# Noah S. Bunker, Paul Carrell, Everett Brew Houston, Jr., W. Andrew Buchholz, Scott J. Leighty, Jad L. Davis, and Holly Clause v. Tracy D. Strandhagen > Texas Court of Appeals, 3rd District (Austin) · January 14, 2015 URL: https://www.frixlaw.com/law-library/cases/4040778 ## Case - **Court:** Texas Court of Appeals, 3rd District (Austin) - **Decided:** January 14, 2015 - **Precedential status:** Published - **Opinion:** Opinion - **Cited by:** 0 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/4040778 ## How later opinions describe it (automated extraction) - holding that, where a particular order is not appealable, mandamus is available and “will be appropriate in exceptional cases” - stating that failure to object to form of affidavit on ground that it does not show personal knowledge waives complaint on appeal ## Opinion text ACCEPTED 03-14-00510-CV 3762693 THIRD COURT OF APPEALS AUSTIN, TEXAS 1/14/2015 11:07:21 AM ____________________________________________ JEFFREY D. KYLE CLERK No. 03-14-00510-CV _____________________________________________ FILED IN 3rd COURT OF APPEALS AUSTIN, TEXAS IN THE COURT OF APPEALS 1/14/2015 11:07:21 AM THIRD JUDICIAL DISTRICT OF TEXAS JEFFREY D. KYLE AT AUSTIN Clerk _______________________________________________ Noah S. Bunker, Paul Carrell, Everett Brew Houston, Jr., W. Andrew Buchholz, Scott J. Leighty, Jad L. Davis, and Holly Clause, Appellants v. Tracy D. Strandhagen, Appellee FROM THE DISTRICT COURT OF TRAVIS COUNTY, 353RD JUDICIAL DISTRICT, CAUSE NO. D-1-GN-13-002811, THE HONORABLE ORLINDA NARANJO PRESIDING APPELLANTS’ BRIEF Amanda G. Taylor ataylor@textaxlaw.com Texas Bar No. 24045921 MARTENS, TODD, LEONARD, TAYLOR & AHLRICH 301 Congress Avenue, Suite 1950 Austin, Texas 78701 Tele: (512) 542-9898 Fax: (512) 542-9899 ORAL ARGUMENT REQUESTED IDENTITY OF PARTIES AND COUNSEL APPELLANTS APPELLEE Noah S. Bunker, Paul Carrell, Tracy D. Strandhagen Everett Brew Houston, Jr., W. Andrew Buchholz, Scott J. Leighty, Jad L. Davis, and Holly Clause Appellate Counsel: Trial and Appellate Counsel: Amanda G. Taylor Daniel Byrne ataylor@textaxlaw.com DByrne@FBHH.com Texas Bar No. 24045921 Lessie Fiztpatrick MARTENS, TODD, LEONARD, LFitzpatrick@FBHH.com TAYLOR & AHLRICH Christine E. Burgess 301 Congress Avenue, Suite 1950 CBurgess@FBHH.com Austin, Texas 78701 FRITZ, BYRNE, HEAD Tele: (512) 542-9898 & HARRISON, PLLC Fax: (512) 542-9899 98 San Jacinto Blvd, Suite 2000 Austin, TX 78701 Tele: (512) 476-2020 Trial Counsel: Kelly McDonald kmcdonald@cmcdlaw.com Carla Garcia Connolly cconnolly@cmcdlaw.com CARLS, MCDONALD & DALRYMPLE, LLP 901 South MoPac Expressway Barton Oaks Plaza Building 1, Suite 280 Austin, Texas 78746 Tele: (512) 472-4845 Fax: (512) 472-8403 i TABLE OF CONTENTS IDENTITY OF PARTIES AND COUNSEL ..................................................... i TABLE OF CONTENTS ................................................................................. ii INDEX OF AUTHORITIES ........................................................................... v STATEMENT OF THE CASE ....................................................................... ix RECORD ABBREVIATIONS ......................................................................... x STATEMENT REGARDING ORAL ARGUMENT........................................ xi ISSUES PRESENTED ................................................................................. xii STATEMENT OF FACTS ............................................................................... 1 I. The Parties Entered a Series of Contracts Governing Their Medical Practice. .................................................................... 2 A. The Partners Promised to Stay With the Practice for a Defined Period for Important Financial Reasons. .................................................................................. 4 B. The Partners Agreed to be Bound by a Liquidated Damages Provision Regulating Early Departure from their Practice. ................................................................. 5 II. Strandhagen Departed the Practice Five Years Earlier than She had Contractually Agreed.................................................. 8 III. Strandhagen Filed Separate Proceedings Against the Company and her Physician Partners. ............................................. 9 IV. The District Court Dismissed Part and Granted Part of the Declaratory Relief Strandhagen Sought Against the Physicians....................................................................................... 10 SUMMARY OF THE ARGUMENT.............................................................. 12 ii ARGUMENT................................................................................................ 14 I. The District Court Erred by Granting Strandhagen’s Motion for Summary Judgment..................................................... 14 A. Summary Judgment Standard of Review. .............................15 B. Strandhagen Failed to Satisfy her Summary- Judgment Burden on the Essential Elements of her Claim............................................................................... 16 1. Strandhagen was required to conclusively establish two elements. ................................................ 17 2. Strandhagen conceded her inability to prove the “difficulty of estimation” element.......................... 22 3. Strandhagen failed to conclusively prove the “unreasonable forecast” element. ................................ 23 (a) No evidence of actual damages. ......................... 23 (b) Plain language of contract shows reasonable forecast. ........................................... 30 (c) Fact issue exists regarding modification. ...................................................... 33 C. Strandhagen Failed to Satisfy her Summary- Judgment Burden Regarding the Physicians’ Status as Third-Party Beneficiaries. ..................................... 35 1. The Operations Agreement Provides a Direct Line of Liability................................................. 36 2. A Genuine Issue of Material Fact Remains about the Physicians’ Third-Party Beneficiary Status. ....................................................... 37 iii II. The District Court Erred by Denying Part of the Physicians’ Plea to the Jurisdiction................................................ 38 A. Texas Law Prohibits Advisory Declarations on Potential Defenses to Hypothetical Disputes. ...................... 38 B. Strandhagen’s Claim Is Not Ripe. ......................................... 43 PRAYER ...................................................................................................... 44 CERTIFICATE OF COMPLIANCE .............................................................. 45 CERTIFICATE OF SERVICE....................................................................... 45 APPENDIX: 1. Order Granting Summary Judgment (CR.212) 2. Order Granting in Part and Denying in Part Plea to the Jurisdiction (CR.184-185) 3. Order Denying Motion for New Trial (CR.271) 4. Operations Agreement (CR.162-183) iv INDEX OF AUTHORITIES CASES Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (Tex. App.—Houston [1st Dist.] 2012, no pet.) ....... 37 Atmos Energy Corp. v. Abbott, 127 S.W.3d 852 (Tex. App.—Austin 2004, no pet.) ........................... 40 Baker v. Int’l Record Syndicate, Inc., 812 S.W.2d 53 (Tex. App.—Dallas 1991, no writ)......................... 18, 25 BHP Petro. Co. v. Millard, 800 S.W.2d 838 (Tex. 1990) .............................................................. 42 Brooks v. Northglen Ass’n, 141 S.W.3d 158 (Tex. 2004) ................................................... 39, 40, 41 California Prods. v. Puretex Lemon Juice, Inc., 334 S.W.2d 780 (Tex. 1960) .............................................................. 40 Chenault v. Phillips, 914 S.W.2d 140 (Tex. 1996) ............................................................... 39 City of Euless v. Dallas/Fort Worth Int’l Airport Bd., 936 S.W.2d 699 (Tex. App.—Dallas 1996, writ denied) ..................... 39 City of Pasadena v. Smith, 263 S.W.3d 80 (Tex. App.—Houston [1st Dist.] 2006, pet. denied) .. 39 Farmers Ins. Exch. v. Rodriguez, 366 S.W.3d 216 (Tex. App.—Houston [14th Dist.] 2012, pet. denied) 41 Federal Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602 (Tex. 2012) .......................................................... 16, 17 v Flores v. Millennium Interests, Ltd., 185 S.W.3d 427 (Tex. 2005)............................................................... 16 GPA Holding, Inc. v. Baylor Health Care Sys., 344 S.W.3d 467 (Tex. App.—Dallas 2011, pet. denied) .............. passim Healix Infusion Therapy, Inc. v. Bellos, No. 11-02-00346-CV, 2003 WL 22411873 (Tex. App.—Eastland Oct. 23, 2003, no pet.) ................................................................. 20, 24 In re City of Dallas, 977 S.W.2d 51 (Tex. App.—Fort Worth 1998, orig. proceeding) ........ 40 In re Kasschau, 11 S.W.3d 305 (Tex. App.—Houston [14th Dist.] 1999, orig. proceeding) ................................................................................ 34 In re Poly-Am., L.P., 262 S.W.3d 337 (Tex. 2008) .............................................................. 33 Khan v. Meknojiya, No. 03-11-00580-CV, 2013 WL 3336874 (Tex. App.—Austin June 28, 2013, no pet.) ........................................................... 16, 19, 21 Landry's Seafood Restaurants, Inc. v. Waterfront Cafe, Inc., 49 S.W.3d 544 (Tex. App.—Austin 2001, pet. dism’d) ....................... 