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

ACCEPTED

03-14-00510-CV

4243321

THIRD COURT OF APPEALS

AUSTIN, TEXAS

2/23/2015 10:52:08 AM

JEFFREY D. KYLE

CLERK

No. 03-14-00510-CV

FILED IN

3rd COURT OF APPEALS

IN THE COURT OF APPEALS AUSTIN, TEXAS

FOR THE THIRD COURT OF APPEALS DISTRICT

2/23/2015 10:52:08 AM

AUSTIN, TEXAS JEFFREY D. KYLE

Clerk

NOAH S. BUNKER, PAUL CARRELL, EVERETT BREW HOUSTON, JR.,

W. ANDREW BUCHHOLZ, SCOTT J. LEIGHTY, JAD L. DAVIS

AND HOLLY CLAUSE,

Appellants and Cross-Appellees,

v.

TRACY D. STRANDHAGEN,

Appellee and Cross-Appellant.

ON APPEAL FROM THE 353RD JUDICIAL DISTRICT COURT OF TRAVIS COUNTY, TEXAS

HON. ORLINDA NARANJO, PRESIDING; CAUSE NO. D-1-GN-13-002811

APPELLEE’S BRIEF

Daniel H. Byrne

Texas Bar No. 03565600

Dbyrne@fbhh.com

FRITZ, BYRNE, HEAD & HARRISON, PLLC

98 San Jacinto Boulevard, Suite 2000

Austin, Texas 78701

Telephone: (512) 476-2020

Telecopy: (512) 477-5267

IDENTITY OF PARTIES AND COUNSEL

APPELLEES APPELLANTS

Tracy D. Strandhagen Noah S. Bunker, Paul Carrell,

Everett Brew Houston, Jr., W.

Andrew Buchholz, Scott J. Leighty,

Jad L. Davis, and Holly Clause

Trial and Appellate Counsel: Appellate Counsel:

Daniel H. Byrne Amanda G. Taylor

Texas Bar No. 03565600 ataylor@textaxlaw.com

dbyrne@fbhh.com Texas Bar No. 24045921

Lessie Fitzpatrick MARTENS, TODD, LEONARD, TAYLOR

Texas Bar No. 24012630 & AHLRICH

lfitzpatrick@fbhh.com 301 Congress Avenue, Suite 1950

Christine E. Burgess Austin, Texas 78701

Texas Bar No. 00793428 Tel: (512) 542-9898

cburgess@fbhh.com Fax: (512) 542-9899

FRITZ, BYRNE, HEAD & HARRISON,

PLLC

98 San Jacinto Blvd., Suite 2000

Austin, Texas 78701

Tel: (512) 476-2020

Fax: (512) 477-5267

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

Tel: (512) 472-4845

Fax: (512) 472-8403

i

TABLE OF CONTENTS

IDENTITY OF PARTIES AND COUNSEL ......................................................... i

TABLE OF CONTENTS ....................................................................................... ii

INDEX OF AUTHORITIES ................................................................................. iv

STATEMENT OF THE CASE ............................................................................. ix

RECORD ABBREVIATIONS................................................................................x

ISSUES PRESENTED ........................................................................................... xi

I. NO REQUEST FOR ORAL ARGUMENT ................................................1

II. STATEMENT OF FACTS ...........................................................................1

A. DR. STRANDHAGEN SOUGHT A DECLARATION THAT THE

CONTRACTUAL PROVISION PURPORTING TO REQUIRE PAYMENT OF

$500,000 IS AN UNENFORCEABLE PENALTY ...................................................1

B. TRIAL COURT PROCEEDINGS..........................................................................4

III. SUMMARY OF THE ARGUMENT ...........................................................6

IV. ARGUMENT..................................................................................................8

A. STANDARD OF REVIEW ....................................................................................8

B. THE DISTRICT COURT DID NOT ERR BY GRANTING THE SUMMARY

JUDGMENT .......................................................................................................8

1. Dr. Strandhagen carried her burden of proving that the

$500,000 Termination Penalty Clause is an unenforceable

penalty. ........................................................................................................9

a. Dr. Strandhagen need only prove that the $500,000

Termination Penalty Clause was not a reasonable forecast of

just compensation. .................................................................................9

ii

b. As matter of law, the $500,000 Termination Penalty Clause

was not a reasonable forecast of just compensation on its face

because the penalty amount was the same if Dr. Strandhagen

terminated her employment on day one or after she

performed for 99% of the employment contract term. ...................12

(1) A party challenging the enforceability of a purported

liquidated damages clause based on its facial

unreasonableness as a forecast of just compensation at the

time the contract was made need not address actual

damages. ............................................................................................12

(2) Dr. Strandhagen has proven that the Termination Penalty

Clause is facially invalid. .................................................................15

2. Appellants’ modification argument fails. ..............................................20

C. THE TRIAL COURT HAD JURISDICTION BECAUSE AN ACTUAL

CONTROVERSY EXISTS BETWEEN THE PARTIES, AND IT IS RIPE FOR

ADJUDICATION ..............................................................................................24

V. PRAYER .......................................................................................................29

CERTIFICATE OF SERVICE AND COMPLIANCE ......................................31

iii

INDEX OF AUTHORITIES

Am. Nat’l Ins. Co. v. Cannon,

86 S.W.3d 801 (Tex. App.—Beaumont 2002, no pet.) ...........................................28

Baker v. Int’l Record Syndicate, Inc.,

812 S.W.2d 53 (Tex. App.—Dallas 1991, no writ.) ..........................................10, 12

Bd. of Water Eng’rs v. San Antonio,

283 S.W.2d 722 (Tex. 1955)....................................................................................25

Cal. Prods., Inc. v. Puretex Lemon Juice, Inc.,

334 S.W.2d 780 (Tex. 1960)....................................................................................25

Carter v. Dripping Springs Water Supply Corp.,

Cause No. 03-03-00753-CV, 2005 Tex. App. LEXIS 461

(Tex. App.—Austin, Jan. 21, 2005, no pet.) ............................................................25

Commercial Union Ins. Co. v. La Villa Indep. Sch. Dist.,

779 S.W.2d 102 (Tex. App.—Corpus Christi 1989, no writ)..................................17

Community Dev. Serv., Inc. v. Replacement Parts Mfg., Inc.,

679 S.W.2d 721 (Tex. App.—Houston [1st Dist.] 1984, no writ) ...............15, 16, 20

Continental Holdings, Ltd. v. Leahy,

132 S.W.3d 471 (Tex. App.—Eastland 2003, no pet.) ............................................21

County of Cameron v. Brown, 80 S.W.3d 549 (Tex. 2002) ....................................29

Eberts v. Businesspeople Personnel Servs., Inc.,

620 S.W.2d 861 (Tex. Civ. App.—Dallas 1981, no writ) .................................11, 17

Farmers Ins. Exch. v. Rodriguez, 366 S.W.3d 216

(Tex. App.–Houston [14th Dist.] 2012, pet. denied) ................................................29

FPL Energy, LLC v. TXU Portfolio Mgmt. Co., L.P.,

426 S.W.3d 59 (Tex. 2014) ................................... 8, 9, 10, 11, 12, 13, 14, 15, 18, 20

iv

Garden Ridge, L.P. v. Advance Int’l, Inc., 403 S.W.3d 432

(Tex. App.—Houston [14th Dist.] 2013, pet. denied) ............................10, 13, 16, 19

GPA Holding, Inc. v. Baylor Health Care Sys.,

344 S.W.3d 467 (Tex. App.—Dallas 2011, pet. denied) ...................................10, 12

Great Am. Prods. v. Permabond Int’l, 94 S.W.3d 675

(Tex. App.—Austin 2002, pet. denied) ...................................................................22

Hamilton v. Tex. Prop. and Cas. Ins. Guar. Ass’n,

No. 03-98-00355-CV, 1999 Tex. App. LEXIS 3163

(Tex. App.—Austin Apr. 29, 1999, no pet.) ............................................................21

Hampden Corp. v. Remark, Inc., No. 05-13-00529,

2014 Tex. App. LEXIS 6900

(Tex. App.—Dallas Oct. 10, 2014, pet. denied) ......................................................22

Healix Infusion Therapy, Inc. v. Bellos, No. 11-02-00346-CV,

2003 Tex. App. LEXIS 9027

(Tex. App.—Eastland Oct. 23, 2003, no pet.) ...................................................12, 15

Hirschfeld Steel Co., Inc. v. Kellogg Brown & Root, Inc.,

201 S.W.3d 272 (Tex. App.—Houston [14th Dist.] 2006, no pet.) ..........................28

Hoover Slovacek, LLP v. Walton, 206 S.W.3d 557 (Tex. 2006) .............................23

In re City of Dallas, 977 S.W.2d 798

(Tex. App.—Fort Worth 1998, orig. proceeding)....................................................25

In re Dow Corning Corp., 419 F.3d 543 (6th Cir. 2005)....................................11, 13

In re Kasschau, 11 S.W. 3d 305

(Tex. App.—Houston [14th Dist.] 1999, orig. proceeding) .....................................23

In re OC, Inc., 552 F.3d 413 (5th Cir. 2008) ............................................................21

In re Poly-America, L.P., 262 S.W.3d 337 (Tex. 2008) ..........................................23

Kelley-Coppedge, Inc. v. Highlands Ins. Co.,

980 S.W.2d 462 (Tex. 1998)....................................................................................21

v

Khan v. Meknojiya, No.03-11-00580-CV,

2013 Tex. App. LEXIS 7976

(Tex. App.—Austin June 28, 2013, no pet.) ......................................................10, 12

Lake River Corp. v. Carborundum Co.,

769 F.2d 1284 (7th Cir. 1985)...................................................................................15

LHR Enters., Inc. v. Geeslin, No. 03-05-00176-CV,

2007 Tex. App. LEXIS 8849

(Tex. App.—Austin Nov. 7, 2007, pet. denied) ................................................26, 29

