
22
term corporation in section 38.001 should be read as encompassing LLCs, these
examples reinforce that these are distinct entities; if they were not, there would be no
reason to specifically state when they should be treated the same. 19
The history of section 38.001 and its predecessor statute, article 2226 of the Texas
Revised Civil Statutes, further supports the conclusion that use of the term
“corporation” does not encompass an LLC. Article 2226 provided that “any person,
corporation, partnership, or other legal entity having a valid claim against a person or
corporation” could recover attorney’s fees against the “persons or corporation.” See
Fleming, 425 S.W.3d at 575. The fact that “corporation” is first used in a list of entities
that includes “partnerships” and “other legal entities” indicates that the term was not
intended to encompass those other types of entities, because to read the term otherwise
would render use of these other terms meaningless. See, e.g., Columbia Med. Ctr. of
Las Colinas, Inc. v. Hogue, 271 S.W.3d 238, 256 (Tex. 2008) (“The Court must not
interpret the statute in a manner that renders any part of the statute meaningless or
superfluous.”). Thus, when the term is used again in the same sentence to define against
whom attorney’s fees could be recovered, it again should not be read as encompassing
“partnerships” or “other legal entities” such as LLCs. See Tex. Dep’t of Transp. v.
Needham, 82 S.W.3d 314, 318 (Tex. 2002) (“[C]ourts should not give an undefined
statutory term a meaning out of harmony or inconsistent with other provisions, although
it might be susceptible of such a construction if standing alone. In ascertaining a term’s
meaning, courts look primarily to how that term is used throughout the statute as a
whole. Statutory terms should be interpreted consistently in every part of an act.”); see
also Hoffman v. L&M Arts, No. 3:10-CV-0953-D, 2015 WL 1000838, at *8-9 (N.D.
19
Appellees additionally cite legislative history from the creation of LLCs in which certain
facets of LLCs were compared to similar features of corporations (and partnerships). See The House
Committee on Business and Commerce, Bill Analysis, Tex. H.B. 278, 72nd Leg., R.S. (1991). The
mere fact the two legal entities share some similar features does not support the conclusion that the
legislature intended for the use of the term “corporation” in section 38.001 to encompass other distinct
legal entities such as LLCs.
23
Tex. Mar. 6, 2015) (mem. op.) (reaching same conclusion). The codification of the
provision into section 38.001 was intended to be nonsubstantive in nature; therefore, the
entities against whom attorney’s fees can be recovered under the section still should not
include “other legal entities” such as LLCs. See Hoffman, 2015 WL 1000838, at *8
(reaching same conclusion); Fleming, 425 S.W.3d at 575 (addressing nonsubstantive
nature of codification).20
Lastly, appellees point out that numerous cases have affirmed attorney’s fees
awards against LLCs; however, it does not appear that the appealing parties argued in
any of these cases that section 38.001 did not permit such an award against an LLC.
Accordingly, these cases do not stand for the proposition that section 38.001 authorizes
recovery of attorney’s fees against LLCs. Cf. Fleming & Assocs., 425 S.W.3d at 576
n.17 (pointing out that although several cases have affirmed awards against
partnerships, no cases have specifically addressed whether the awards were authorized
by section 38.001). Because section 38.001 does not authorize the recovery of
attorney’s fees in a breach of contract action against an LLC and appellees have not
sought attorney’s fees for prosecution of that cause of action on any other basis, we
sustain appellants’ third issue and reverse the award of attorney’s fees against TMRX
and Acquisition Sub for that cause of action.
V. Conclusion
Because the trial court erred in assessing liability for breach of the employment
agreements against Holdings, we reverse the portion of the judgment assessing breach
of contract liability against Holdings and render judgment appellees take nothing against
Holdings on those claims. Furthermore, because the trial court erred in awarding
20
Appellees point out that LLCs were not an established form of legal entity either at the time
article 2226 was enacted or when it was codified into section 38.001. While accurate, this point does
not change the fact that LLCs are not corporations but are “other legal entities” against which section
38.001 does not authorize the recovery of attorney’s fees.
24
attorney’s fees on the breach of contract claims against TMRX and Acquisition Sub, we
reverse the portion of the judgment awarding such fees. Finding no error in the
remainder of the judgment, we affirm the remaining portions.
/s/ Martha Hill Jamison
Justice
Panel consists of Justices Jamison, McCally, and Wise.
25