17 LHR Enters., Inc. v. Geeslin, No. 03-05-00176-CV, 2007 WL 3306492 (Tex. App.—Austin Nov. 7, 2007, pet. denied) ............................................................ 40, 42 Murphy v. Cintas Corp., 923 S.W.2d 663 (Tex. App.—Tyler 1996, writ denied) .......... 21, 28, 30 vi Nexstar Broad., Inc. v. Gray, No. 09-07-00364-CV, 2008 WL 2521967 (Tex. App.—Beaumont 2008, no pet.) ......................................................................... 21, 41, 42 Patterson v. Planned Parenthood, 971 S.W.2d 439 (Tex. 1998) ............................................................... 40 Paulsen v. Texas Equal Access to Justice Found., 23 S.W.3d 42 (Tex. App.—Austin 1999, pet. denied) ......................... 40 Phillips v. Phillips, 820 S.W.2d 785 (Tex. 1991) ....................................................16, 23, 24 Sealock v. Texas Fed. Sav. & Loan Assoc., 755 S.W.2d 69 (Tex. 1988) ................................................................. 25 Southern Union Co. v. CSG Sys., Inc., No. 03-04-00172-CV, 2005 WL 171349 (Tex. App.—Austin Jan. 27, 2005, no pet.) ............................................................... passim State v. Margolis, 439 S.W.2d 695 (Tex. Civ. App.—Austin 1969, writ ref’d n.r.e.)........ 42 Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440 (Tex. 1993) .............................................................. 39 Texas Dep’t of Pub. Safety v. Moore, 985 S.W.2d 149 (Tex. App.—Austin 1998, no pet.) ............................ 39 Texas Dept. of Crim. Justice-Cmty. Justice Assistance Div. v. Campos, 384 S.W.3d 810 (Tex. 2012)............................................................... 14 Thomas v. Graham Mortg. Corp., 408 S.W.3d 581 (Tex. App.—Austin 2013, pet. denied)......................15 vii Transcont’l Realty Investors, Inc. v. Orix Capital Markets, LLC, 353 S.W.3d 241 (Tex. App.—Dallas 2011, pet. denied) ...................... 41 Triton 88, LP v. Star Electricity, LLC, 411 S.W.3d 42 (Tex. App.—Houston [1st Dist.] 2013, no pet.) ..... 20, 24 Valence Operating Co. v. Dorsett, 164 S.W.3d 656 (Tex. 2005) ...............................................................15 Waco Indep. Sch. Dist. v. Gibson, 22 S.W.3d 849 (Tex. 2000)................................................................ 40 STATUTES & RULES TEX. CONST. art. II, § 1.................................................................................. 40 Tex. R. App. P. 39.1 ...................................................................................... xi Tex. R. App. P. 39.2 ...................................................................................... xi Tex. R. App. P. 43.2 ..................................................................................... 14 Tex. R. App. P. 43.3 ..................................................................................... 14 Tex. R. App. P. 43.4 ..................................................................................... 44 Tex. R. Civ. P. 139 ........................................................................................ 44 Tex. R. Civ. P. 166a .......................................................................................15 Tex. R. Civ. P. 94 ......................................................................................... 16 OTHER AUTHORITIES RESTATEMENT (SECOND) OF CONTRACTS § 356 ......................................... 28, 29 viii STATEMENT OF THE CASE Nature of This appeal arises from Appellee Dr. Tracy the Case Strandhagen’s declaratory judgment claims against seven of her former partners in the Austin Anesthesiology Group (“AAG”), Appellants Drs. Noah S. Bunker, Paul Carrell, Everett Brew Houston, Jr., W. Andrew Buchholz, Scott J. Leighty, Jad L. Davis, and Holly Clause (collectively, “the Physicians”). Strandhagen sought declarations against them that (1) she was terminated without cause, meaning the liquidated damages provision in the parties’ contract would be inapplicable to her; and (2) the liquidated damages provision was an unenforceable penalty. (CR.4-9). Course of The Physicians filed a Plea to the Jurisdiction Proceedings seeking dismissal of Strandhagen’s claims. (CR.77- 84). The trial court granted the Plea as to ground (1) and denied it as to ground (2). (CR.184; Appx. 2). Strandhagen then filed a Motion for Summary Judgment on ground (2). (CR.154-159). Trial Court The trial court granted Strandhagen’s Motion, Disposition declaring the liquidated damages provision to be an unenforceable penalty. (CR.212; Appx. 1). This resulted in a Final Judgment. The Physicians filed a Motion for New Trial, urging in regard to ground (2) of Strandhagen’s claim that it was error to deny the Physicians’ Plea and to grant Strandhagen’s Motion. (CR.213-227). Following a hearing, the trial court denied the Physicians’ Motion for New Trial. (CR.271; RR.1-29; Appx. 3). The Physicians timely perfected appeal. (CR.272-273). ix RECORD ABBREVIATIONS Abbreviation Meaning “CR” The primary Clerk’s Record, pages 1-286, filed on 10/15/14. A “supplemental” clerk’s record was subsequently filed on 10/30/14 (for reasons unknown to the Physicians) containing duplicates of documents already in the primary CR. A second “supplemental” clerk’s record was filed on 12/22/14 containing the order directing transfer of the sealed documents referenced below. The Physicians do not cite to either portion of the “supplemental” record. “Sealed.CR” A sealed document (Strandhagen’s Employment Agreement), filed as an original exhibit on 12/22/14. The Physicians’ citations to the Sealed.CR correlate to the actual portions of the Employment Agreement, whether it be a numbered page of the contract or an Appendix thereto, because the District Clerk did not assign separate “record pages” to this original document. “RR” The Reporter’s Record, pages 1-29, which was filed on 9/25/14. This is the transcript from the hearing on the Physicians’ Motion for New Trial. x STATEMENT REGARDING ORAL ARGUMENT Oral argument should be granted because it will aid the decisional process by allowing the Court clarify and further develop the unique facts and legal issues in this case. See Tex. R. App. P. 39.1, 39.2. This case presents unique facts borne from Strandhagen’s decision to file a preemptive lawsuit against the Physicians while simultaneously pursuing a separate yet related claim in a different forum against their parent company. This case also presents important and unsettled legal questions as applied to these facts, including: (1) What elements of proof are required to prevail on an affirmative defense of “unenforceable penalty?”, and (2) When is a declaratory judgment claim sufficiently ripe for review? xi ISSUES PRESENTED Issue 1: Was it reversible error for the district court to grant Strandhagen’s traditional motion for summary judgment declaring the parties’ liquidated damages provision to be an unenforceable penalty? Issue 2: Was it reversible error for the district court to deny the portion of the Physicians’ Plea to the Jurisdiction contending that Strandhagen’s claim was not yet ripe for decision? xii STATEMENT OF FACTS Dr. Tracy Strandhagen, an anesthesiologist, left her medical practice group approximately five years prior to the expiration of the seven-year term that she had contractually agreed to work. (CR.160; Sealed.CR.12). Before Strandhagen’s partners decided whether to sue her for breach of contract or other claims, Strandhagen filed this preemptive lawsuit seeking judicial declarations that would preclude her partners from recovering against her under the liquidated damages provision of the parties’ contract if they decided to bring a future claim against her. (CR.4-9). Strandhagen named as defendants seven individual partners, who were the then-current members of the practice group’s Advisory Board (Appellants Dr. Noah S. Bunker, Dr. Paul Carrell, Dr. Everett Brew Houston, Jr., Dr. W. Andrew Buchholz, Dr. Scott J. Leighty, Dr. Jad L. Davis, and Dr. Holly Clause) (collectively, “the Physicians”). (CR.1-3, 162, 179). 1 The trial court granted declaratory relief in favor of Strandhagen. (CR.212, 271). The Physicians urge this Court to reverse that decision. 1 Although Strandhagen appears to have chosen these defendants based on their prior service on the Board, she sued them in their individual capacities, not in their capacities as Board members. 1 I. THE PARTIES ENTERED A SERIES OF CONTRACTS GOVERNING THEIR MEDICAL PRACTICE. Tracy Strandhagen and approximately sixty other anesthesiologists were members of the Austin Anesthesiology Group (“AAG”). (CR.38, 160). In October 2011, they collectively decided to sell 100% of their outstanding interests in AAG to American Anesthesiology of Texas (“AAT” or “the Company”)2 pursuant to a Membership Interest Purchase Agreement (“the Purchase Agreement”). (CR.38, 77, 155, 162). 3 The anesthesiologists thereby became “physician partners” of AAT (“the Partners”). 4 (CR.162). In connection with this transaction, the Company and the Partners entered two types of additional contracts. (CR.162, 186- 187). First, the Company and the Partners entered an Advisory Board and Internal Operations Agreement (“the Operations Agreement”). (CR.77, 162-183; Appx. 4). This agreement (1) established the duties, powers, and 2 AAT is an indirect subsidiary of a national medical services provider, Mednax, Inc. (CR.6, 80; Sealed.CR.11). 3 A copy of the Purchase Agreement is not included in the record. It is referenced, however, by the other contracts contained therein. (See CR.162; Sealed.CR.1). 