Marrot Communications, Inc. v. Spring Branch Medical Center, Inc.

Affirmed and Memorandum Opinion filed February 21, 2006

Affirmed and Memorandum Opinion filed February 21, 2006.

In The

Fourteenth Court of Appeals

____________

NO. 14-04-00462-CV

____________

MARROT COMMUNICATIONS, INC., Appellant

V.

SPRING BRANCH MEDICAL CENTER, INC., Appellee

On Appeal from the 234th District Court

Harris County, Texas

Trial Court Cause No. 2002-64561

M E M O R A N D U M   O P I N I O N

Appellant Marrot Communications, Inc. (AMarrot@) appeals the trial court=s take-nothing judgment on its breach of contract claims against Spring Branch Medical Center, Inc. (ASBMC@).  Marrot also challenges the trial court=s findings of fact and conclusions of law entered in support of its judgment, and contends the court erred by failing to award it reasonable attorney fees.  We affirm.

Factual and Procedural Background

Marrot provides advertising services to clients.  In April 1999, SBMC executed a general services agreement with Marrot, in which SBMC agreed to pay a monthly retainer and fees associated with the production of various advertising projects.  Although the two-year agreement renewed automatically, the parties agreed in May 2001 to replace it with a second agreement that eliminated the retainer and provided for five specific projects to be completed during the term of May 1, 2001, to December 31, 2001.  The parties also agreed that the second agreement would Aeffectively cancel and supersede@ the first agreement upon its Aexecution and completion.@ Four of the five specified projects were completed.  Regarding the fifth project, a physician directory, SBMC asked to delay its completion until 2002 and to substitute a community newsletter for the physician directory at the same price.  Marrot acknowledges it agreed to the extension of time, but disputes that it agreed to substitute the community newsletter for the physician directory.

Marrot brought suit against SBMC for breach of the second contract, which it contended revived the first contract and entitled it to damages of $425,000 as provided in a liquidated damages clause contained in Marrot=s AStandard Terms and Conditions.@ Marrot also alleged that it created and licensed to SBMC the slogan AHouston=s Other Great Medical Center,@ and that SBMC breached the first contract by using the slogan after the contract was terminated and the license expired.  SBMC denied the allegations and raised a number of affirmative defenses and counterclaims against Marrot. 

Following a bench trial, the trial court entered a judgment in which it ordered that Marrot take nothing on its claims against SBMC, and SBMC take nothing on its claims against Marrot.  Marrot also requested, and the trial court filed, findings of fact and conclusions of law. This appeal followed.

Analysis of the Issues

Marrot divides its arguments into two major sections:  (1) the alleged breach of the first and second agreements; and (2) the alleged breach of the licensing agreement.  We will address them in the same fashion.^[1]

I.        The Alleged Breaches of Contract

The trial court found that, among other things, SBMC did not agree to Marrot=s AStandard Terms and Conditions,@ SBMC fully complied with both the first and second agreements, and Marrot received the full benefit of the bargain and had no damages.  It also concluded that Marrot=s fraud and negligent misrepresentations barred it from recovery, and entered findings supporting these conclusions.  Marrot challenges the legal and factual sufficiency of these and numerous other findings of fact and conclusions of law, but we will address only those necessary to dispose of the appeal.

A.      Standards of Review

A trial court=s findings are reviewable for legal and factual sufficiency of the evidence by the same standards that are applied in reviewing evidence supporting a jury=s answer. Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex. 1994).

In determining whether legally sufficient evidence supports the finding under review, we must consider evidence favorable to the finding if a reasonable fact finder could consider it, and disregard evidence contrary to the finding unless a reasonable fact finder could not disregard it.  City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). A legal sufficiency point may only be sustained when the record discloses: (1) a complete absence of evidence of a vital fact; (2) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a mere scintilla;  and (4) the evidence established conclusively the opposite of the vital fact.  Juliette Fowler Homes, Inc. v. Welch Assoc., 793 S.W.2d 660, 666 n.9 (Tex. 1990).  The final test for legal sufficiency is whether the evidence at trial would enable reasonable and fair-minded people to reach the verdict under review.  City of Keller, 168 S.W.3d at 827. 