Mayfield v. Hicks, 575 S.W.2d 571

(Tex. App.—Dallas 1978, writ ref’d n.r.e.) ...........................................13, 16, 18, 19

MBM Fin. Corp. v. The Woodlands Operating Co., L.P.,

292 S.W.3d 660 (Tex. 2009)..............................................................................27, 28

McFadden v. Fuentes,

790 S.W.2d 736 (Tex. App.—El Paso 1990, no writ) .............................................19

McGinnis v. Union Pac. R.R. Co.,

612 F. Supp. 2d 776 (S.D. Tex. 2009) .....................................................................28

Murphy v. Cintas Corp.,

923 S.W.2d 663 (Tex. App.—Tyler 1996, writ denied) .........................12, 14 18, 19

Nexstar Broad., Inc. v. Gray,

No. 09-07-00364, 2008 Tex. App. LEXIS 4736

(Tex. App.—Beaumont June 26, 2008, no pet.) ...............................................11, 29

Patterson v. Planned Parenthood of Houston & Se. Tex., Inc.,

971 S.W.2d 439 (Tex. 1998)....................................................................................25

Paulsen v. Tex. Equal Access to Justice Found.,

23 S.W.3d 42 (Tex. App.—Austin 1999, pet. denied) ............................................27

Phillips v. Phillips, 820 S.W.2d 785 (Tex. 1991) ........................9, 10, 13, 14, 16, 20

Robinson v. Parker, 353 S.W.3d 753 (Tex. 2011) ..................................................29

vi

Rowan Cos., Inc. v. Griffin, 876 F.2d 26 (5th Cir. 1989) .........................................28

Rusk State Hosp. v. Black, 392 S.W.3d 88 (Tex. 2012) ..........................................29

Southern Union Co. v. CSG Sys., Inc.,

No. 03-04-00172-CV, 2005 Tex. App. LEXIS 564

(Tex. App.—Austin Jan. 27, 2005, no pet.) ...........................................10, 12, 15, 20

Southwestern Bell Tel. Co. v. Delanney,

809 S.W.2d 493 (Tex. 1991)....................................................................................23

SP Terrace, L.P. v. Meritage Homes of Tex., LLC,

334 S.W.3d 275 (Tex. App.—Houston [1st Dist.] 2010, no pet.) ............................. 9

State v. Margolis, 439 S.W.2d 695

(Tex. Civ. App.—Austin 1969, writ ref’d n.r.e.) .....................................................28

Stewart v. Basey, 245 S.W.2d 484 (Tex. 1952) .....................................10, 15, 16, 20

Tex. Ass’n of Business v. Tex. Air Control Bd., 852 S.W.2d 440

(Tex. 1993) ...............................................................................................................27

Tex. Dep’t of Pub. Safety v. Moore,

985 S.W.2d 149 (Tex. App.—Austin, 1998, no pet.) ..............................................25

Transcontinental Realty Investors, Inc. v. Orix Capital Markets, LLC,

353 S.W.3d 241 (Tex. App.—Dallas 2011, pet. denied) .........................................29

Transport. Ins. Co. v. WH Cleaners, Inc.,

372 S.W.3d 223 (Tex. App.—Dallas 2012, no pet.) ...........................................8, 28

Triton 88, L.P. v. Star Elec., LLC,

411 S.W.3d 42 (Tex. App.—Houston [1st Dist.] 2013, no pet.) ........................10, 15

Urban Television Network Corp. v. Creditor Liquidity Solutions, LP,

277 S.W.3d 917 (Tex. App.—Dallas 2009, no pet.) ...............................................17

Valence Operating Co. v. Dorsett,

164 S.W.3d 656 (Tex. 2005)......................................................................................8

vii

WesternGeco, LLC v. Input/Output, Inc.,

246 S.W.3d 776 (Tex. App.—Houston [14th Dist.] 2008, no pet.).........................25

RULES:

Tex. R. Civ. P. 94 .....................................................................................................22

TEX. R. CIV. P. 166a(c)...............................................................................................8

Tex. R. App. P. 43....................................................................................................30

STATUTES:

Tex. Civ. Prac. & Rem. Code §37.002 ....................................................................24

Tex. Civ. Prac. & Rem. Code §37.004 ........................................................24, 25, 28

OTHER AUTHORITIES:

RESTATEMENT (SECOND) OF CONTRACTS §208 ........................................................24

RESTATEMENT (SECOND) OF CONTRACTS §356 ............................................14, 19, 23

viii

STATEMENT OF THE CASE

This appeal arises from Dr. Tracy D. Strandhagen’s request for a declaration

that the $500,000 lump sum “liquidated damages” provision set forth in the parties’

contract is an unenforceable penalty. The trial court held that it had jurisdiction to

determine such matter, and granted summary judgment declaring the purported

“one size fits all” liquidated damages provision an unenforceable penalty.

Appellants appeal these decisions.

ix

RECORD ABBREVIATIONS

For the sake of simplicity, Dr. Strandhagen will use the same citation forms

as the Appellants:

• “CR” refers to the primary Clerk’s Record, pages 1-286, filed with

this Court on 10/15/2014.

• “Sealed.CR” refers to the sealed document (Dr. Strandhagen’s

Employment Agreement), filed under seal with this Court on

12/22/2014. Because the district clerk did not assign separate “record

pages” to this document, cites are to the original page numbers.

• “RR” refers to the Reporter’s Record, pages 1-29, filed with this

Court on 9/25/2014.

x

ISSUES PRESENTED

1. Did the trial court err by granting summary judgment declaring the

$500,000 purported liquidated damages provision to be an

unenforceable penalty?

2. Did the trial court err by determining it had jurisdiction over Dr.

Strandhagen’s cause of action?

xi

Appellee Tracy D. Strandhagen (“Dr. Strandhagen”) submits the following brief:

I. NO REQUEST FOR ORAL ARGUMENT

Dr. Strandhagen believes that the issues in this appeal are straightforward and

can be determined without oral argument. Of course, if this Court grants

Appellants’ request for oral argument, Dr. Strandhagen respectfully requests that

she be granted the opportunity to present her position and respond to Appellants’

arguments at any oral argument of this matter.

II. STATEMENT OF FACTS

A. DR. STRANDHAGEN SOUGHT A DECLARATION THAT THE CONTRACTUAL

PROVISION PURPORTING TO REQUIRE PAYMENT OF $500,000 IS AN

UNENFORCEABLE PENALTY

Dr. Strandhagen is a licensed anesthesiologist with more than fifteen years

of experience. She was among about 60 anesthesiologists, along with Appellants

Noah S. Bunker, Paul Carrell, Everett Brew Houston, Jr., W. Andrew Buchholz,

Scott J. Leighty, Jad L. Davis, and Holly Clause, who were partners in Austin

Anesthesiology Group, LLP (“AAG”). CR.160. In October of 2011, AAG entered

into a transaction (the “Buyout”) whereby its operations were sold to American

Anesthesiology of Texas, Inc. (“AAT”). Id. At the time of the Buyout, Dr.

Strandhagen and the other AAG-affiliated physicians entered into separate

employment agreements with AAT (almost all for a seven year term), wherein the

1

physicians agreed to work for AAT. See id.; CR.167, 173-78.1

Contemporaneously, these same physicians entered into the Advisory Board and

Internal Operations Agreement (the “Physicians’ Agreement”). CR.162-83. The

Physicians’ Agreement created an “Advisory Board” to provide “binding advice

and guidance” to the medical director elected under the agreement. CR.162.

Appellants were the current members of that Advisory Board at the time this suit

was initiated in 2013.

The Physicians’ Agreement also contains a section entitled “Physician

Obligations,” which contains a purported liquidated damages clause. CR.167-68.

Pursuant to this clause, the physicians purportedly agreed that if their employment

with AAT ceased at any time before their individual employment agreements

expired for any reason other than termination by AAT without cause, 2 the

physician who ceased to be employed by AAT became obligated to pay the non-

terminated physicians their pro rata share of a lump sum amount labeled as

“liquidated damages,” plus interest at 10% (the “Termination Penalty Clause”).

1

Appellants state that the period of time each physician agreed to be employed by AAT

was tied to the amount of monetary compensation received from the Buyout. Appellants’ Brief

at 5. Like several assertions made in Appellants’ Brief, this statement is not supported by the

record citations provided. Id. (citing CR.144, 167-68). Nor did Appellants raise this immaterial

issue in the trial court. In the case of Dr. Strandhagen, she was not provided any justification for

the compensation paid to her in the Buyout or the rationale for the liquidated damage provision

at issue here, as she was (like her other partners were) presented the Physicians’ Agreement on a

take-it-or-leave-it basis.

2

There were also certain other limited exceptions such as death and other causes beyond

Dr. Strandhagen’s control not applicable here.

2

CR.168 §5(b). For the vast majority of physicians, including Dr. Strandhagen, the

lump sum amount was immutably fixed at $500,000. Id.3

The amount of this Termination Penalty Clause is the same whether Dr.

Strandhagen’s employment terminated on day one of her employment with AAT

(October 6, 2011) or day 2,554 (October 5, 2018); on its face the clause assesses

the same damage amount for a physician that performs 99.96% of that doctor’s

employment contract as for one who breaches with 99.96% of the contractual

obligation unfulfilled. See id.; Sealed.CR.12, §VIII.A (term of Employment

Agreement was seven years from effective date).

Dr. Strandhagen’s employment terminated in July 2013. See CR.161 ¶5;

CR.141. AAT claimed that Dr. Strandhagen was terminated for cause, and Dr.

Strandhagen claimed that she was terminated without cause.4 CR.141-45. In the

3

Appellants claim that the few variations in the lump sum “liquidated damages” amounts

were “presumably” tied to shorter lengths of time of for some physician’s post-Buyout

employment agreements with AAT. Appellants’ Brief at 6. There is no evidence in the record to

support this “presumption.” Again, this is a new, immaterial factual assertion by Appellants,

which was not made in the trial court.