4 Under the assorted agreements, the anesthesiologists are referred as the “Physicians,” “Partners,” and/or “Physician Partners.” Herein, when referenced as an entire group, they will be called the “Partners.” To distinguish this from references to the seven, individual physicians named as defendants in this lawsuit, the latter will be called the “Physicians.” 2 procedures of the Partners’ Advisory Board, Medical Director, and Partners’ Representative; (2) identified the individuals who would serve the initial terms of those positions; and (3) set forth the obligations owed by each physician to the other Partners and the Company. (Id.). Second, the Company entered separate Employment Agreements with each of the Partners “to protect the business interests and goodwill of [the Company] and to promote the effective administration and continuation of the Practice.” (Sealed.CR.1, 3, 12; see also CR.111, 155, 166- 167).5 As shown by Strandhagen’s contract, the Employment Agreements set forth, inter alia, (1) the duties, services, and standards of conduct that the Partners promised to provide; (2) the parties’ billing and compensation agreements; and (3) the terms of the Partners’ non-competes. (Sealed.CR.1-12, 24). Importantly, the Employment Agreements specified a set number of years that each Partner agreed to work for the practice (“the Initial Term”). (CR.167; Sealed.CR.12). Strandhagen’s contract specified that “the term of [the Employment Agreement] shall be a period of seven (7) years,” which would expire in approximately October 2018. (Sealed.CR.12). 6 5 Strandhagen’s Employment Agreement was submitted as a sealed, in camera “Exhibit A-1” as part of the summary-judgment record and in connection with the Motion for New Trial. (CR.146-147, 150-152, 271; Sealed.CR; RR.23-24, 28). 3 A. The Partners Promised to Stay With the Practice for a Defined Period for Important Financial Reasons. The Partners’ agreements to stay with the practice for a designated period of time was tied to the amount of monetary consideration they received under the Purchase Agreement. (See CR.144, 167-168). Their collective agreements to stay for a designated number of years also had important financial implications for the practice. First, each of the physicians brought to the practice many years of experience and goodwill that could not be readily replaced in the event of an early departure. (See Sealed.CR.1). Strandhagen’s Employment Agreement reflects that she, like her Partners, “ha[d] practiced medicine in the Specialty for many years and [] developed substantial personal goodwill, including business contacts, reputation, and other relationships in the health care industry.” (Sealed.CR.1). Beyond the Partners’ goodwill value, the profitability of their practice also depended on each Partner working a designated shift schedule, as determined by the Medical Director. (CR.168; Sealed.CR.2-3). They worked in “units” to fulfill the schedule, which required the cooperation and dedication of each Partner. (Sealed.CR.2, 7, Annex A, B). Fulfillment 6 It appears that the majority of the Partners, like Strandhagen, agreed to seven- year terms while seven of them negotiated shorter terms of employment. (See CR.168; Sealed.CR.12). 4 of these obligations allowed the practice to earn annual gross profits, which directly affected the Partners’ ability to earn annual incentive bonuses. (CR.187; Sealed.CR.9, Annex A, B). B. The Partners Agreed to be Bound by a Liquidated Damages Provision Regulating Early Departure from their Practice. In recognition of the financial importance of the Partners remaining with the practice for the entire duration of their agreed-upon terms, they collectively agreed to be bound by a liquidated damages provision stating that, if a Partner departed the practice early, he or she would be liable to the remaining Partners for a specified amount of damages, subject to certain exceptions. (CR.168). More specifically, the Operations Agreement provided that—given (1) the consideration received by the Partners under the Purchase Agreement and the calculation of bonuses based upon the profits of the Company, and (2) the Partners’ agreements to work for a specified Initial Term—if any Partner departed early, the others “may suffer harm, including, without limitation, increased workloads necessitated by such termination, material impairment of the ability of the Physicians to earn bonuses, . . . material impairment of the Physicians’ relationships with hospitals and other [parties] . . ., and hiring and training costs related to replacement physicians.” (CR.167-168, 187). 5 The Partners “acknowledge[d] and agree[d]” that such that damages would be difficult to prove, and that it would otherwise be inconvenient or non-feasible to obtain another adequate remedy. (CR.168). Thus, they agreed that if any Partner terminated his or her employment prior to the expiration of the Initial Term (with some exceptions, as discussed below), then he or she would pay the remaining Partners “as liquidated damages and not as a penalty, the amount set forth below.” (CR.168) (emphasis added). The majority of the sixty Partners agreed to be bound by a liquidated damage amount of $500,000. (CR.156, 168). Seven others negotiated individual liquidated damages amounts between $240,000 and $400,000, presumably tied to having negotiated shorter “Initial Terms” of employment. (CR.168). The Partners “each acknowledge[d] and agree[d] that the Liquidated Damages Amount is reasonable in light of the anticipated harm which would be caused by a Terminating [Partner’s] breach of or default under this Agreement, the difficulty of proof of loss, the inconvenience and non-feasibility of otherwise obtaining an adequate remedy, and the value of the transactions to be consummated under the Purchase Agreement and the other Transaction Documents.” (CR.168) (emphasis added). 6 The Partners agreed to several exceptions in which the liquidated damages provision would not be enforced. First and foremost, a Partner would not be liable for liquidated damages if the Company terminated the Partner’s employment without cause prior to expiration of the Initial Term. (CR.168). The Employment Agreement specified events that would provide the Company “cause” for termination. (Sealed.CR.13-18). Second, a Partner would not be liable for liquidated damages if his or her employment ended early due to the Partner’s death or disability, a down-sizing of the company, or similar specified exceptions. (CR.169). Finally, each Partner had the option of petitioning for permission by the majority to terminate his or her employment early without payment of liquidated damages in the event of “unforeseen circumstances” or “to provide other services to the Company or its Affiliates.” (CR.169). The Partners expressly acknowledged the importance of these provisions. The Operations Agreement states that their “agreement to be bound by the covenants set forth herein, which [] are narrowly tailored and necessary to protect the Physicians’ legitimate interests as a group,” constituted a “significant inducement to [the Partners] entering into the Purchase Agreement and consummating the transaction contemplated thereby.” (CR.162). 7 II. STRANDHAGEN DEPARTED THE PRACTICE FIVE YEARS EARLIER THAN SHE HAD CONTRACTUALLY AGREED. Under Strandhagen’s Employment Agreement, the initial seven-year term of her employment was not set to expire until approximately October 2018. (Sealed.CR.12). Strandhagen’s employment was terminated five years early, between July-September 2013. (CR.88, 160, 187). Strandhagen claimed she was constructively discharged on the basis of gender discrimination in July 2013. (CR.88, 93, 101). If that were true, it would provide a “terminated without cause” exception to her liability under the liquidated damages provision. (CR.168). To the contrary, the Company claimed that, following a series of disciplinary infractions, Strandhagen quit or was terminated with cause in September 2013. (CR.103, 144). Under that circumstance—whether Strandhagen resigned without first obtaining permission from the majority of her partners for an early departure or was rightfully terminated for engaging in detrimental conduct, failing or refusing to adhere to specified policies and standards, or breaching other terms of her Employment Agreement—Strandhagen would be liable for payment of liquidated damages. (CR.167-169; Sealed.CR.13- 15). 