In reviewing a factual‑sufficiency point, we consider all the evidence supporting and contradicting the finding.  Plas‑Tex, Inc. v. U.S. Steel Corp., 772 S.W.2d 442, 445 (Tex. 1989).  We set aside the verdict only if the finding is so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust.  Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986).  In a bench trial, the trial court, as fact finder, is the sole judge of the credibility of the witnesses.  See City of Keller, 168 S.W.3d at 819; Barrientos v. Nava, 94 S.W.3d 270, 288 (Tex. App.CHouston [14th Dist.] 2002, no pet.).  

In an appeal from a bench trial, we review a trial court=s conclusions of law as legal questions, de novo, and will uphold them on appeal if the judgment can be sustained on any legal theory supported by the evidence.  BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex. 2002).  An appellant may not challenge a trial court=s conclusions of law for factual sufficiency, but we may review the legal conclusions drawn from the facts to determine their correctness. Id.  If we determine that a conclusion of law is erroneous, but that the trial court nevertheless rendered the proper judgment, the error does not require reversal.  Id.

B.      The First Agreement and the Standard Terms and Conditions

Much of Marrot=s briefing focuses on a liquidated damages clause contained in Marrot=s AStandard Terms and Conditions,@ which it contends should be enforced despite the trial court=s finding that SBMC did not agree to the terms and conditions.^[2]  If enforced, Marrot contends it is entitled to damages of $425,000.  We find, however, that the trial court=s finding that SBMC did not agree to the terms and conditions is supported by legally and factually sufficient evidence, whether based upon (1) Kim Long=s testimony that the terms and conditions were not included in the first agreement she signed or (2) Marrot=s fraud and misrepresentations during the negotiation of the agreement.

1.       Marrot=s AStandard Terms and Conditions@

The terms and conditions consist of twenty-three paragraphs in very small type on a single page.  In fact, the type is so small that Marrot itself provided the trial court with an exhibit consisting of the terms and conditions enlarged to make them readable; when so enlarged, the terms and conditions took just over five pages to reproduce.  At trial, the parties disputed whether the terms and conditions were or were not on the back of the page of the first contract when it was signed by Kim Long, marketing director for SBMC.  Ms. Long confirmed her original signature was on Marrot=s exhibit, but contended she did not see the terms and conditions on the back of the document she signed and did not believe they were there when she signed it.  She also testified that the copy of the agreement  she was given later did not contain the terms and conditions; this copy was also placed in evidence. 

Marrot argues that, because Ms. Long admitted she did not read the agreement before signing it, her testimony that the terms and conditions were not there is incompetent.  Marrot also contends there was no evidence or expert testimony that the document was altered. However, we find the issue is one of credibility of the witnesses and conflicting evidence, and it was within the province of the trial judge to resolve it.  Further, Marrot=s president and sole shareholder, Mark Rothenberg, acknowledged in his testimony that the terms and conditions are visible from the front of the signature page.  Thus, Ms. Long did not have to read the agreement to see whether the terms and conditions were there; she merely had to see the signature page, which she clearly did, because she signed it.  

Thus, we find the evidence is legally and factually sufficient to support the trial court=s finding of fact that SBMC did not agree to the terms and conditions.

2.       Marrot=s Fraud and Misrepresentation

Marrot also contends that SBMC is bound by the terms and conditions, because both the first and second agreements were made subject to them by provisions just above the signature line, and SBMC cannot avoid the agreement=s provisions merely because Ms. Long did not read them.^[3]  We acknowledge that A[a]bsent fraud, misrepresentation, or deceit, a party is bound by the terms of the contract he signed, regardless of whether he read it or thought it had different terms.@  In re McKinney, 167 S.W.3d 833, 835 (Tex. 2005).  The trial court, however, entered findings of fact and conclusions of law that Marrot engaged in fraud and misrepresentation in connection with the first agreement, based on Marrot=s representation to Ms. Long that the purpose of the first agreement was to protect SBMC.   The trial court also entered conclusions of law that Marrot=s fraud and misrepresentation barred it from recovery.  Therefore, the general rule articulated in McKinney does not apply.  Texas law has long imposed a duty to abstain from inducing another to enter into a contract through the use of fraudulent misrepresentations.  Formosa Plastics Corp. USA v. Presidio Eng=rs and Contractors, Inc., 960 S.W.2d 41, 46 (Tex. 1998); see also Dallas Farm Mach. Co. v. Reaves, 158 Tex. 1, 307 S.W.2d 233, 239 (1957) (A[T]he law long ago abandoned the position that a contract must be held sacred regardless of the fraud of one of the parties in procuring it.@).^[4]