4

In December of 2012, an employment dispute (which has since settled) arose between Dr.

Strandhagen and AAT which eventually resulted in her filing a gender discrimination report to

AAT. CR.39; see CR.85-87, 91-102. Dr. Strandhagen asserted that she was discriminated

against because of her gender and that she was constructively discharged in July 2013. CR.91-

102, 141-143; see CR.85-87. Although immaterial to the issues on this appeal, Dr. Strandhagen

points out that Appellants incorrectly assert that the Buyout occurred “just two months” before

Dr. Strandhagen complained about the discrimination. Appellants’ Brief, p. 9 (citing to CR.93,

144). In fact, she reported the discrimination in response to an incident which occurred more

than a year after the Buyout. See CR.144 (stating date of employment agreement in November

2011); CR.93 (first report of discrimination in February 2013).

3

fall of 2013, Dr. Strandhagen learned that Appellants took the position that she was

terminated for cause, and her contention that they were planning to seek

enforcement of the Termination Penalty Clause by soliciting other physicians to

join in a lawsuit against her remains unrefuted.5 CR.40. Rather than awaiting this

lawsuit, Dr. Strandhagen opted to file suit seeking a declaration that the

Termination Penalty Clause is an unenforceable penalty as a matter of law. CR.40-

41.

B. TRIAL COURT PROCEEDINGS

Appellants filed an Amended Plea to the Jurisdiction and Plea in Abatement

(the “Plea to the Jurisdiction”), seeking dismissal of Dr. Strandhagen’s claims

based on lack of jurisdiction. CR.77-84. After considering the Plea to the

Jurisdiction and Dr. Strandhagen’s response (CR.109-45), the trial court dismissed

Dr. Strandhagen’s request for a declaration that she was terminated without cause,

but retained jurisdiction over her request for a declaration that the Termination

Penalty Clause was an invalid and unenforceable penalty. CR.184.

5

Despite many opportunities to do so, Appellants have never denied that they were taking

steps to file suit to enforce the Termination Penalty Clause against Dr. Strandhagen, nor—until

this appeal—have they even claimed to have been undecided about whether to pursue such a

claim against her. See generally, CR.77-83 (no claim that Appellants were not intending to sue

Dr. Strandhagen or that they were undecided on this course of action); contrast to Appellants’

Brief, p. 38 (citing to CR.79-80, which does not support this point). Instead, they have

repeatedly equivocated, contending only that no justiciable controversy existed because they had

not yet confronted Dr. Strandhagen with their demands. CR.79.

4

Dr. Strandhagen later filed a Motion for Summary Judgment, with

supporting evidence, seeking a determination that the Termination Penalty Clause

is an unenforceable penalty. CR.154-83. Appellants filed their response to that

motion, arguing that the Termination Penalty Clause is not an unenforceable

penalty. CR.186-93. Appellants did not raise the issue of modification in their

summary judgment response, nor did they plead modification in their answer. Id.;

CR.74-76. Dr. Strandhagen filed a reply in support of her motion for summary

judgment, see CR.194-201, and Appellants filed additional supplemental briefing.

CR.202-11. After a full briefing on the issues, a hearing and post-hearing

submissions, the trial court found that the “$500,000 purported liquidated damages

clause” is an unenforceable penalty, and entered judgment accordingly. See

CR.212. The trial court did not further specify the grounds for its judgment. Id.

The Appellants filed a Motion for New Trial, (1) asking the Court to

reconsider its conclusion that the Termination Penalty Clause is an unenforceable

penalty, (2) arguing for the first time that even if it is an unenforceable penalty, the

Court should somehow re-write the penalty clause, and (3) asking the Court to

reconsider its earlier determination that it had jurisdiction to decide whether the

Termination Penalty Clause is an unenforceable penalty. CR.213-50. Dr.

Strandhagen urged the trial court to reject all of Appellants’ arguments, and she

specifically argued that the newly raised modification argument should be rejected

5

both because it was untimely (and thus waived) and because it lacked merit.

CR.254-70. After full briefing on the issues and a hearing, the trial court denied

Appellants’ Motion for New Trial without specifying the grounds for such

determination. CR.271.

III. SUMMARY OF THE ARGUMENT

The only claim before the trial court when it issued the Summary Judgment

was Dr. Strandhagen’s request to have the $500,000 lump sum Termination

Penalty Clause declared an unenforceable penalty. This request was primarily

predicated on the fact that on its face the amount required to be paid was not a

reasonable forecast of just compensation at the time the contract was made as a

matter of law. Alternatively, Dr. Strandhagen argued that the Termination Penalty

Clause was an unenforceable penalty because it purported to render Dr.

Strandhagen liable to Appellants for damages for her alleged breach of a contract

(her employment agreement with AAT) to which Appellants are neither parties nor

third-party beneficiaries. The trial court properly granted summary judgment (the

“Summary Judgment”) declaring the Termination Penalty an unenforceable

penalty as a matter of law on May 20, 2014. CR.212.

Appellants attack the Summary Judgment on multiple grounds. These

attacks fail because Dr. Strandhagen met her burden to conclusively negate an

essential element of any enforceable liquidated damages provision, since on its

6

face the Termination Penalty was not a reasonable forecast of just compensation

for breach at the time it was made as a matter of law. The Court must disregard

Appellants’ illogical and legally unsupportable suggestion that Dr. Strandhagen

had the burden to negate both elements necessary to enforce such clauses; once she

negated the “reasonable forecast” element there was no need for her to address the

“difficulty of estimation” element. Appellants’ newly fabricated argument that if

the Termination Penalty is an illegal penalty, then the trial court erred by failing to

re-write it instead of simply holding it to be unenforceable, was clearly waived by

their failure to raise, plead or present evidence of this affirmative defense in any

way before the Summary Judgment was rendered. 6

Finally, Appellants attack the court’s Order Granting in Part and Denying in

Part Defendants’ Amended Plea to the Jurisdiction (the “PTJ Order”), arguing that

the trial court had no jurisdiction to decide whether the Termination Penalty Clause

was an unenforceable penalty. Their jurisdictional challenge must be rejected

because Dr. Strandhagen has shown (and Appellants effectively concede) that there

is an actual controversy among the parties regarding the enforceability of the

Termination Penalty Clause, as amply illustrated by the very vigorous briefing

presented to this Court.

6

If this Court somehow finds it appropriate to address the merits of Appellants’

untimely modification argument, it should reject Appellants’ faulty interpretation of this clause

on the merits.

7

IV. ARGUMENT

A. STANDARD OF REVIEW

The trial court’s grant of summary judgment will be reviewed de novo.

Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). The

Summary Judgment must be affirmed if there is no genuine issue as to any material

fact and Dr. Strandhagen is entitled to judgment as a matter of law. See TEX. R.

CIV. P. 166a(c). Likewise, the trial court’s denial of the Plea to the Jurisdiction

will be reviewed de novo. Transport. Ins. Co. v. WH Cleaners, Inc., 372 S.W.3d

223, 227 (Tex. App.—Dallas 2012, no pet.).

B. THE DISTRICT COURT DID NOT ERR BY GRANTING THE SUMMARY

JUDGMENT

As the Texas Supreme Court reiterated last year,

The basic principle underlying contract damages is compensation for

losses sustained and no more; thus, we will not enforce punitive

contractual damages provisions. In Phillips v. Phillips, we

acknowledged this principle and restated the two indispensible

findings a court must make to enforce contractual damages

provisions: (1) the harm caused by the breach is incapable or difficult

of estimation, and (2) the amount of liquidated damages called for is a

reasonable forecast of just compensation.

FPL Energy, LLC v. TXU Portfolio Mgmt. Co., L.P., 426 S.W.3d 59, 69 (Tex.

2014) (internal quotations and citations omitted; emphasis added) (hereinafter,

“FPL Energy”). Unquestionably, if either of these two elements (difficulty of

estimation or reasonable forecast) is negated, a liquidated damages provision is

8

unenforceable as a penalty. Here, the trial court did not err in determining that the

Termination Penalty Clause is an unenforceable penalty because Dr. Strandhagen

established as a matter of law that it was not a reasonable forecast of just

compensation at the time the contract was made.

1. Dr. Strandhagen carried her burden of proving that the $500,000

Termination Penalty Clause is an unenforceable penalty.

Enforceability of a liquidated damages clause is a question of law for the

court to decide. Phillips v. Phillips, 820 S.W.2d 785, 788 (Tex. 1991). The burden

of proving that a liquidated damages clause is an unenforceable penalty is on Dr.

Strandhagen since she is the party seeking to invalidate the clause. SP Terrace,

L.P. v. Meritage Homes of Tex., LLC, 334 S.W.3d 275, 287 (Tex. App.— Houston

[1st Dist.] 2010, no pet.). Dr. Strandhagen met her burden to prove that the

Termination Penalty Clause is an unenforceable penalty by proving that the clause

was not a reasonable forecast of just compensation.

a. Dr. Strandhagen need only prove that the $500,000

Termination Penalty Clause was not a reasonable forecast

of just compensation.

Appellants fundamentally misstate the legal standard for determining when a

liquidated damages clause is an unenforceable penalty. In an argument that

borders on the frivolous, they state incorrectly that Dr. Strandhagen must negate

each of the two elements necessary to enforce a liquidated damages clause in order

to prevail. See Appellants’ Brief, pp. 17-22. This argument is fallacious—since

9

both elements must be present for the clause to be enforced, it logically and

necessarily follows that if either element is negated, the clause is an unenforceable

penalty. As noted above, recent Texas Supreme Court precedent verifies this.

FPL Energy, 426 S.W.3d at 70-72.