8 III. STRANDHAGEN FILED SEPARATE PROCEEDINGS AGAINST THE COMPANY AND HER PHYSICIAN PARTNERS. In approximately December 2013, Strandhagen filed an employment- discrimination complaint against the Company with the Texas Workforce Commission, Civil Rights Division and the EEOC. (CR.39, 80, 85-87, 91- 92). Despite having not made any representation of discrimination in connection with the buyout just two months earlier, Strandhagen now claimed that she had suffered such discrimination “for many years.” (CR.93, 144). The primary issue in Strandhagen’s proceeding against the Company was, therefore, whether she was terminated with or without cause (i.e., whether Strandhagen’s termination resulted from her misconduct or was based on gender discrimination). While those administrative claims were pending, Strandhagen initiated this suit in the Travis County District Court against seven of her Partners: Drs. Bunker, Carrell, Houston, Buchholz, Leighty, Davis, and Clause (“the Physicians”). (CR.4). Strandhagen’s sole cause of action was a declaratory judgment claim. (CR.40). She sought declarations that: 9 (1) she was terminated without cause, meaning the liquidated damages provision is inapplicable to her; and (2) the liquidated damages provision is an unenforceable penalty because: (a) the resulting harm from Strandhagen’s early termination was not incapable or difficult of estimation, (b) the liquidated damages amount is not a reasonable forecast of just compensation, and (c) it purports to render her liable to the Physicians for a breach of her Employment Agreement to which they are not parties or third-party beneficiaries. (CR.40-41). IV. THE DISTRICT COURT DISMISSED PART AND GRANTED PART OF THE DECLARATORY RELIEF STRANDHAGEN SOUGHT AGAINST THE PHYSICIANS. The Physicians filed a Plea to the Jurisdiction seeking dismissal of both grounds of Strandhagen’s declaratory judgment claim. (CR.70, 77). The Physicians argued: (1) Strandhagen’s request to declare whether or not she was terminated for cause duplicated the primary issue pending before the TWC/EEOC, and she was required to exhaust her administrative remedies first; and (2) Strandhagen’s challenge to the liquidated damages provision was not ripe because the Physicians had not made any demand nor sued her to collect such damages. (CR.79-80). The district court (the 10 Honorable Steven Yelenosky presiding) granted the first argument, thereby dismissing ground (1) of Strandhagen’s declaratory judgment claim, and denied the second, maintaining jurisdiction over ground (2) of Strandhagen’s claim. (CR.184). Strandhagen does not appeal the dismissal of ground (1) of her claim. Strandhagen then moved for a traditional summary judgment granting ground (2) of her claim. In so doing, she abandoned her contention that (a) the resulting damages would be incapable or difficult of estimation, instead arguing only that the liquidated damages provision was unenforceable as a matter of law because (b) the amount to be paid was not a reasonable forecast of just compensation, and (c) the Physicians were not third-party beneficiaries of her Employment Agreement. (CR.154, 196). Following the Physicians’ Response, further briefing by both parties, and a hearing, the district court (the Honorable Orlinda Naranjo presiding) granted Strandhagen’s motion. (CR.186-212). Without specifying any grounds, the Court “declare[d] that the $500,000 purported liquidated damages clause in the . . . Operations Agreement is an unenforceable penalty,” and denied all other relief not expressly granted. (CR.212). This resulted in a final judgment. (CR.212). 11 The Physicians filed a Motion for New Trial urging several reasons why the grant of summary judgment was improper, as argued below. (CR.213-250). The Court denied the motion following a hearing on its merits. (CR.271; RR.1-29). The Physicians appealed. (CR.272-78). SUMMARY OF THE ARGUMENT This Court must decide whether to uphold the plain language of a contract that was mutually-agreed to by parties of equal sophistication or, instead, allow one of those parties (Strandhagen) to secure a premature avoidance of the contractual liability provision before any actual dispute has arisen and without sufficient evidence to support her request. The district court improperly refused to enforce the parties’ contract and granted Strandhagen advisory relief. This Court should reverse those errors. The first issue is whether the district court erred in granting Strandhagen a traditional summary-judgment when she failed to satisfy her burden of conclusively proving each element of her affirmative defense that the liquidated damages provision in the parties’ Operations Agreement is an unenforceable penalty. The answer is yes. The summary-judgment order should be reversed. 12 Strandhagen failed to establish the two essential elements of her claim. She unequivocally abandoned the first element (that damages resulting from her breach would be difficult to estimate), and she failed to offer conclusive proof of the second element (that the liquidated amount was an unreasonable forecast of the actual damages). In regard to the latter, Strandhagen (a) offered no evidence of the actual damages to establish an unreasonable disparity; (b) her contentions ignore the plain language of the contract; and (c) in any event, a fact issue exists about whether the court should modify the liquidated amount rather than strike it all together. Strandhagen also failed to establish that it was necessary for the Physicians to be third-party beneficiaries of her Employment Agreement to enforce the liquidated damages provision under their own Operations Agreement. Even had such status been required, Strandhagen did not satisfy her summary-judgment burden of conclusively negating its existence. The second issue is whether the district court erred in denying the portion of the Physicians’ Plea to the Jurisdiction arguing that Strandhagen’s declaratory judgment claim was unripe. Again, the answer is yes. The partial denial of the Plea should be reversed. This presents an 13 alternative basis to reverse the summary judgment because such relief should not have been granted in the absence of jurisdiction. Strandhagen’s claim misuses the Declaratory Judgment Act by seeking an advance ruling on a potential affirmative defense to a dispute that has not yet (and may never) come to exist. As such, the district court’s grant of a declaration in her favor was advisory and improper. ARGUMENT In two issues, the Physicians respectfully request that this Court reverse the district court’s (1) grant of Strandhagen’s traditional Motion for Summary Judgment on her declaratory judgment claim, and (2) partial denial of the Physician’s Amended Plea to the Jurisdiction. If the latter is reversed, then a judgment dismissing Strandhagen’s claims should be rendered in favor of the Physicians. See Texas Dept. of Crim. Justice- Cmty. Justice Assistance Div. v. Campos, 384 S.W.3d 810, 812 (Tex. 2012). Otherwise, the case should be remanded for further proceedings. Tex. R. App. P. 43.2, 43.3. I. THE DISTRICT COURT ERRED BY GRANTING STRANDHAGEN’S MOTION FOR SUMMARY JUDGMENT. Strandhagen’s Motion for Summary Judgment should have been denied because she failed to conclusively establish (1) the essential 14 elements of her claim and (2) that the status of the Physicians as third- party beneficiaries to her Employment Agreement had any impact on the enforceability of the liquidated damages provision. In any event, as argued under Issue 2, the court erred in granting summary judgment on a hypothetical (unripe) question because it lacked subject-matter jurisdiction to do so. A. Summary Judgment Standard of Review. This Court reviews the grant of summary judgment de novo. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). Appellate courts “review the evidence presented in the motion and the response in the light most favorable to the party against whom the summary judgment was rendered, crediting evidence favorable to that party if reasonable jurors could, and disregarding contrary evidence unless reasonable jurors could not.” Thomas v. Graham Mortg. Corp., 408 S.W.3d 581, 588 (Tex. App.— Austin 2013, pet. denied). “A movant is entitled to traditional summary judgment if (1) there are no genuine issues as to any material fact and (2) the moving party is entitled to judgment as a matter of law.” Id. (citing Tex. R. Civ. P. 166a(c)). 15 B. Strandhagen Failed to Satisfy her Summary-Judgment Burden on the Essential Elements of her Claim. Strandhagen moved for a traditional summary judgment declaring that the liquidated damages provision in the Operations Agreement is an unenforceable penalty. (CR.154). “The term ‘liquidated damages’ ordinarily refers to an acceptable measure of damages that parties stipulate in advance will be assessed in the event of a contract breach.” Flores v. Millennium Interests, Ltd., 185 S.W.3d 427, 431 (Tex. 2005). Although Strandhagen was the plaintiff, her declaratory judgment claim—which was filed preemptively in attempt to avoid potential liability under the liquidated damages provision—was in the nature of an affirmative defense. “Whether a contractual provision is an unenforceable penalty and not a liquidated damage clause is an affirmative defense.” GPA Holding, Inc. v. Baylor Health Care Sys., 344 S.W.3d 467, 471 (Tex. App.— Dallas 2011, pet. denied) (citing Tex. R. Civ. P. 94; Phillips v. Phillips, 820 S.W.2d 785, 789 (Tex. 1991)); Khan v. Meknojiya, No. 03-11-00580-CV, 2013 WL 3336874, *2 (Tex. App.—Austin June 28, 2013, no pet.) (same). When a movant seeks a traditional summary judgment on an affirmative defense, the movant carries the burden of demonstrating her entitlement to judgment as a matter of law by conclusively proving each element of the affirmative defense. Federal Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602, 16 609 (Tex. 2012); Landry's Seafood Restaurants, Inc. v. Waterfront Cafe, Inc., 49 S.W.3d 544, 547 (Tex. App.—Austin 2001, pet. dism’d). Strandhagen agrees that she bore the burden of proof on her affirmative defense of penalty. (CR.195-196, 262). Strandhagen and the Physicians disagree, however, about which elements she was required to prove to be entitled to summary judgment. The Physicians argue she had to prove two elements, while Strandhagen claims she had to prove only one or the other. (CR.188-189, 196, 262). Although the Texas Supreme Court has not definitively answered this legal question, several intermediate courts—including this one—have reached the conclusion urged by the Physicians. See infra. In any event, because Strandhagen failed to conclusively prove both elements, the orders granting her summary judgment and denying the Physicians’ Motion for New Trial should be reversed. (RR.14). 