Marrot challenges the trial court=s findings of fact and conclusions of law that Marrot engaged in fraud and misrepresentation on the ground that there was no or was insufficient evidence to support the element of justifiable reliance to support either tort.  Marrot contends that SBMC was a sophisticated party in an arm=s length transaction, and that any representation that the agreement would protect SBMC is meaningless.  We have reviewed the testimony of Mr. Rothenberg and Ms. Long concerning the circumstances surrounding the execution of the first agreement, and we find the evidence is legally and factually sufficient to support the trial court=s finding of justifiable reliance. 

In summary, Ms. Long testified that she got to know Mr. Rothenberg as a friend from her neighborhood, and so agreed to discuss having Marrot provide advertising services for SBMC.^[5]  She had never worked with an advertising agency before, and did not consult with SBMC=s counsel or have counsel participate in the negotiations. According to Ms. Long, Mr. Rothenberg told her that the agreement was Abenign@ and was only there to protect SBMC and to make sure the retainer was deducted from any projects.  He also told her that unless she signed the agreement, she was not going to be protected.  Ms. Long further testified that she would not have signed the agreement without Mr. Rothenberg=s representations to her.  Mr. Rothenberg admitted he told Ms. Long that the contract was there to protect SBMC.  A review of the terms and conditions reveals that, contrary to Mr. Rothenberg=s representations, the agreement provides significant protections to MarrotCmany at SBMC=s expenseCand almost no protections to SBMC. 

Thus, in this circumstance, the evidence is legally and factually sufficient to support the element of justifiable reliance.  See Anderson, Greenwood & Co. v. Martin, 44 S.W.3d 200, 214B15 (Tex. App.CHouston [14th Dist.] 2001, pet. denied) (upholding jury=s finding of fraud based on representations that parties to contract would be Apartners@ and Ashare common goals@); Burleson State Bank v. Plunkett, 27 S.W.3d 605, 614 (Tex. App.CWaco 2000, pet. denied) (holding contractor established justifiable reliance on bank=s representations that signatures on loan agreements were mere formalities and that bank Awould take care of him and that he had nothing to worry about@).  The trial court=s findings of fact and conclusions of law concerning fraud and misrepresentation stand.

Accordingly, we hold that the trial court did not err in finding that SBMC did not agree to the Standard Terms and Conditions, and in concluding that Marrot=s fraud and misrepresentation bar Marrot from recovery.

C.      The Second Agreement Was Not Breached

Marrot also contends that SBMC breached the second agreement by failing to complete the fifth project, the physician directory.  It is undisputed that the parties agreed the first agreement would be canceled upon the execution and completion of the second agreement. Because the second agreement was not completed, Marrot argues, the first agreement (including the disputed terms and conditions) was revived and Marrot is entitled to damages based on the agreement. Marrot also contends the evidence is legally and factually insufficient to support SBMC=s affirmative defenses.  We have already held that the trial court did not err in determining that SBMC never agreed to the terms and conditions, and that Marrot=s fraud and misrepresentations bar its recovery.  Even if the trial court=s determinations were in error, however, Marrot cannot prevail on appeal because its challenges to the sufficiency of the evidence of SBMC=s compliance with the second agreement and its affirmative defenses fail.  We explain why below.

1.       The Trial Court=s Findings

The trial court found that Marrot and SBMC orally modified the second agreement to allow the fifth project to be completed in 2002, and to substitute a community newsletter for the physician directory.  The trial court also found that SBMC fully complied with the second agreement, it paid all invoices submitted by Marrot and all sums due and owing under both the first and second agreements, Marrot had no damages and was not entitled to retainer fees beyond those already paid, and Marrot could have avoided all of its alleged damages if it had notified SBMC of its position that SBMC still needed to allow it to complete the physician directory.  Based on these findings and additional findings relating to Marrot=s intentional conduct and SBMC=s reliance on Marrot=s representations concerning the oral modifications, the trial court found that SBMC did not breach any agreement with Marrot and Marrot suffered no damages.  The trial court also entered conclusions of law supporting SBMC=s affirmative defenses of payment, promissory estoppel, equitable estoppel, novation, accord and satisfaction, waiver, and failure to mitigate.