The two-part Texas common law test for enforceability of a purported

liquidated damages clause is repeatedly and consistently described as requiring two

indispensible elements. Only if both of the following elements are present, may

such a clause be enforced: (1) the harm caused by the breach is incapable or

difficult of estimation, and (2) the amount of liquidated damages is a reasonable

forecast of just compensation. FPL Energy, 426 S.W.3d at 69; Phillips, 820

S.W.2d at 788.7 If one must establish two elements to prove a clause is

enforceable, it logically follows that if either element is missing, the clause is

unenforceable. Therefore, a liquidated damages provision is unenforceable if

either of the liquidated damages elements set forth above is negated. Requiring a

7

E.g., Stewart v. Basey, 245 S.W.2d 484, 486 (Tex. 1952) (“All agree that to be

enforceable as liquidated damages the liquidated damages must be uncertain and the stipulation

must be reasonable”) (emphasis added); Khan v. Meknojiya, No. 03-11-00580-CV, 2013 Tex.

App. LEXIS 7976, *7 (Tex. App.—Austin June 28, 2013, no pet.); Southern Union Co. v. CSG

Sys., Inc., No. 03-04-00172-CV, 2005 Tex. App. LEXIS 564, *12 (Tex. App.—Austin Jan. 27,

2005, no pet.); Triton 88, L.P. v. Star Elec., LLC, 411 S.W.3d 42, 62 (Tex. App.—Houston [1st

Dist.] 2013, no pet.); Garden Ridge, L.P. v. Advance Int’l, Inc., 403 S.W.3d 432, 439 (Tex.

App.—Houston [14th Dist.] 2013, pet. denied) (hereinafter “Garden Ridge”); GPA Holding, Inc.

v. Baylor Health Care Sys., 344 S.W.3d 467, 475 (Tex. App.—Dallas 2011, pet. denied); Baker

v. Int’l Record Syndicate, Inc., 812 S.W.2d 53, 55 (Tex. App.—Dallas 1991, no writ).

10

litigant to negate both essential elements to prevail would be absurd, which helps

explain why no Texas court has ever so held.

The Texas Supreme Court confirmed that only one of these elements needs

to be negated in FPL Energy, 426 S.W.3d at 70-72. In this 2014 case, the court

found that the first element of the enforceability test—difficulty of estimation of

the actual harm caused by breach of the contract (the element Appellants complain

that Dr. Strandhagen failed to negate)—was satisfied. Id. at 70. It nevertheless

held the clause unenforceable because the amount of liquidated damages called for

was not reasonable. Id. at 70-72. There, as here, even where damages were

difficult of estimation (which the trial court below was required to assume in the

context of Dr. Strandhagen’s summary judgment motion), the absence of the

second necessary element was fatal to the clause’s enforceability. Texas

jurisprudence is replete with similar examples. 8

8

E.g., In re Dow Corning Corp., 419 F.3d 543, 550, 553 (6th Cir. 2005) (under Texas law,

party challenging liquidated damages clause had burden to negate one of elements necessary to

prove clause enforceable; where one element is negated, it is unenforceable penalty); Nexstar

Broad., Inc. v. Gray, No. 09-07-00364, 2008 Tex. App. LEXIS 4736, *7-8 (Tex. App.—

Beaumont June 26, 2008, no pet.) (holding liquidated damages provision unenforceable where it

was unreasonable forecast of just compensation without any discussion of whether harm was

difficult to estimate); Eberts v. Businesspeople Personnel Servs., Inc., 620 S.W.2d 861, 863-65

(Tex. Civ. App.—Dallas 1981, no writ) (liquidated damages provision unenforceable where

amount was not reasonable forecast of just compensation, even if the harm was difficult to

estimate).

11

Appellants’ reliance on what can most charitably be described as dicta9 in

lower Texas appellate court cases cannot overcome the longstanding Texas

common law test, Texas Supreme Court precedent, or common sense. To prove

the Termination Penalty Clause’s unenforceability, Dr. Strandhagen was only

required to negate one of the two elements needed to enforce a purported

liquidated damages clause. Consequently, the Final Judgment must be affirmed

since she showed that the Termination Penalty Clause was not a reasonable

forecast of just compensation.

b. As matter of law, the $500,000 Termination Penalty Clause

was not a reasonable forecast of just compensation on its

face because the penalty amount was the same if Dr.

Strandhagen terminated her employment on day one or

after she performed for 99% of the employment contract

term.

(1) A party challenging the enforceability of a purported

liquidated damages clause based on its facial

9

No case that Appellants cite for the proposition that Dr. Strandhagen must negate both

elements of the test for enforceability so holds; never in the history of Texas common law has a

court enforced a liquidated damages provision that was not a reasonable forecast of just

compensation at the time it was made. Appellants’ cases are readily distinguished. See Khan,

2013 Tex. App. LEXIS 7976, at *9-10 (holding lease provision at issue not a liquidated damages

clause at all, so penalty analysis inapplicable); Southern Union Co., 2005 Tex. App. LEXIS 564,

at *13-20 (enforcing liquidated damages provision where party challenging provision failed to

show either that harm was difficult to estimate or that the liquidated damages were an

unreasonable forecast of loss); GPA Holding, Inc., 344 S.W.3d at 476 (same); Healix Infusion

Therapy, Inc. v. Bellos, No. 11-02-00346-CV, 2003 Tex. App. LEXIS 9027, *5-7 (Tex. App.—

Eastland Oct. 23, 2003, no pet.) (same); Murphy v. Cintas Corp., 923 S.W.2d 663, 665-66 (Tex.

App.—Tyler 1996, writ denied) (liquidated damages provision enforceable where evidence

showed that the harm was difficult to estimate and challenging party failed to show that the

amount was unreasonable); Baker, 812 S.W.2d at 55-56 (liquidated damages provision for loss

of damage to photos enforceable where evidence showed both that the harm was difficult to

estimate and the amount not unreasonable).

12

unreasonableness as a forecast of just compensation

at the time the contract was made need not address

actual damages.

Importantly, since it is a “forecast,” the reasonableness of the damage

forecast is measured at the time of contracting. FPL Energy, 426 S.W.3d at 71.

Thus, there is no necessity for a party like Dr. Strandhagen who is challenging the

purported liquidated damages clause as facially unreasonable at the time of

contracting to show actual damages, and no need for the Court to even evaluate the

actual damages that were eventually sustained. See, e.g., Phillips, 820 S.W.2d at

788-89 (no fact issue regarding amount of actual damages where liquidated

damages provision challenged on its face—not based on argument that actual

damages incurred were much less than amount contracted for); In re Dow Corning

Corp., 419 F.3d at 552-53 (where party showed purported liquidated damages

clause not reasonable estimate of just compensation for anticipated damages at

time of contract, no need to consider whether such damages disproportionate to

actual damages because burden already met) (applying Texas law); Mayfield v.

Hicks, 575 S.W.2d 571, 575-76 (Tex. App.—Dallas 1978, writ ref’d n.r.e.)

(liquidated damages provision that is the same whether breach is trivial or major is

penalty on its face, even if breach at issue in suit is major breach); see also

Garden Ridge, 403 S.W.3d at 438 (recognizing that “one way a party can show

that a liquidated damages provision is unreasonable is by showing that the actual

13

damages incurred were much less than the amount contracted for,” but party may

also show unreasonableness on the face of a provision).10

Dr. Strandhagen chose to challenge the facial reasonableness of the

purported liquidated damages clause at the time of contracting, rather than

pursuing the alternative of showing that the clause was unreasonable “in light of

actual damages.” See FPL Energy, 426 S.W.3d at 72 (citation omitted); Phillips,

820 S.W.2d at 788 (noting that one way to show liquidated damages provision is

unreasonable is to show actual damages were much less than amount contracted

for). As such, she had no burden to show such actual damages. 11 None of the

10

Neither of the two authorities relied upon by Appellants in support of this argument

actually supports their contention that a challenge to the reasonableness of the Termination

Penalty Clause required Dr. Strandhagen to prove her actual damages. The first, Murphy v.

Cintas Corp. does not support this assertion. See Murphy, 923 S.W.2d at 664-66 (stating that

party challenging clause failed to prove that it was not difficult to estimate damages and failed to

explain why clause was not reasonable forecast of just compensation). The second, Section 356

of the Restatement (Second) of Contracts, has been interpreted by the Texas Supreme Court to

stand for the proposition that “the time of making a contract as the moment to evaluate the

reasonableness of a liquidated damages clause.” FPL Energy, 426 S.W.2d at 70 n. 2. To the

extent that §356 could be interpreted to only permit unreasonableness to be measured

retrospectively in comparison to actual damages, it is contrary to Texas law, and as such

unpersuasive.

11

Contrast to Phillips, 820 S.W.2d at 788 (party challenging reasonableness of liquidated

damages clause as grossly disproportionate to actual damages assumes burden to show actual

damages); cf. FPL Energy, 426 S.W.3d at 71-72 (although clauses in question reasonably

forecast damages “on their face,” still unenforceable because not reasonable in comparison to

actual damages eventually sustained).

14

cases cited by Appellants requires a party challenging the reasonableness of a

purported liquidated damages clause on its face to show actual damages. 12

(2) Dr. Strandhagen has proven that the Termination

Penalty Clause is facially invalid.

The fundamental flaw evident on the face of the Termination Penalty Clause

is its “one size fits all” approach to remediating an alleged breach. Such clauses

are simply unenforceable under Texas law when the same remedy is provided for

breaches of obviously varying magnitude. In other words, a liquidated damages

clause is unenforceable as “a penalty if it provides for unreasonable damages for

trivial breaches as well as reasonable damages for major breaches.” Community

Dev. Serv., Inc. v. Replacement Parts Mfg., Inc., 679 S.W.2d 721, 727 (Tex.