1. Strandhagen was required to conclusively establish two elements. The most on point opinion is GPA Holding, 344 S.W.3d at 476. Like Strandhagen, GPA moved for summary judgment urging that the liquidated damages clause in its contract with Baylor was an unenforceable penalty. Id. The Dallas Court held that, “[t]o obtain summary judgment on the 17 affirmative defense of penalty, GPA [as the party seeking to avoid enforcement of the provision] must prove each element of the defense.” Id. (emphasis added). GPA’s required elements were that: (1) the harm resulting from a breach was not incapable or difficult of estimation, and (2) the amount of liquidated damages provided by the contract was not a reasonable forecast of actual damages. Id.; see also Baker v. Int’l Record Syndicate, Inc., 812 S.W.2d 53, 55 (Tex. App.—Dallas 1991, no writ) (“Evidence related to the difficulty of estimation and the reasonable forecast must be viewed as of the time the contract was executed.”). “The difficulty (or lack of difficulty) in estimation as well as the unreasonableness of the damages estimate were GPA’s to prove. General statements about a ‘more reasonable’ or ‘modest’ rate are not evidence that the harm from late payment is difficult to estimate, or that the normal billed charges were an unreasonable forecast of the loss actually sustained.” GPA Holding, 344 S.W.3d at 476 (emphasis added). “Because GPA did not meet its burden of establishing that the clause . . . was an unenforceable penalty,” the trial judge did not err in denying GPA’s motion for summary judgment on this issue.” Id. This Court reached the same conclusion following a jury trial in Southern Union Co. v. CSG Systems, Inc., No. 03-04-00172-CV, 2005 WL 18 171349, *4 (Tex. App.—Austin Jan. 27, 2005, no pet.). Southern Union argued that the damages provision was an unenforceable penalty. Id. This Court held that “[t]he party challenging the award of liquidated damages has the burden to establish that the two-prong test is not satisfied and that, instead, the award of liquidated damages is an unenforceable penalty.” Id. at *4 (emphasis added). The Court then discussed whether Southern Union satisfied the “first part of its burden” regarding “difficulty of estimation” and the “second part of its burden” regarding “reasonable forecast of just compensation.” Id. at *4-6. Concluding that Southern Union failed to prove either essential element, the Court affirmed the award of liquidated damages, subject to a partial remittitur on another issue. Id. at *7-8. More recently, in Khan v. Meknojiya, 2013 WL 3336874 at *2, Mekonjiya moved for summary judgment on the affirmative defense of penalty. In considering whether the district court properly denied that motion, this Court stated that, “to be entitled to summary judgment, Meknojiya had to conclusively establish every element of this defense,” and then set forth the two elements regarding (1) incapable or difficult of estimation, and (2) reasonable forecast of compensation. Id. at *2-3 19 (emphasis added) (ultimately holding that the provision was not one for liquidated damages and thus the penalty analysis was inapplicable). The Eastland Court of Appeals also held that a party seeking to avoid enforcement of a liquidated damages provision on summary judgment must prove both elements of the penalty affirmative defense. Healix Infusion Therapy, Inc. v. Bellos, No. 11-02-00346-CV, 2003 WL 22411873, *2 (Tex. App.—Eastland Oct. 23, 2003, no pet.). The Court held that “the burden Healix [as the party claiming penalty] must bear [is] that at the time the agreement was made damages could be easily ascertained and that the amount of the liquidated damages award was not a reasonable forecast of just compensation.” Id. (emphasis added). Healix’s contention “that the award of liquidated damages is disproportionate to actual damages” was insufficient on its own. Id. “Healix still must show that, at the time the agreement was made, the amount of the liquidated damages was not a reasonable forecast.” Id. “Healix failed to meet his burden of proof on the penalty issue.” Id. at *3. Other courts have reached similar conclusions. See Triton 88, LP v. Star Electricity, LLC, 411 S.W.3d 42, 62 (Tex. App.—Houston [1st Dist.] 2013, no pet.) (favorably citing GPA Holding and concluding “Triton failed to raise a fact question on its claim that the . . . clause constituted an 20 impermissible penalty,” where Triton “did not present any evidence regarding the parties’ ability to estimate actual damages . . . or what a reasonable forecast of damages would have been at the time the contract was formed.”); Murphy v. Cintas Corp., 923 S.W.2d 663, 666 (Tex. App.— Tyler 1996, writ denied) (“For the provision to be an unenforceable penalty, the uncertainty of the damages and the reasonableness of the stipulation must have existed at the time when the contract was executed.” Where neither element was proven, the clause was held enforceable.) (emphasis added). The Physicians acknowledge that contrary authority exists in which courts have not required proof of both elements before concluding the provision to be a penalty. See, e.g., Nexstar Broad., Inc. v. Gray, No. 09- 07-00364-CV, 2008 WL 2521967 (Tex. App.—Beaumont 2008, no pet.) (holding liquidated damages provision to be an unenforceable penalty because it was an unreasonable forecast of just compensation without discussion of the difficulty of estimation element); (RR.9-10). However—given the black-letter law that a movant seeking traditional summary judgment on its affirmative defense is required to prove every element of its defense, coupled with prior holdings of this Court (Southern Union and Kahn) and the case most on point (GPA Holdings) requiring 21 proof of both elements to prevail on the affirmative defense of penalty—the Physicians urge this Court to conclude Strandhagen was required to establish both elements, and decline to follow opinions to the contrary. Consequently, this Court should reverse the judgment if it concludes that Strandhagen failed to conclusively establish either one of the two required elements that (1) the harm resulting from a breach was not incapable or difficult of estimation (i.e., the harm could be easily and accurately estimated), or (2) the amount of liquidated damages provided by the contract was not a reasonable forecast of actual damages (i.e., the liquidated damages amount was excessive compared to the actual damages resulting from a breach). But even if this Court were to conclude that Strandhagen was required to prove only one element of her affirmative defense, reversal of the judgment is still necessitated by the fact that Strandhagen failed to conclusively prove both of the foregoing elements. 2. Strandhagen conceded her inability to prove the “difficulty of estimation” element. Strandhagen unequivocally admitted that “[s]he does not seek to negate the element concerning the difficulty of estimation . . .; she only seeks to negate the second element.” (CR.196, 263). The record leaves no 22 doubt that Strandhagen failed to carry her burden of proof on this element. The summary judgment should be reversed accordingly. 3. Strandhagen failed to conclusively prove the “unreasonable forecast” element. Strandhagen did not satisfy her summary-judgment burden of proving that the liquidated damages amount failed to reasonably forecast actual damages because (a) she offered no evidence to demonstrate what the actual damages were or that there was an excessive disproportion between the amounts; (b) to accept her argument, this Court must disregard the plain language of the contract; and (c) a genuine issue of material fact remains about whether the liquidated damages clause should be modified rather than struck as unenforceable. (a) No evidence of actual damages. (i) Texas law requires proof of actual damages. Although the question of “[w]hether a contractual provision is an enforceable liquidated damages provision or an unenforceable penalty is a question of law for the court to decide, [s]ometimes . . . factual issues must be resolved before the legal question can be decided.” Phillips v. Phillips, 820 S.W.2d 785, 788 (Tex. 1991). Our supreme court identified a typical fact issue in connection with the “unreasonable forecast” element arising 23 from the movant’s requirement to “prove what the actual damages were” in comparison to “the amount contracted for.” Id. The party claiming the provision is a penalty “must prove actual damages, if any, to show that the actual loss was not an approximation of the stipulated sum.” Healix, 2003 WL 22411873 at *2. Where a party fails to offer any evidence of actual damages in comparison to the liquidated amount, the court may conclude that the party has failed to carry its burden of proof and uphold the liquidated damages provision. See e.g., Triton, 411 S.W.3d at 62 (“Triton did not present any evidence regarding what a reasonable forecast of damages would have been at the time the contract was formed, nor did it present any evidence of StarTex’s actual damages. Thus, . . . [the] liquidated damages [clause] provided a reasonable forecast of just compensation.”). Additionally, vague averments of “unreasonableness” not supported by actual evidence will not suffice to establish the defense of penalty. The movant cannot meet its burden simply by claiming that the actual damages are not yet ascertainable and therefore tantamount to “zero.” Healix, 2003 WL 22411873 at *2. And as noted by this Court, a liquidated damages amount awarding two to three times the amount of actual damages is not per se unreasonable. Southern Union, 2005 WL 171349 at *6 (citing 24 Sealock v. Texas Fed. Sav. & Loan Assoc., 755 S.W.2d 69, 70 (Tex. 1988) (“uph[olding] a trial court’s judgment awarding $790,000 in liquidated damages, which was twice the $395,000 found as actual damages”); Baker v. Int’l Record Syndicate, Inc., 812 S.W.2d 53, 56 (Tex. App.