1.       The Evidence of Oral Modification of the Second Agreement

Marrot=s argument is primarily directed to insisting that the agreements be applied as written (including the disputed terms and conditions) and complaining that the trial court, by its take-nothing judgment, improperly Arewrote@ them.  We have reviewed the evidence and find that it is legally and factually sufficient to support the trial court=s findings of fact and related conclusions of law concerning the oral modification of the second agreement.  However, we will respond to Marrot=s arguments to the extent we have not already done so.

Marrot contends that both Mr. Rothenberg and Desiree Walton, the Marrot representative with whom Ms. Long negotiated the modification, denied making the modification, contrary to Ms. Long=s testimony.  This argument goes to credibility, which the trial court was free to determine. Moreover, Ms. Long=s testimony concerning the oral modification was corroborated by Pat Currie, the C.E.O. of SBMC. 

Marrot next argues that the course of dealing between the parties Aproved@ there was no oral modification, because the parties had put both contracts in writing and there was no correspondence between them concerning any oral modification.  Additionally, Marrot contends it proved no oral agreement existed because e-mail correspondence showed the parties discussing the physician=s directory after the modification was made.  However, much of the evidence also demonstrates conduct by Marrot consistent with agreeing to the modification.^[6]  Among other things, Marrot invoiced SBMC for the newsletter for the same amount that was to be paid for the physician directory, it never advised SBMC that it still needed to complete the physician directory or that the first agreement was revived, and it never invoiced SBMC for the physician directory.  Ms. Long also explained the continued communications concerning the physician directory, testifying that SBMC had intended to have Marrot produce the physician directory until she had a bad experience with another Marrot employee.  Again, the trial court was free to accept or reject this testimony.  Even Mr. Rothenberg=s testimony called into question the asserted course of dealing, because he conceded that he did agree to a delay of the fifth project, although he did not view this as modifying the agreement.

Marrot also complains there was no consideration for any oral modification, because Marrot annually did two newsletters for SBMC, and when the first agreement renewed automatically, more such projects would have been included. However, Mr. Rothenberg testified that SBMC had no obligation to have Marrot do a newsletter in 2002.  He also admitted that both the newsletter and the physician directory were of approximately the same value, and that SBMC had paid for the newsletter. 

Based on the evidence before us, we cannot say that the trial court=s findings of fact are so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust, or that its conclusions of law are erroneous. 

2.       The Evidence of SBMC=s Affirmative Defenses

Marrot also contends the evidence is legally and factually insufficient to support the trial court=s findings of fact and its conclusions of law concerning SBMC=s affirmative defenses of accord and satisfaction, novation, estoppel, waiver, payment, and failure to mitigate.  Marrot=s arguments concerning these defenses consist of stating the elements of each, asserting in a conclusory fashion that the evidence is legally and factually insufficient, and occasionally referring to previously-described evidence.  We have reviewed the evidence and hold that it is legally and factually sufficient to support the trial court=s findings of fact concerning SBMC=s affirmative defenses.  We also find its related conclusions of law are not erroneous.

II.       The Alleged Breach of a Licensing Agreement

In the second part of its argument, Marrot contends that SBMC breached a licensing provision contained in the first agreement by using the slogan AHouston=s Other Great Medical Center@ beyond the licensing period.  Marrot contends the evidence is legally and factually insufficient to support the trial court=s findings of fact that Marrot did not own the slogan and had no licensing agreement with SBMC regarding the slogan.  Marrot also complains about the trial court=s conclusions of law that Marrot does not own the slogan and there has not been any improper use of the slogan by SBMC.  Finally, Marrot complains of the related findings of fact and conclusions of law denying Marrot=s alleged damages.  In support of its contentions, Marrot points to evidence that SBMC used the slogan on its web site and in an informational brochure after the first agreement was terminated.