App.—Houston [1st Dist.] 1984, no writ); e.g., Stewart, 245 S.W.2d at 672 (when

purported liquidated damages provision provides same damages for trivial

breaches as for material ones, it was unenforceable penalty); see also Lake River

Corp. v. Carborundum Co., 769 F.2d 1284, 1290 (7th Cir. 1985) (liquidated

damages provision constitutes a penalty if the amount required to be paid is

“invariant to the gravity of the breach”). This is because such “one size fits all”

12

See Triton 88, L.P., 411 S.W.3d at 62 (party challenging reasonableness of liquidated

damages clause failed to show either that the clause was facially unreasonable at time of contract

or grossly disproportionate to actual damages); Southern Union Co., 2005 Tex. App. LEXIS 564,

at *16-18 (holding two-to-one ratio of liquidated to actual damages is not per se unreasonable);

Healix Infusion Therapy, Inc., 2003 Tex. App. LEXIS 9027, at *6 (party challenging

reasonableness of liquidated damages clause on the ground that it was disproportionate to actual

damages must prove actual damages).

15

provisions are not based on the injured party’s likely damages but are intended to

be punitive. See FPL Energy, 426 S.W.3d at 69 (policy is to compensate for

“losses sustained and no more”); Phillips, 820 S.W.2d at 788 (party has no right to

have court enforce liquidated damages provision that violates principle that party

should be awarded “neither less nor more than his actual damages”). For these

reasons, courts consistently strike down “one size fits all” clauses as

unenforceable. E.g., Stewart, 245 S.W.2d at 486 (striking down provision that

provided same amount of damages for both trivial and materials breaches of a

lease); Garden Ridge, 403 S.W.3d at 441-42 (contract provision permitting

chargeback of 100% of merchandise cost for any unauthorized substitution of

ordered product unreasonable forecast of damages); Community Dev. Serv., Inc.,

679 S.W.2d at 727 (court held liquidated damages provision in contract to

purchase lots unenforceable penalty because amount was same for trivial and

material breaches); Mayfield, 575 S.W.2d at 575-76 (liquidated damages provision

that is the same whether breach is trivial or major is penalty, even if breach at issue

in suit is major breach).

Here, the Physicians’ Agreement purports to require Dr. Strandhagen to pay

$500,000 to Appellants (and other physicians) if her Employment Agreement with

AAT is terminated at any time during its seven-year term. This amount is the same

whether Dr. Strandhagen’s employment with AAT ended the day after the

16

Physicians’ Agreement was signed or many years later. Appellants’ actual

damages (if any)—which they identify as arising from the impact of Dr.

Strandhagen’s early departure on their abilities to earn annual bonuses, loss of her

experience and goodwill, Appellants’ Brief, pp.3-4—would obviously be greater

the earlier Dr. Strandhagen stopped working at AAT. 13 This principle was

recognized by the Dallas Court of Appeals in Eberts v. Businesspeople Personnel

Servs., Inc., 620 S.W.2d at 864. In that case, an employment agency sued its

former job counselor employee for violation of a non-compete covenant in his

employment contract. Id. at 862. The employment contract contained a $10,000

liquidated damages clause for breach of the covenant. Id. at 863. The court held

that the $10,000 liquidated damages provision could not be a reasonable estimation

of damages for breach of non-compete covenant where the same amount applied

whether the breach continued for one day or two years. Id. at 864-65. Contrast to

e.g., Urban Television Network Corp. v. Creditor Liquidity Solutions, LP, 277

S.W.3d 917, 918-19 (Tex. App.—Dallas 2009, no pet.) (upholding liquidated

13

In an argument that again defies common sense, Appellants suggest that their damages

would be the same no matter when Dr. Strandhagen left the practice. Appellants’ Brief, pp. 26-

27. If the Appellants are damaged (as they suggest) in the form of their reduced abilities to earn

annual bonuses, this would be because Dr. Strandhagen made the practice more profitable. See

Sealed.CR.Annex A & B. Under that theory of damages, they would obviously suffer more

damage if she stopped contributing to the success of the practice seven years early than they

would if she left one day early. Similarly, if Appellants are indeed damaged as they suggest

because Dr. Strandhagen takes her good will and experience with her when she leaves, then they

would suffer more damage the longer they were deprived of such experience and good will.

17

damages clause that required payment that varied based on how much time was left

on breached contract); Murphy, 923 S.W.2d at 665-67 (upholding liquidated

damages clause designed to decrease amount of damages assessed over time);

Commercial Union Ins. Co. v. La Villa Indep. Sch. Dist., 779 S.W.2d 102, 107

(Tex. App.—Corpus Christi 1989, no writ) (upholding liquidated damages

provision in construction contract that required payment of $100 for every day

late).

Appellants attempt to salvage their facially invalid penalty by arguing that

even if the Termination Penalty Clause may have been an unreasonable forecast of

damages for some breaches, it is still enforceable in this case because Dr.

Strandhagen failed to prove retrospectively that it was unreasonable in relation to

the loss actually incurred here. Appellants’ Brief, pp. 28-30. As noted above,

Texas law imposes no such burden on a party asserting facial invalidity.

Moreover, even if by happenstance a facially invalid liquidation provision might

result in an outcome that is not unreasonable in a given circumstance, that

eventuality does not salvage the enforceability of the clause. For example, in

Mayfield v. Hicks, the parties had agreed to purported liquidated damages clauses

in two equipment leases, which provided for the same damages whether the breach

of the leases were material or minor. 575 S.W.2d at 575. The court rejected the

lessors’ argument that the provisions should not be treated as penalties because the

18

actual breaches at issue were material: “it is immaterial that the actual breach [was

a major one]. A provision is a penalty if it provides for unreasonable payments for

a minor breach.” Id.; see also FPL Energy, 426 S.W.3d at 70 & n. 2 (citing

Mayfield with approval for the proposition that the test for reasonableness of just

compensation is “from the perspective of the parties at the time of contracting.”).

Appellants’ authorities to the contrary are unpersuasive. 14

Because the Termination Penalty Clause attempts to require payment of the

same liquidated damages amount—$500,000—whether the breach of contract is a

material breach or a trivial one, 15 it cannot have been a reasonable forecast of any

14

Comment b and Illustration 2 to Section 356 of the Restatement (Second) of Contracts

are not persuasive because they are contrary to Texas common law as set forth above. This is

not surprising because Section 356 was patterned on the liquidated damages provisions in the

UCC. RESTATEMENT (SECOND) OF CONTRACTS §356, Reporters Note. Texas courts have

consistently recognized that the legal standards for evaluating enforceability of UCC liquidated

damage provisions are “significantly different,” since unlike Texas common law, even a facially

unreasonable UCC-governed clause can be enforced under some circumstances. Garden Ridge,

403 S.W.3d at 447 (Frost, J., concurring); e.g., Phillips, 820 S.W.2d at 788 (reciting legal

standard from Texas common law and then differentiating UCC Section 2.718(a)); McFadden v.

Fuentes, 790 S.W.2d 736, 737-38 (Tex. App.—El Paso 1990, no writ) (holding that legal

standard for sales of goods under Section 2.718(a) is different from legal standard under Texas

common law).

Murphy is not persuasive because it is inapposite on this point: Nowhere in the opinion is

it suggested that the court determined that the liquidated damages clause at issue would have

been an unreasonable forecast in some instances but that it was valid because the materiality of

the breach at issue made it reasonable in the circumstances. Murphy, 923 S.W.2d at 665-67.

15

Appellants attempt to avoid this result by pointing out that the Physicians’ Agreement

permits certain “early departures” without penalty. Appellants’ Brief, p. 27; see CR.168-169,

§§5(b) & (c) (penalty does not apply to physicians who die, are severely disabled and certain

other exceptions). These narrow exceptions do not transform the $500,000 Termination Penalty

Clause into an enforceable, customized damage estimate; for those to whom it applies it remains

an enforceable “one size fits all” penalty.

19

damages the parties to the Physicians’ Agreement were likely to suffer if Dr.

Strandhagen breached her employment contract with AAT. Instead, the purpose of

the Termination Clause Penalty was intended to penalize Dr. Strandhagen if she

left AAT’s employment even one day before the end of the term. For this reason,

the Court properly granted summary judgment declaring that the purported

liquidated damages clause is an unenforceable penalty. 16

2. Appellants’ modification argument fails.

Appellants argue that the trial court erred by declaring the Termination

Penalty Clause unenforceable even if Strandhagen properly proved that the

Termination Penalty Clause was not a reasonable forecast of damages because the

clause should have been modified by the trial court. Appellants’ Brief, pp. 33-35.

This argument fails for three separate reasons: (1) Appellants waived this

16

Appellants’ reliance on standard contractual recitations about the reasonableness of the

damage clause at issue (Appellants’ Brief at 30-32) is unavailing. Boilerplate contractual

language reciting that the Termination Penalty Clause is “liquidated damages” as opposed to a

penalty has no bearing on whether that the provision is in fact a penalty. E.g., FPL Energy, 426

S.W.3d at 66-67, 71-72 (striking “liquidated damages” clause negotiated by sophisticated parties,

despite stipulation by parties that clause was not a penalty); Stewart, 245 S.W.2d at 485-87. Nor

does it matter that Dr. Strandhagen “voluntarily” entered into the agreement. See Phillips, 820

S.W.2d at 788 (“The right of competent parties to make their own bargains is not unlimited. . . .

A party has no right to have a court enforce a [contract term] that violates” the prohibition on

penalties.); see, e.g., Community Dev. Serv., Inc., 679 S.W.2d at 727 (in contract to purchase lot,

liquidated damages provision was unenforceable penalty, even though parties supposedly

intended the provision to estimate their damages in event of breach, because damages were same

for material and trivial breaches and thus unreasonable). This Court’s opinion in Southern Union

Co. does not suggest a different outcome. See 2005 Tex. App. LEXIS 564, at *18-20 (simply

rejecting argument that sliding scale liquidated damages clause that reduced the amount due

depending on when the breach occurred was per se unreasonable).

20

argument, (2) even if Appellants had timely raised it, they failed to raise a fact

issue on each element of this affirmative defense in their summary judgment

response, and (3) the trial court could not have modified the Termination Penalty

Clause even if it had been timely asked to do so.