—Dallas 1991, no writ) (“approv[ing] a liquidated damages award of $51,000, which was more than triple the $15,000 found as actual damages”). In GPA Holding, 344 S.W.3d at 476, the movant “offered evidence comparing the discounted rates to the hospital’s normal billed rates for the charges at issue,” including an affidavit with an attached chart showing “the percentage difference between the discounted rate and the normal billed charge for each of the charges at issue,” and presented argument about an alternative damage calculation that the movant contended would be more reasonable. Even this was not enough. The court held that movant failed to carry its burden of proof on the “unreasonable forecast” element because it failed to attach evidence in support of the alternative calculation. Id. (ii) Strandhagen offered no proof of actual damages, and her “one size fits all” argument fails. Strandhagen offered no evidence of what the Physicians’ actual damages were or would be in the event that they brought a future suit against her for breach of contract nor did she establish any alternative 25 damages calculation that she would contend is more reasonable. Instead, Strandhagen claimed that, as a matter of law, the liquidated damage amount was unreasonable because it was a “one size fits all” provision, i.e., the same amount of damages would be owed regardless of when she terminated her employment. (CR.157, 197-98, 264). This contention is insufficient without any proof of how the liquidated damage amount was calculated or what the actual damages were. Strandhagen relied on cases holding that a liquidated damages provision may be unenforceable if it imposes the same amount of liability for breaches that are both trivial and severe. (CR.198). This is not the case under the Operations Agreement. Here, the liquidated damages provision applies to only one form of breach: a Partner’s early departure from the practice. (CR.167-168). It does not apply, for example, to non-material breaches like the Advisory Board’s failure to hold a regular meeting (CR.163) or its failure to take a written vote upon request (CR.164). Strandhagen attempts to transform the time of the breach into a measure of its materiality. But Strandhagen presented no evidence to establish that the financial impact on the remaining Partners would be substantially greater or lesser depending on the timing of another Partner’s early departure. As previously discussed, important financial reasons 26 supported the Partners’ agreement to be bound by this liquidated damages clause, including the anticipated impact that one’s early departure would have on the practice’s gross profits and the Partners’ abilities to earn annual bonuses, as well as the resulting loss of experience and goodwill, which could not be easily or quickly replaced. Supra, Statement of Facts Section I.A. These financial considerations could be the same whether Strandhagen quit on day 1 or day 1,000. Strandhagen offered no evidence to prove otherwise. Instead, she simply claimed that “the consequences of Dr. Strandhagen’s employment terminating obviously varies over time.” (CR.157). This unsupported allegation does not suffice to meet her burden. Strandhagen’s “one size fits all” contention also fails in light of the several exceptions to the liquidated damages provision. (CR.167-169). Several types of “early departures” were carved out from application off the provision. These exceptions eliminate the imposition of any liability for early termination scenarios that would not constitute a material breach of the contract (such as early termination based on disability or with permission by the majority). Hence, the clause was narrowly drafted, not an unenforceable “one size fits all” provision. Moreover, relevant legal authorities are contrary to Strandhagen’s contention. The fact that a liquidated damages provision awards a uniform 27 amount for the breach of a term agreement regardless of the date of the breach is not per se unreasonable. In Murphy v. Cintas Corp., 923 S.W.2d 663, 666 (Tex. App.—Tyler 1996, writ denied), Murphy claimed that the liquidated damages provision was an unenforceable penalty because it imposed the same amount of damages for early cancellation of the parties’ agreement whether it resulted from his failure to pay for one of the contemplated goods (at the end of the contract’s term) or all of them (at the beginning). Id. The court rejected this argument and enforced the provision. Id. at 666-667. The Restatement of Contracts regarding liquidated damages is consistent with Murphy. See RESTATEMENT (SECOND) OF CONTRACTS § 356, Liquidated Damages and Penalties (1981). Comment (b), “Test of Penalty,” states that a liquidated damages amount “is reasonable to the extent that it approximates the actual loss that has resulted from the particular breach, even though it may not approximate the loss that might have been anticipated under other possible breaches.” Id. (emphasis added). Thus, this Court needs to determine only whether Strandhagen conclusively established that the liquidated amount was an unreasonable forecast of the actual damages resulting from this particular breach (her 28 five-year premature departure from the practice). Strandhagen offered no prove to establish this element. According to Restatement Section 356, whether the liquidated amount reasonably forecast other breaches that may have occurred is not a basis to deny the provision’s enforceability in this case. Id. This is confirmed by Illustration 2 to Section 356. In that example, partners A, B, and C formed a veterinary practice promising to remain as a partnership for ten years. Id. The liquidated damages clause provided that, if one partner terminated early (and the others continued the business), and the terminating partner breached his duty of non-competition, he would be liable for $50,000. This provision is enforceable because “[e]ven though $50,000 may be unreasonable in relation to the loss that may have resulted in other circumstances, it is not unreasonable in relation to the actual loss.” Id. In the absence of any evidence from Strandhagen to support her claim that the liquidated damages amount was not a reasonable forecast of just compensation—and especially considering that all inferences must be construed in favor of the Physicians as nonmovants—the record fails to conclusively demonstrate that Strandhagen satisfied her burden of proof on 29 this element. This Court should reject Strandhagen’s facial challenge just as the court did in Murphy, 923 S.W.2d at 666. (b) Plain language of contract shows reasonable forecast. Beyond the lack of evidence in support of Strandhagen’s contention that the liquidated damages amount was an unreasonable forecast of the actual damages, the plain language of the parties’ contract demonstrates that it was not. The Court would be required to disregard or render meaningless certain portions of the contract to accept Strandhagen’s argument. In determining whether Strandhagen has satisfied her burden on the affirmative defense of penalty, this Court must keep in mind the basic rules of contract construction, as recognized in GPA Holding, 344 S.W.3d at 471. “The court’s primary concern in interpreting a written contract is to determine the mutual intent of the parties as manifested in the contract, . . . and the agreement must be enforced as written.” Id. Terms should be given their plain and ordinary meaning, and interpretations that render any portion meaningless should be avoided. Id. This Court considered the plain language of the contract as a basis for rejecting a penalty defense and enforcing a liquidated damages provision in Southern Union Co. v. CSG Systems, Inc., No. 03-04-00712CV, 2005 WL 30 171349, *4-6 (Tex. App.