We conclude the evidence is legally and factually sufficient to support the trial court=s findings of fact, and, having considered both parties= arguments concerning the ownership of the slogan, we are not convinced that the trial court=s conclusions of law are erroneous.  However, even if the trial court erred, Marrot has not proved any damages associated with the use of the slogan after the expiration of the first agreement.  Therefore, Marrot=s claim fails. 

To prevail on its breach‑of‑contract claim, Marrot had to prove: (1) the existence of a valid contract, (2) performance or tendered performance by Marrot, (3) breach of the contract by SBMC, and (4) damages to Marrot resulting from the breach.  See Roundville Partners, L.L.C. v. Jones, 118 S.W.3d 73, 82 (Tex. App.CAustin 2003, pet. denied).  Marrot contends it is entitled to damages based on the alleged licensing provision contained in the body of the first agreement; it also relies on more onerous terms contained in the disputed terms and conditions that the trial court found were not agreed to by SBMC. 

Marrot argues the slogan=s use beyond the licensing period is undisputed, and so constitutes a breach of the first agreement entitling it to, at the very least, damages consisting of the monthly retainer multiplied by fourteen months of allegedly unauthorized use ($4,250 x 14 = $59,500).  However, Marrot cites no authority to support its contention.^[7]  Instead, Marrot merely asserts in a conclusory fashion that the retainer reflects a minimum fee Afor any services rendered.@ However, when Mr. Rothenberg was asked on cross-examination to explain the purpose of the retainer, he testified only that A[i]t caps the fees for consult and early production work as opposed to being on an hour-by-hour basis times the number of people who work on any project at our agency.@  There was no testimony that the retainer covered solely the use of the slogan, nor was there any attempt to prove up actual damages for the use of the slogan by itself.  The first contract also contradicts Marrot=s claim.  It describes the monthly retainer or Abase fee@ as covering a variety of Abase fee services,@ including various activities associated with account management, creative works, and media.

Additionally, the first agreement was canceled and superceded by the parties= second agreement.  Marrot=s terms and conditions did not apply to this second agreement because, as discussed above, SBMC never agreed to them, and the second agreement did not include a retainer.  In the absence of either licensing provisions or a retainer, there could be no basis for a breach or damages.  And, even if the second contract included a retainer, by Mr. Rothenberg=s own testimony, the retainer provided for a variety of services, and he did not attempt to show what use of the slogan alone would cost.^[8]  Mr. Rothenberg also testified that if the physician directory had been completed in the first quarter of 2002, there would be no lawsuit, undercutting any claim that SBMC breached the agreement by using the slogan.  On this evidence, Marrot cannot prevail on its legal and factual sufficiency challenges to the trial court=s findings of fact and conclusions of law relating to damages.  We therefore overrule Marrot=s argument concerning the use of the slogan.

Because we overrule Marrot=s issues concerning breach of the agreements and use of the slogan, we do not reach its third issue, in which it contends the trial court erred in not awarding its reasonable attorney=s fees.

Conclusion

We overrule Marrot=s issues and affirm the trial court=s judgment.

/s/      Wanda McKee Fowler

Justice

Judgment rendered and Memorandum Opinion filed February 21, 2006.

Panel consists of Justices Fowler, Edelman, and Guzman.

---

^[1]  SBMC moved for sanctions against Marrot and its motion was taken with the case.  Although we affirm the trial court=s judgment, we do not find that sanctions are warranted and deny SBMC=s motion.

^[2]  The liquidated damages provision provides as follows:

In the event of termination, postponement, default and/or breach of this Agreement by Client, Client agrees to pay Marrot, on written demand from Marrot within thirty (30) calendar days from the date of Marrot=s invoice(s): (a) a fee for Work completed and reasonable expenses incurred and/or short (earned) rates incurred on behalf of Client by Marrot through the date of such termination, postponement, default and/or breach of this Agreement by Client and all attorneys fees and other collection costs incurred by Marrot (the AAccrued Amounts@); as well as, (b) a buyout based upon fifty-percent (50%) of the total (i.e., Estimated and/or Actual, whichever is greater), inclusive Gross Expenditure/Budget/Amount from the original Effective Term/Start Date of this Agreement through the original Effective Term/Through and/or End Date and/or Completion Date of the Term of this Agreement (as defined in this Agreement and qualified by, but not limited to, Estimated and/or Gross Advertising Expenditure/Budget/Amount, Estimated and/or Gross Media Expenditure/Budget/Amount, etc.) shall be payable by Client to Marrot Communications within thirty (30) calendar days from the date of Marrot=s invoice.  The parties specifically agree that such buyout constitutes their best estimate of the damages that Marrot will sustain in the event of the termination, postponement, default and/or breach by Client of this Agreement.