Appellants did not raise this argument in their answer or in their response to

Dr. Strandhagen’s Motion for Summary Judgment.17 CR.186-93; see also CR.202-

11. By failing to timely raise this argument, they deprived the trial court of the

opportunity to timely consider it, resulting in waiver, addressing it in their motion

for new trial clearly was too late. 18 Appellants’ decision not to ask the trial court to

modify the Termination Penalty Clause until after the court had granted the

Summary Judgment demonstrates precisely why the doctrine of waiver exists:

17

Appellants attempted to raise modification for the first time in their Motion for New

Trial, and Dr. Strandhagen argued that it was too late for Appellants to raise the issue. CR.267-

69; see also RR.18-19.

18

See, e.g., Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 467 (Tex. 1998)

(reinstating summary judgment in favor of insured and holding that insurer waived its argument

that particular section of policy excluded coverage because insurer failed to raise that argument

until its motion for new trial); Continental Holdings, Ltd. v. Leahy, 132 S.W.3d 471, 474 (Tex.

App.—Eastland 2003, no pet.) (party’s failure to raise issue of conclusive effect of arbitrators’

award in response to motion for summary judgment constituted waiver of issue even though

raised in motion for new trial); Hamilton v. Tex. Prop. & Cas. Ins. Guar. Ass’n, No. 03-98-

00355-CV, 1999 Tex. App. LEXIS 3163, *13 (Tex. App.—Austin Apr. 29, 1999, no pet.)

(plaintiffs’ failure to raise estoppel in responses to motion for summary judgment constituted

waiver even though later raised in motion for new trial); see also, e.g., In re OC, Inc., 552 F.3d

413, 423 (5th Cir. 2008) (rejecting argument that lower court erred by failing to sever or modify

illegal provision from contract pursuant to severability and modification clauses because

argument not raised in lower court).

21

litigants should give the trial court the opportunity to consider and resolve all

errors before judgment is entered.

Appellants also failed to plead this affirmative defense 19 or offer any

evidence to support it. See generally CR.186-93; CR.74-76. If Appellants sought

to have the trial court modify the Physicians’ Agreement, they bore the burden to

plead and provide evidence to support each element of such defense. See, e.g.,

Hampden Corp. v. Remark, Inc., No. 05-13-00529, 2014 Tex. App. LEXIS 6900,

*17 (Tex. App.—Dallas Oct. 10, 2014, pet. denied)(party asserting contract

modification bears burden of proof). They failed to meet this burden. See

generally CR.186-93.

Finally, even if this Court were to consider Appellants’ new argument, it

fails to provide valid grounds to reverse the Summary Judgment granted here. The

trial court did not hold that the entire Physicians’ Agreement is invalid; instead, it

found that the $500,000 Termination Penalty Clause was unenforceable. CR.212.

Appellants argue that instead of striking this illegal penalty from the Physicians’

Agreement, the trial court should have modified the Termination Penalty Clause to

some unspecified (and presumably lesser, reasonable) amount. Appellants’ Brief,

19

This constitutes an affirmative defense because it seeks to avoid the outcome sought even

if Dr. Strandhagen is correct that the Termination Penalty Clause as written is unlawful. See

TEX. R. CIV. P. 94 (party must affirmatively plead “any other matter constituting an avoidance”);

Great Am. Prods. v. Permabond Int’l, 94 S.W.3d 675, 683 (Tex. App.—Austin 2002, pet.

denied) (affirmative defense is by nature one of avoidance, “which seeks to establish

independent reason why the plaintiff should not prevail”).

22

pp. 33-35. Appellants fail to cite to a single case that engages in such reformation

of an illegal penalty clause, and their cases are readily distinguished. E.g., In re

Poly-America, L.P., 262 S.W.3d 337, 353, 356-57, 360 (Tex. 2008) (striking

limitation of liability clause as unconscionable while stating in dicta that an

arbitrator might choose to “modify” a provision that has not yet been proven to be

unconscionable); In re Kasschau, 11 S.W.3d 305, 313 (Tex. App.—Houston [14th

Dist.] 1999, orig. proceeding) (illegal provision that constituted incidental promise

in contract may be severed by court). Instead, the courts routinely hold illegal

provisions to be unenforceable in their entirety, even while leaving the remainder

of the contract intact, as it did here. E.g., Hoover Slovacek, LLP v. Walton, 206

S.W.3d 557, 565 (Tex. 2006) (striking illegal termination fee provision and

holding remainder of agreement, including contingent fee provision, enforceable);

Southwestern Bell Tel. Co. v. Delanney, 809 S.W.2d 493, 497-98 (Tex. 1991)

(assuming, if clause were found to be unconscionable, court would hold it

unenforceable in its entirety) (Gonzales, J., concurring). There is no practical need

for judicial modification here because the effect of striking an invalid liquidated

damages clause is to simply require the non-breaching party to prove whatever

actual damages have been sustained.20

20

The Restatement (Second) of Contracts likewise envisions that unenforceable contractual

penalties should simply be excised from the contract. See RESTATEMENT (SECOND) OF

CONTRACTS §356 (“A term fixing unreasonably large liquidated damages is unenforceable on

23

C. THE TRIAL COURT HAD JURISDICTION BECAUSE AN ACTUAL

CONTROVERSY EXISTS BETWEEN THE PARTIES, AND IT IS RIPE FOR

ADJUDICATION

After spending pages defending their position that Dr. Strandhagen is wrong

to contend that the Termination Penalty Clause is unenforceable, Appellants argue

that there is no real controversy for the Court to adjudicate because they had

neither actually sued Dr. Strandhagen for breach of contract nor made a formal

demand. Appellants’ Brief at 38-43. However, neither a lawsuit nor a formal

demand letter is a prerequisite to a suit for declaratory relief under a contract—the

issue is whether there is a genuine controversy about its meaning and

enforceability.

The Texas Declaratory Judgments Act (the “Act”) is a remedial statute

whose purpose is “to afford relief from uncertainty and insecurity with respect to

rights, status and other legal relations.” TEX. CIV. PRAC. & REM CODE § 37.002(b).

It is to be “liberally construed and administered.” Id. Section 37.004 of the Act

provides that a person interested under a contract may have determined “any

question of construction or validity arising under the . . . contract . . . and obtain a

declaration of rights, status, or other legal relations thereunder.” Id. at § 37.004(a).

The Act specifically permits courts to construe a contract “either before or after”

grounds of public policy as a penalty.”); contrast to RESTATEMENT (SECOND) OF CONTRACTS

§208 (if term is unconscionable, court may refuse to enforce entire contract, refuse to enforce

unconscionable term, or “may so limit the application of any unconscionable term as to avoid

any unconscionable result”).

24

breach. Id. at § 37.004(b); In re City of Dallas, 977 S.W.2d 798, 805 (Tex. App.—

Fort Worth 1998, orig. proceeding) (“The Declaratory Judgments Act expressly

authorized a party to ask the trial court to construe the party’s rights under a

written contract before a breach of the contract occurs.”) (emphasis in original).

A declaratory judgment is appropriate if: (1) a justiciable controversy exists

as to the rights and status of the parties; and (2) the controversy will be resolved by

the declaration sought. Tex. Dep’t of Pub. Safety v. Moore, 985 S.W.2d 149, 153

(Tex. App.—Austin, 1998, no pet.). This Court has jurisdiction as long as the

controversy involves a genuine conflict of tangible interest, as distinguished from a

contingent or theoretical dispute. Id. at 153; WesternGeco, LLC v. Input/Output,

Inc., 246 S.W.3d 776, 781 (Tex. App.—Houston [14th Dist.] 2008, no pet.); Carter

v. Dripping Springs Water Supply Corp., Cause No. 03-03-00753-CV, 2005 Tex.

App. LEXIS 461, *11-15 (Tex. App.—Austin, Jan. 21, 2005, no pet.).

The ripeness inquiry focuses on whether the case involves uncertain or

contingent future events that may not occur as anticipated or may not occur at all.

See Patterson v. Planned Parenthood of Houston & Se. Tex., Inc., 971 S.W.2d 439,

442 (Tex. 1998). As part of this analysis, courts consider whether the declaratory

judgment sought would actually settle the controversy between the parties. See

Cal. Prods., Inc. v. Puretex Lemon Juice, Inc., 334 S.W.2d 780, 783 (Tex. 1960);

Bd. of Water Eng’rs v. San Antonio, 283 S.W.2d 722, 724 (Tex. 1955).

25

Thus, for example, in one of the cases cited by Appellants in their Brief, the

Third Court of Appeals found that it had no jurisdiction to issue a purely advisory

opinion where the parties seeking a declaratory judgment had already obtained a

final ruling in their favor in an administrative proceeding resolving their

controversy with the Department of Insurance. LHR Enters., Inc. v. Geeslin, No.

03-05-00176-CV, 2007 Tex. App. LEXIS 8849, *8, *13-14 (Tex. App.—Austin

Nov. 7, 2007, pet. denied). In rejecting the argument that a justiciable controversy

remained, the Court focused on whether the parties seeking a declaratory judgment

would be impacted in some concrete way in the future. Id.

No such uncertain, hypothetical, or contingent events are presented here, and

so this case is ripe. Appellants admit as much in their brief to this Court, both by

arguing so extensively about the supposed error by the trial court, and as further

illustrated when they acknowledge that Dr. Strandhagen’s employment was

terminated five years early, under circumstances where they contend she “would

be liable for payment of liquidated damages.” Appellants’ Brief at 8. Dr.

Strandhagen contends that the Termination Penalty Clause (which purports to

require her to pay $500,000 within 5 business days of termination if her

employment terminated for any reason other than “without cause”) is

unenforceable as a matter of law, regardless of the circumstances surrounding her

termination. Before she filed suit, Dr. Strandhagen learned that Appellants were

26

planning to pursue her for collection of their share of the $500,000 Termination

Penalty, and her pleading to that effect was never denied by Appellants. 21 CR.40,

¶16. Rather than dispute her contention that suit against her was imminent,

Appellants coyly declined to address this contention, instead suggesting that Dr.