—Austin Jan. 27, 2005, no pet.). There, the contract stated that the damages provision was included “[b]ecause of the difficulty in ascertaining CSG’s actual damages for a termination or other breach of the Agreement,” and that “CSG would have been unwilling to provide the Services at the fees set forth in the Agreement” had Southern Union not promised “certainty of revenue” by obligating itself to pay the discontinuance fee in the event that it breached the contract.” Id. at *4. The damages provision also “expressly state[d] that it ‘is not a penalty’ and that it ‘is a reasonable estimation of the actual damages which CSG would suffer if CSG were to fail to receive the amount of processing business as contemplated by this Agreement.’” Id. at *6. The Court clarified that, “[a]lthough parties cannot avoid a challenge to a liquidated damages provision simply by characterizing it as ‘reasonable,’ such express language is instructive of the parties’ intent when the terms are mutually bargained for between equally competent parties.” Id. This Court also put weight on the fact that the “provision was a bargained-for exchange, negotiated and approved by both companies.” Id. “When a provision is mutually bargained for by equally competent parties, we give deference to its enforcement. . . . From the face of the contract, Southern Union understood at the time it entered the agreement that CSG’s 31 damages would be difficult to estimate and therefore agreed a liquidated damages provision was necessary.” Id. Much like the Southern Union/CSG contract, the Operations Agreement between Strandhagen and her Partners expressly stated that the stipulated amount was to be paid “as liquidated damages, and not as a penalty,” and that the amount was “reasonable in light of the anticipated harm which would be caused by a Terminating Physician’s breach or default under this Agreement.” (CR.168). Additionally, the Partners agreed that the contract’s provisions were “narrowly tailored and necessary to protect the Physicians’ legitimate interests as a group,” and that they constituted a “significant inducement to [the Partners] entering into the Purchase Agreement, and consummating the transaction contemplated thereby.” (CR.162). Also like the Southern Union/CSG contract, Strandhagen and her Partners were mutually competent parties who voluntarily and knowingly entered this bargained-for exchange. (CR.162, 173-178). Hence, this Court should defer to the plain language of the Operations Agreement, which evidences the parties’ mutual intent for the liquidated damages provision to be valid and enforceable, and not construed as a penalty. To do otherwise would impermissibly render meaningless the express provisions of the 32 contract stating that the damages provision was reasonable, narrowly- tailored, a necessary inducement, and not a penalty. (c) Fact issue exists regarding modification. Finally, to any extent the Court believes Strandhagen offered proof that the damages provision was not a reasonable forecast of actual damages, she has still failed to conclusively establish this element of her defense because the “Severability” clause in the parties’ contract creates a genuine issue of material fact. Section 7(f) of the Operations Agreement provides: Severability. . . . In the event that any provision of this Agreement shall be declared by a Court of competent jurisdiction to exceed the limits such court deems reasonable and enforceable, said provisions shall be deemed modified to the minimum extent necessary to make such provisions reasonable and enforceable. (CR.171) (emphasis added). “An illegal or unconscionable provision of a contract may generally be severed so long as it does not constitute the essential purpose of the agreement.” In re Poly-Am., L.P., 262 S.W.3d 337, 357, 360 (Tex. 2008) (recognizing that, pursuant to the parties’ contract, the arbitrator “would be free to modify” terms found to be unconscionable rather than striking them altogether). Severability is determined by the intent of the parties as 33 evidenced by the language of the contract. In re Kasschau, 11 S.W.3d 305, 313 (Tex. App.—Houston [14th Dist.] 1999, orig. proceeding). Here, the liquidated amount could be modified in a narrow fashion without undermining the essential purpose of the parties’ contract. The express purpose of the Operations Agreement was to “establish an Advisory Board and set forth certain understandings and agreements among themselves regarding the operations of their practice.” (CR.162). The specific amount of liquidated damages applicable to any particular physician was not the “essential purpose” of the Agreement. In light of the Severability clause, the district court erred by declaring the liquidated damages provision wholly unenforceable as a matter of law. Even if the court considered $500,000 to be an unreasonable liquidated amount, the court should have concluded that a genuine issue of material fact exists about what modified amount or calculation would be reasonable to enforce in its place, keeping with the parties’ express intent to modify the term “to the minimum extent necessary.” To do otherwise, the Court would have to impermissibly rewrite the parties’ bargained-for exchange to strike out the final sentence of Paragraph 7(f), which is a mandatory provision voluntarily agreed to by the parties. Alternatively, if this Court 34 concludes the Severability clause is ambiguous, then it creates a genuine issue of material fact requiring reversal and remand. (RR.12-14, 22-23). C. Strandhagen Failed to Satisfy her Summary-Judgment Burden Regarding the Physicians’ Status as Third- Party Beneficiaries. Strandhagen also moved for summary judgment based on her argument that the liquidated damages provision is unenforceable because it seeks to render her liable to the Physicians for a breach of her Employment Agreement, to which the Physicians are not parties or third-party beneficiaries. (CR.157-158). This did not provide a valid basis for summary judgment because (1) Strandhagen’s liability for liquidated damages arises directly from the Operations Agreement between her and her Physician Partners, and does not require that the Physicians be third-party beneficiaries of her Employment Agreement; and/or (2) Strandhagen failed to conclusively establish that the Physicians were not third-party beneficiaries of the Employment Agreement. 35 1. The Operations Agreement Provides a Direct Line of Liability. Paragraph 5 of the Operations Agreement provides: [I]f [any Partner] terminates his or her employment with the Company prior to the expiration of the Initial Term, the Physicians may suffer harm [as specified therein]. . . . In light of the foregoing, if a [Partner’s] employment with the Company is terminated for any reason during the Initial Term . . . other than a termination without cause . . . then such [Terminating Partner] shall promptly pay . . . as liquidated damages and not as a penalty . . . the amount set forth below. (CR.167-168). This provision creates a direct line of liability for liquidated damages between an early-terminating physician and her remaining Partners based on the direct harm that will be suffered by the remaining Partners as a result of the early termination. (Id.). Under this provision, there is no need for the Physicians to be third-party beneficiaries of the Employment Agreement to enforce the liquidated damages clause. The Physicians (if they sued Strandhagen for breach of contract) would not be attempting to recover under the Employment Agreement as third-party beneficiaries. Rather, they would be seeking and are entitled to directly enforce the liability provisions contained within the four corners of their own contract with Strandhagen. (RR.10-11). 36 2. A Genuine Issue of Material Fact Remains about the Physicians’ Third-Party Beneficiary Status. Alternatively, even if the Court were to conclude that the Physicians are required to be third-party beneficiaries of Strandhagen’s Employment Agreement to enforce the liquidated damages clause under the Operations Agreement, it was error to grant summary-judgment on this ground because Strandhagen did not conclusively establish the absence of such third-party beneficiary status. Strandhagen’s Motion for Summary Judgment states in a single, conclusory sentence that the Physicians “are [not] third-party beneficiaries” to the Employment Agreement. (CR.158). She did not provide any evidence or analysis about the intention of the Employer or herself (or any of the other Partners) when entering their Employment Agreements, nor about the meaning of the contract as a whole. Strandhagen failed to satisfy her traditional summary-judgment burden on this ground. See Alvarado v. Lexington Ins. Co., 389 S.W.3d 544, 564 (Tex. App.—Houston [1st Dist.] 2012, no pet.) (“It was Lexington’s burden, as movant for summary judgment, to prove its entitlement to summary judgment against Alvarado as a matter of law. We hold that Lexington failed to carry its burden of conclusively negating Alvarado’s status as a third-party beneficiary to the 37 Policy. Thus, we hold that the trial court erred in rendering summary judgment in favor of Lexington.”). II. THE DISTRICT COURT ERRED BY DENYING PART OF THE PHYSICIANS’ PLEA TO THE JURISDICTION. The Physicians’ Amended Plea to the Jurisdiction argued, in part, that Strandhagen’s request for a declaration that the liquidated damages provision was an unenforceable penalty was not yet ripe for decision because the Physicians had not yet decided whether to sue her for breach of contract, much less made a demand or filed suit on that basis. (CR.79-80). In the absence of a live, justiciable controversy, the court lacked subject- matter jurisdiction over Strandhagen’s claim. (CR.79-80). On this basis, the district court erred by denying this portion of the Physician’s Plea and by granting an advisory summary judgment on Strandhagen’s unripe declaratory judgment claim, and by denying the opportunity to correct this error in response to the Motion for New Trial. (CR.184-85, 212, 271). This Court should reverse these decisions and render judgment dismissing Strandhagen’s claims for a lack of jurisdiction. A. Texas Law Prohibits Advisory Declarations on Potential Defenses to Hypothetical Disputes. In an action for declaratory relief, a plaintiff must allege facts that affirmatively demonstrate that the trial court has subject matter 38 jurisdiction. Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 446 (Tex. 1993); City of Pasadena v. Smith, 263 S.W.3d 80, 86 (Tex. App.— Houston [1st Dist.] 2006, pet. denied). “A request for declaratory relief alone does not establish jurisdiction in [the] Court. . . . [It is] merely a procedural device for deciding cases already within a court’s jurisdiction.” Chenault v. Phillips, 914 S.W.2d 140, 141 (Tex. 1996). For a court to have jurisdiction to consider a declaratory-judgment action, there must be a “justiciable controversy as to the rights and status of” the parties, and the requested declaration “must actually resolve the controversy.” Brooks v. Northglen Ass’n, 141 S.W.3d 158, 163-64 (Tex. 2004). “A justiciable controversy is one in which a real and substantial controversy exists involving a genuine conflict of tangible interests and not merely a theoretical dispute.” Texas Dep’t of Pub. Safety v. Moore, 985 S.W.2d 149, 153 (Tex. App.—Austin 1998, no pet.); see also City of Euless v. Dallas/Fort Worth Int’l Airport Bd., 936 S.W.2d 699, 703 (Tex. App.— Dallas 1996, writ denied) (if there is no actual controversy between parties, declaratory judgment is improper). “Section 37.004 does not . . . extend an open-ended invitation to parties seeking interpretation of their contracts. There must be some showing that litigation is imminent between the parties unless the 39 contractual uncertainties are judicially resolved.” Paulsen v. Texas Equal Access to Justice Found., 23 S.W.3d 42, 46 (Tex. App.—Austin 1999, pet. denied); see also In re City of Dallas, 977 S.W.2d 51, 57 (Tex. App.—Fort Worth 1998, orig. proceeding). The Declaratory Judgments Act does not permit litigants to “fish judicial ponds for legal advice.” California Prods. v. Puretex Lemon Juice, Inc., 334 S.W.2d 780, 781 (Tex. 1960). “The need for a justiciable controversy is related to the jurisdictional concepts of standing and ripeness and does not supersede these concepts.” LHR Enters., Inc. v. Geeslin, No. 03-05-00176-CV, 2007 WL 3306492, *4 (Tex. App.—Austin Nov. 7, 2007, pet. denied). Ripeness is a necessary component of subject matter jurisdiction. Waco Indep. Sch. Dist. v. Gibson, 22 S.W.3d 849, 850 (Tex. 2000); Atmos Energy Corp. v. Abbott, 127 S.W.3d 852, 857 (Tex. App.—Austin 2004, no pet.). “The requirement that a claim be ripe for review is based on the prohibition against issuing advisory opinions.” LHR Enters., 2007 WL 3306492 at *4 (citing Patterson v. Planned Parenthood, 971 S.W.2d 439, 442 (Tex. 1998); TEX. CONST. art. II, § 1 (separation of powers); Brooks, 141 S.W.3d at 164 (explaining that separation of powers provision bars issuance of advisory opinions)). “[T]here must be a concrete injury for the claim to be ripe.” Id. “A claim is not ripe if it is based on hypothetical or contingent facts that 40 may not occur as anticipated or may not occur at all.” Id.; see also Farmers Ins. Exch. v. Rodriguez, 366 S.W.3d 216, 223 (Tex. App.—Houston [14th Dist.] 2012, pet. denied) (declaratory claim was not ripe where parties’ liability for damages depended on outcome of a separate proceeding, which had not yet finalized). Based on these concepts, a “defendant may not use a declaratory judgment to prematurely adjudicate defenses to liability that may not yet exist. . . . [U]nder the federal constitution, [a] party may not use a declaratory judgment to get [an] advance ruling on an affirmative defense.” Transcont’l Realty Investors, Inc. v. Orix Capital Markets, LLC, 353 S.W.3d 241, 245 (Tex. App.—Dallas 2011, pet. denied) (emphasis added) (noting that a declaratory claim seeking to “assess[] the success of a defense to a potential claim (breach-of-contract or otherwise) is generally the type of hypothetical question federal courts endeavor to avoid”). “The declaratory judgment was not intended to permit the piecemeal trial of lawsuits.” Id. (holding the court lacked jurisdiction to issue a premature declaration regarding validity of contractual guarantee). In Nexstar Broad., Inc. v. Gray, No. 09-07-00364-CV, 2008 WL 2521967, *2 (Tex. App.—Beaumont June 26, 2008, no pet.), the court held that it was an improper use of the DJA for a party with potential liability 41 under a contract to seek a declaration that simply restated the “penalty” affirmative defense and sought no relief beyond what that defense would afford (i.e., avoidance of liquidated damages). This holding was based, in part, on the fact that the parties had no ongoing relationship—as contrasted from declarations in other cases that would settle future disputes of an ongoing relationship between the parties. Id. (citing BHP Petro. Co. v. Millard, 800 S.W.2d 838, 841-842 (Tex. 1990)). Similarly, this Court held in LHR Enterprises that the district court lacked jurisdiction to declare the meaning of the Insurance Commission’s conclusion that it “may impose an administrative penalty” in certain circumstances where there was no pending or impending action to seek such a remedy from plaintiff. 2007 WL 3306492 at *5; see also State v. Margolis, 439 S.W.2d 695, 697-98 (Tex. Civ. App.—Austin 1969, writ ref’d n.r.e.) (where plaintiff merely alleged, without any supporting proof, that defendant had “indicated an intention” to seek statutory penalty against plaintiff, and defendant denied that allegation in its pleadings, there was no evidence that a bona fide controversy existed giving rise to any justiciable issues between the parties; hence, declaratory judgment was improper).7 7 LHR Enterprises and Margolis involved statutory penalties available to the State in specified circumstances. While the cases are procedurally similar to the instant case in that they presented un-ripe claims for declaratory relief related to the enforcement of these remedies prior to a pending demand for their recovery, they are substantively 42 B. Strandhagen’s Claim Is Not Ripe. The declaration sought by Strandhagen merely presents a hypothetical or contingent question about what damages may be available if the Physicians were to pursue a claim against her in the future for breach of contract. Strandhagen only speculated that she has “learned . . . [the Physicians] and perhaps others are seeking to pursue her for collection,” but she failed to offer any proof that a live, justiciable controversy actually existed. (CR.8, 112). The Physicians generally denied all of Strandhagen’s allegations, specifically pled that her claim has not matured, and moved for dismissal based on their specific contention to the contrary. (CR.74-75, 79). A potential breach of contract suit against Strandhagen is not a certain, imminent, or unavoidable controversy. At best, it is hypothetical or contingent on other events. Hence, there is not a sufficiently ripe dispute between these parties about which declaratory relief may be appropriately granted. Strandhagen’s attempt to misuse the Declaratory Judgment Act to obtain an advance ruling on her affirmative defense should be dismissed. distinct in that they involved “penalties” rather than a liquidated damages clause as here. 43 PRAYER Based on the foregoing, Appellants respectfully pray that this Court sustain both of their issues on appeal and reverse the district court’s grant of Strandhagen’s Motion for Summary Judgment, its partial denial of the Physicians’ Plea to the Jurisdiction, and its denial of the Physicians’ Motion for New Trial. If the jurisdictional ruling is reversed, then this Court should render judgment in favor of the Physicians dismissing Strandhagen’s claim in its entirety. Otherwise, this Court should remand to the district court for further proceedings. Appellants further pray that this Court tax all costs against Strandhagen, both in this Court and below, and award the Appellants any such other relief at law or equity to which they may be justly entitled. Tex. R. App. P. 43.4; Tex. R. Civ. P. 139. Respectfully submitted, MARTENS, TODD, LEONARD, TAYLOR & AHLRICH By: __/s/ Amanda G. Taylor____ Amanda Garrett Taylor ataylor@textaxlaw.com Texas Bar No. 24045921 301 Congress Avenue, Suite 1950 Austin, Texas 78701 Tele: (512) 542-9898 Fax: (512) 542-9899 ATTORNEY FOR APPELLANTS 44 CERTIFICATE OF COMPLIANCE I certify that this Appellants’ Brief complies with the typeface requirements of Tex. R. App. P. 9.4(e) because it has been prepared in a conventional typeface no smaller than 14-point for text and 12-point for footnotes. This document also complies with the word-count limitations of Tex. R. App. P. 9.4(i) because, according to the word-count tool of the computer program used to prepare this document, it contains 8,855 words, excluding any parts exempted by Tex. R. App. P. 9.4(i)(1). /s/Amanda Taylor__________ Amanda Taylor CERTIFICATE OF SERVICE I certify that a true and correct copy of this Appellants’ Brief was filed electronically and served on all counsel via e-mail in compliance with Tex. R. App. P. 9.5(b) and L.R.3 on this 14th day of January, 2015. Daniel Byrne DByrne@FBHH.com Lessie Fiztpatrick LFitzpatrick@FBHH.com FRITZ, BYRNE, HEAD & HARRISON, PLLC 98 San Jacinto Blvd, Suite 2000 Austin, TX 78701 Telephone: (512) 476-2020 /s/Amanda Taylor__________ Amanda Taylor 45 NOTICE SENT~LOCUTORY NONE DC BK14156 PG221 DISP PARTIES· ALL DISP CODE: ~ CLS 'flRtCf REDACT PGS:_ _ _-,:o-~- NO. D-1-GN-13-002811 JUDQE OL!J CLERK.~~- TRACYD.sT § IN THE DISTRICT COURT § PLAINTIFF § § v. § § § NOAH S. BUNKER, PAUL § 353rd JUDICIAL DISTRICT CARRELL, EVERETT BREW § HOUSTON, JR., W.ANDREW § BUCHHOLZ, SCOTT J. LEIGHTY, § JAD L. DAVIS, and HOLLY § ..... e"'