Because we find that the trial court did not err in finding that SBMC did not agree to the terms and conditions  and recovery by Marrot is barred by its fraud and misrepresentation, we do not reach Marrot=s claims that this provision is not an unenforceable penalty or that such a clause is enforceable in the context of a contract involving the creation of intellectual property.

^[3]  The provision in the first agreement stated, ASubject to Marrot Communications= Standard Terms and Conditions: 041593MC-A ON REVERSE SIDE which Client has received and upon which Client shall abide.@  Interestingly, the second agreement did not purport to contain the terms and conditions; instead, it provided as follows: ASubject to Marrot Communications= Standard Terms and Conditions: 041593MC-A (SBMC-030399AOR-1; dated and authorized 4/23/99 upon which Client has received and upon which Client shall abide).@

^[4]  Marrot also argues that the fraud and misrepresentation claims are barred as a matter of law by the existence of the following provision in the terms and conditions page:

This contract contains and sets forth the entire Agreement and understanding between and of the parties with respect to the subject matters hereof covered by its terms and merges all prior discussions between them. . . . Neither of the parties shall be bound by any warranties, undertakings or representations with respect to such subject matter other than as expressly provided herein, in prior written agreements, in a writing signed with or subsequent to the execution hereof by an authorized representative of the party to be bound thereby.

However, the fraud and misrepresentation findings enable SBMC to avoid this provision as well.  See Reaves, 307 S.W.2d at 239 (holding that a contract containing a merger cause can be avoided for fraud in its inducement and that the parol evidence rule does not prohibit proof of such fraud); see also Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 179 (Tex. 1997) (holding that contract and circumstances surrounding its formation determine whether a disclaimer of reliance is binding).

^[5]  We do not imply or hold that a fiduciary relationship was created.  We do, however, find the facts of this case distinguishable from those cited by Marrot. See Thigpen v. Locke, 363 S.W.2d 247, 250B53 (Tex. 1962) (holding grantors of property could not avoid conveyances by claiming they did not know what they were signing in absence of fiduciary relationship with grantee or evidence of fraud); Coastal Bank SSB v. Chase Bank of Tex., N.A., 135 S.W.3d 840, 843 (Tex. App.CHouston [1st Dist.] 2004, no pet.) (holding circumstances surrounding formation of contract and nature of the disclaimers in arm=s length transaction between two sophisticated financial institutions that were both represented by counsel negated justifiable reliance).

^[6]  Marrot also contends a June 24, 2002 letter from Ms. Long to Mr. Rothenberg is Acritical to the disposition of the case@ because it constitutes an admission by SBMC that the parties still had a contractual relationship as of that date and disproves SBMC=s position that the parties agreed to an oral modification of the second contract.  However, a review of the letter reveals it is equally plausibleCif not more soCthat it reflects SBMC=s understanding that the completion of the newsletter fulfilled its contractual obligations to Marrot, and therefore supports SBMC=s position.

^[7]  In its argument on this point, Marrot also contends that its licensing provisions are commonplace in the industry, and to support its argument, it invites this court to Atake judicial notice of the innumerable treatises and legal articles written on licensing in trademark law.@ 

^[8]  In another section of its appellate brief, Marrot arguesCwithout citation to any authoritiesCthat Athe value of intellectual property at its inception is inherently incalculable@ and so the liquidated damages clause included in Marrot=s terms and conditions cannot constitute an unenforceable penalty.  The valuation of intellectual property is a separate question from the damages for its allegedly unauthorized use.  In fact, the evidence shows that Marrot was willing to accept $4,250 a month for the use of the slogan plus many other services.