Strandhagen’s failure to develop proof to support these contentions deprives the

court of jurisdiction. Appellants’ Brief, pp. 38-43. This argument misconstrues

the law, and the threshold for justiciability is easily met in this case. Texas law

does not impose an “imminent litigation” requirement, 22 only that there be a

genuine controversy. Parties are permitted to seek declarations of non-liability

under a contract, and there need not even be a pending breach of that contract. See

MBM Fin. Corp. v. Woodlands Operating Co., L.P., 292 S.W.3d 660, 668-69 (Tex.

2009) (also recognizing that declarations of non-liability under a contract have

21

In determining whether they have jurisdiction over claims, “Texas appellate courts

construe the pleadings in favor of the plaintiff and look to the pleader’s intent.” Tex. Ass’n of

Business v. Tex. Air Control Bd., 852 S.W.2d 440, 446 (Tex. 1993) (internal citations and

quotations omitted).

22

Appellants cite language in Paulsen v. Tex. Equal Access to Justice Found., 23 S.W.3d

42, 46 (Tex. App.—Austin 1999, pet. denied) to support this “imminent litigation” threshold

contention. In that case, this Court was asked to declare whether an attorney was subject to

professional discipline for failure to participate in the Texas IOLTA program, pending definitive

resolution of that program’s constitutionality. Id. at 45. The Paulsen court recognized that it

was faced with no real justiciable controversy since all of the parties to the suit actually agreed

that an attorney could ethically participate in the IOLTA program, but the plaintiff’s declaratory

judgment was premised on the possibility that a third party might someday challenge the

program. Id. at 45. Not surprisingly, the court found it did not have jurisdiction to issue such an

advisory opinion without “the assertion of adverse interests.” Id. at 45-47. Here, there is no

suggestion of collusion among the parties to create jurisdiction; they clearly have adverse

interests and a true dispute about the enforceability of the Termination Penalty Clause.

27

been among the most common suits filed under the Act); Rowan Cos., Inc. v.

Griffin, 876 F.2d 26, 28 (5th Cir. 1989) (“The declaratory judgment vehicle . . . is

intended to provide a means of settling an actual controversy before it ripens into .

. . a breach of a contractual duty.”). 23 To hold that a justiciable controversy is

dependent on a threat of litigation would make the ripeness inquiry entirely and

inappropriately “dependent on the subjective state of mind and intention of one

party.” Transport. Ins. Co., 372 S.W.3d at 231.

Here, there is no question that Appellants maintain that Dr. Strandhagen is

liable to them for their share of liquidated damages, and she disagrees. In cases

where the operative facts have been much less certain than those here, Texas courts

have nevertheless found an actual controversy to exist. 24 None of the cases cited

23

See also, e.g., Rowan Cos., Inc., 876 F.2d at 27-28 (rejecting injured employee’s

argument that no justiciable controversy existed because he had not made any formal or informal

demands for continued payment); McGinnis v. Union Pac. R.R. Co., 612 F. Supp. 2d 776, 796-97

(S.D. Tex. 2009) (rejecting argument that no substantial controversy, and so no justiciable claim,

exists where, among other things, insured had not been sued by anyone injured in the accident

and there was no other pending litigation); contrast to State v. Margolis, 439 S.W.2d 695, 697-98

(Tex. Civ. App.—Austin 1969, writ ref’d n.r.e.) (holding absence of bona fide threat of

prosecution of Texas anti-trust laws against companies meant no justiciable claim; appellees

“may not compel the Attorney General to exercise his [prosecutorial] discretion by filing” DJA

suit). Appellants’ “imminent litigation” argument cannot be reconciled with section 37.004(b) of

the Act which permits courts to construe a contract before breach even occurs (and therefore

when it would be impossible for litigation to be “imminent”). See TEX. CIV. PRAC. & REM. CODE

§ 37.004(b); see also MBM Fin. Corp., 292 S.W.3d at 669 & n. 50.

24

See Hirschfeld Steel Co., Inc. v. Kellogg Brown & Root, Inc., 201 S.W.3d 272, 278-279

(Tex. App.—Houston [14th Dist.] 2006, no pet.) (determining that a declaratory judgment action

regarding a the enforceability of a ten year warranty was ripe even though no warranty claims

had yet been made); Am. Nat’l Ins. Co. v. Cannon, 86 S.W.3d 801, 806-807 (Tex. App.—

Beaumont 2002, no pet.) (employed plaintiff had justiciable interest in determining whether upon

leaving the company, the plaintiff would be required to comply with non-compete provisions).

28

by Appellants even suggest a different result. 25 For these reasons, the trial court

did not err in entering the PTJ Order, and it should be affirmed. 26

V. PRAYER

Appellee Dr. Strandhagen requests this Court to affirm the Summary

Judgment and the Order Granting in Part and Denying in Part Appellants’

Amended Plea to the Jurisdiction. If either of the trial court’s rulings is reversed,

25

The cases cited by Appellants do not stand for the proposition that there must be a formal

demand or an actual lawsuit on file before a case is ripe for adjudication, or that an injury must

have already occurred for a claim to be ripe, nor do they hold that a court has no jurisdiction to

issue a declaratory judgment on whether a liquidated damages provision is an unenforceable

penalty. For example, in Transcontinental Realty Investors, Inc. v. Orix Capital Markets, LLC,

353 S.W.3d 241, 245 (Tex. App.—Dallas 2011, pet. denied), where no payment was due under a

guaranty unless a pending appeal resulted in affirmance and the party primarily liable defaulted,

the court concluded that exercise of jurisdiction to construe the guaranty was premature. See id.

at 243-245. The language Appellants cite from Nexstar Broad., Inc., 2008 Tex. App. LEXIS

4736, at *4, simply confirms the well-established principle that a court lacks jurisdiction over a

“mirror image” counterclaim for declaratory judgment that merely denied the plaintiff’s pending

cause of action for breach of contract. See also, e.g., LHR Enters., Inc., 2007 Tex. App. LEXIS

8849, *10-11 (“a person seeking declaratory relief need not have yet incurred an actual injury of

the sort for which consequential relief might be granted. Instead, the Act is intended to provide a

means to determine, before any wrong has actually occurred, the rights of parties . . .”) (internal

citations omitted); Farmers Ins. Exch. v. Rodriguez, 366 S.W.3d 216, 223, 229 & n. 6 (Tex. App.

–Houston [14th Dist.] 2012, pet. denied) (third-party indemnity claim against home insurer not

ripe where homeowner insurance policy contained “no action” provision and no final

determination of indemnitee’s liability yet made, but court did have jurisdiction over declaratory

action against same indemnitee’s automobile insurance coverage).

26

If for some reason this Court were to determine that Dr. Strandhagen did not adequately

plead or prove jurisdiction in the trial court, Dr. Strandhagen requests this Court to remand the

case for further proceedings to give her a full and fair opportunity to present evidence to show

jurisdiction. See Rusk State Hosp. v. Black, 392 S.W.3d 88, 96 (Tex. 2012) (remand appropriate

if pleadings and record neither demonstrate jurisdiction nor conclusively negate it); County of

Cameron v. Brown, 80 S.W.3d 549, 559 (Tex. 2002) (remanding case to trial court when

pleadings failed to show jurisdiction but did not affirmatively demonstrate incurable

jurisdictional defect); see also Robinson v. Parker, 353 S.W.3d 753, 755 (Tex. 2011) (“a claim is

not required to be ripe at the time of filing,” and suggesting that party need only “demonstrate a

reasonable likelihood that the claim will ripen soon”).

29

then this Court should remand to the trial court for further proceedings. Dr.

Strandhagen further requests that this Court tax all costs against Appellants and

award her such other and further relief, at law or in equity, to which she may be

justly entitled. TEX. R. APP. P. 43.4.

Respectfully submitted,

FRITZ, BYRNE, HEAD & HARRISON, PLLC

98 San Jacinto Boulevard, Suite 2000

Austin, Texas 78701

Telephone: (512) 476-2020

Telecopy: (512) 477-5267

By: /s/ Daniel H. Byrne

Daniel H. Byrne

Texas Bar No. 03565600

Christine E. Burgess

Texas Bar No. 00793428

cburgess@fbhh.com

Lessie G. Fitzpatrick

Texas Bar No. 24012630

lfitzpatrick@fbhh.com

Attorney for Appellee Tracy D. Strandhagen

30

CERTIFICATE OF SERVICE AND COMPLIANCE

I certify that on February 23, 2015, I served a copy of the foregoing

Appellee’s Brief on the counsel listed below by email. I also certify that according

to the computer programs used to prepare this document, the word count is 8,639,

excluding any parts exempted by Tex. R. App. P. 9.4(i)(1).

Amanda G. Taylor

ataylor@textaxlaw.com

MARTENS, TODD, LEONARD & TAYLOR

301 Congress Avenue, Suite 1950

Austin, Texas 78701

Facsimile: (512) 542-9899

Attorney for Appellants/Cross-Appellees

/s/ Daniel H. Byrne

Daniel H. Byrne

31

APPENDIX INDEX

A. Strandhagen Declaration

B. Physicians’ Agreement

C. Defendants’ First Amended Answer

D. Defendants’ Response to MSJ

E. Defendants' Reply to Supplemental Briefing

in Support of MSJ

F. Summary Judgment Order

G. Letters

H. Plaintiff’s First Amended Petition

I. Defendants’ Amended Plea to the Jurisdiction

J. Authorities

CAUSE NO. D~ I ~GN-13-002811

TRACY D. STRANDHAGEN, § IN THE DISTRICTCOURT

§

PLAINTIFF. §

§

v. §

§

NOAH S. BUNKER, PAUL CARRELL, §

EVERETT BREW HOUSTON, JR., § TRAVIS COUNTY, TEXAS

W. ANDREW BUCHHOLZ, SCOTT J. §

LEIGHTY, JAD L. DAVIS, and §

HOLLY CLAUSE, §

§

DEFENDANTS. § 353rd JUDICIAL DISTRICT

DECLARATION OF TRACY D. STRANDHAGEN

I. My name is Tracy D. Strandhagen. I am over 18 years of age and am fully

competent and authorized in all respects to make this Declaration. I have personal knowledge of

all the facts stated herein, and they are all true and correct This declaration is submitted in

connection with Plaintiffs Motion for Summary Judgment filed in the above-styled litigation.

2. I am a licensed anesthesiologist v.ith more than fifteen years of experience

practicing medicine.

3. In 20 II, I was a partner in Austin Anesthesiology Group, LLP ("AAG"). I entered

into the Advisory Board and Internal Operations Agreement (the '~Physicians' Agreement") with

the other anesthesiologists who had also sold their interests in American Austin Anesthesiology

Group, LLP ("AAG'"') to American Anesthesiology of Texas, Inc. C'AAT'') (the "Buyout"). A

true and correct copy of that agreement is attached to this declaration as Exhibit 1-A.

4. At the time of the Buyout, I entered into an employment agreement with AAT (the

"Employment Agreement"). The document filed under seal with the Court in this case at a hearing

on January 10, 2014 is a true and correct copy of the Employment Agreement.

EXHIBIT

160

5. My employment with AAT was tem1inated iu2013.

My name is Tracy D. Strandhagen, my date ofbirth is December 30, I 967, and my address

is 600 Riders Trai!Austin, Texas 78733. As authorized by section 132.001 of the Texa'l Civil

Praclice and Remedies Code, I declare under penalty o.fperjury that the foregoing is true and

correct.

Executed in Travis County, Texas, on the 9th day of January, 2014.

2

161

ADVISORY BOARD AND

INTERNAL OPERATIONS AGREEMENT

This ADVISORY BOARD AND INTERNAL OPERATIONS AGREEMENT (this

"Agreement") is made and entered into this _. . day of October 2011, by and among the

undersigned physicians who are employed by American Anesthesinlogy of Texas, Inc. (such

employed physicians being ref~rr~d to herein as the "Physicians''), a Texas non profit

corporation certified as a lieahh care organi7.ation by the Texas State Board of Megical

Examiners (the "Company"), Noah Bunker, M.D., the Corporate Medical Director of the

Company (the "Medical Director"), and Chi B. Vo, M.D., the Physician P<!rthers' Representative

under the Purchase Agreement (as defined below) (the ''Partners' Representative").

RECITALS:

WHEREAS, as of the date hereof, the Company intends to acquire all of the issued and

outstanding membership interests of Austin Anesthesiology Group, PJ.;LC C'AAG"), pursuant to

that certain Membership Interest Purchase Agreement, dated as of October 6, 2011, among the

Company, AAG, AAG Holdings, AAG Sidecar LLC, those certain Physicians who arc members

of AAG, and the Physician Partners' Representative (the "Purchase Agreement") (unless the

context shall otherwise require, capitalized terms used herein without definition shall have the

respective meanings ascribed thereto in the Purchase Agreement);

WHEREAS, the Physicians desire to establish an Advisory Boru·d at1d set fmth certain

understandings and agreements among themselves regarding the operations of their practice

following the Closing under the Purchase Agreement; and

WHEREAS, a significant inducement to Physicians~ entering into the Purchase

Agreement, and consummating the transaction contemplated thereby, is the Physicians'

agreement to be bound by the covenants set forth herein, which covenants are narrowly tailored

and necessary to protect the Physicians' legitimate interests.as a group.

NOW THEREFORE, in consideration of the foregoing recitals, the mutu.al covenants

contained herein and other good and valuable consideration, the receipt and sufficiency of which

is hereby acknowledged, the parties hereby agree as follows:

1. Advisory Board.

(a) The Physicians hereby establish a board (the "Advisory Board") to

provide binding advice and guidance to the Medical Director on certain matterSas further set

forth herein. The Advisory Board shall consist ofseve11 (7) members{ea.cn an "Advisory Board

Member" and, colleCtively, the "Advisory Board Members"), each ofwhornmust be a pruty to

this Agreement, and one of which shall be the Medical Director. 'rhe Advisory Board Members

(other than the Medical Director) will serve tenns of three (3) years. '[wo (2) Advisory Board

Members will be elected each year consistent with AAG's past practices for management

committee elections. The Medical Director's term on the Advisory Board will be co-terminus

with the term as Medical Director set forth in Section 3(a). The names of the Advisory Board

23502.2-688675 v1

EXHIBIT

l-A 162

Members to serve as such shall be evidenced on Exhibit A attached hereto and made a part

hereof, as amended upon any change of the Advisory Board.

(b) Any Advisory Board Member may resign at any time by giving written

notice to all of the Physicians. The resignation of l!lny Advisory Board Member shall talw effect

upqn receipt of notice thereof or at such later time as shall be specified in such notice; and,

unless otherwise specified therein, the acceptance of such resignation shall not be necessary to

make it effective. ··

(c) An Advisory Board Member may be removed, with or without cause, by

the affirmative vote of at least a majority of the Physicians. Furthermore, the Advisory Board

may by majority vote cast a vqte of"no confidence" in an Advisory Board Member, in which

case the Advisory Board shall refer the matter to the Physicians for a vote to remove such

Advisory Board Member.

(d) If an Advisory Board Member (the "Vacating Member") (i) is removed in

accordance with Section 1(c) or (ii) resigns or otherwise vacates the position for any reaSoil, the

Physicians shall elect a new Advisory Board Member to replace the Vacating Member by the

vote of a simple majority of the Physicians.

(e) Unless otherwise prohibited by any officer or AfiHiate of the Company,

any Advisory Board Member may examine the books and records ofthe Company for a purpose

reasonably related to such Advisory Board Member's position as an Advisory Board Member.

(f) The Advisory Board Members will not receive any additional

compensation from the Company for serving as Advisory Board Members.

(g) The Advisory Board may designate one or more committees. Any such

committee, to the extent detetmined by the Advisory Board, shall have and may ex~icise all

authority deterniined by the Advisory Board, subject to any restrictions contained herein. The

terms. qualifications and duties ofthe members of such committees shall be detertnined by the

Advisory Board and shall be substantially consistent with the past practices of AAG.

(h) l}nless otherWise undertaken by an officer, director or other Affiliate of

the Company, the Medical Director, with input from the Advisory Board, shall be responsible for

implementing, documenting, carrying-out and enforcing the disciplin_ary procedures of the

Company substantially consistent with the pastpractices of AAG.

2. Meetings of the Advisory Board.

(a) The Advisory Board may hold its meetings, both regular and special, in

such manner as is determined by the Advisory Board from time to time.

(b) At least four (4) of the Advisory Board Members shall be necessary to

constitute a quorum for the transaction of business; provided, that every act or decision done or

2

163

made by the Advisory Board shall require the affim1ative vote of at least four (4) Advisory

Board Members.

(c) Advisory Board Members may participate in any meeting of the Advisory

Board by means of conference telepqone or similar communications equipment, provided all

persons participating in the meeting can hear one aQOther, and such participation in a meeting

shall constitute presence in person at the meeting.

(d) All votes required of the Advisory Board hereunder may be by voice vote

unless a written ballot is requested, whiQh request may be made by one Advisory Board Member.

(e) Any action, which under any provision of this Agreement is to be taken at

a meeting of the Advisory Board, may be taken without a meeting 'by written consent signed by

not less than the number of Advisory Board Members necessary to take the action at a meeting

ofthe Advisory Board at which all Advisory Board Member~ were present and voted. Such

written consent will be kept with the records of the Advisory Board.

(f) A majority of the Advisory Board Members may adjourn any Advisory

Board meeting to meet again at a stated day and hour or until the time fixed for the next regular

meeting of the Advisory Board.

3. Medical Director.

(a) The Physicians acknowledge and agree that Noah Bunker, M.D. has been

appointed as the initial Medical Director of the C9mpany pursuant to the Corporate Medical

Director Agreement, dated as of the date hereof, by and between Noah Bunker, M.D. and the

Company (the "Medical Director Agreement"). Notwithstanding the terms and conditions of the

Medical Director Agreement, the initial Medical Director and each oth~r Medical Dii·ector Of the

Company thereafter shall serve for single tetms of four (4) yeats. Any Medical Director may

seek re-election for subsequent term{s) of four (4) years each; provided, that the then-current

Medical Director who is not re-elected must resigh in accordance with the Medical Director

Agreement with sufficient notice such th~t the Medical Director's term is limited to 1bur (4)

years. The Medical Director shall be elected by the affirmative vote of a simple majority of the

Physicians.

(b) I In the event of a dispute between the Medical Director and the Advisory

Bom·u and/or the Physicians, a simple majority of the Physicians may cast a vote of"no

confidence" in the Medical Director. In such event, the Medical Director shall have thirty (30)

days from the date of such vote of no confidence to resolve the dispute with due notification to

the Advisory Board and the Phy~icians of such dispute and !he resolution thereof. Should the

dispute remain unresolved following the expiration of such thirty {30) day cure period as

determined by th~ Advisory Board in it sole discretion then upon the affirmative vote of a simple

majority of the Physicians (excluding, for this purpose, the Medical Director), the Medical

Director shall resign as the Medical Director. Furthermore, seventy-five percent(75%) or more

of the Physicians (excluding, for this purpose, the Medical Director) (a "Supermajority ofthe

3

164

Physicians") may elect to remove the Medical Director at any time for any reason or for no

reason; provided that the Physicians and the Medical Director understand and agree that ~uch

removal will be subject to the consent of the Company (such consent not to be unreasonably

withheld or delayed). Any such resignation by or removal of the Medical Director pursuant to

th:i.s Section S(b) shall occur upon at least ninety (90) days' prior written notice to the Company

and the Medical Director. The Physicians and !he Medical Director also understand and agree

that the Company may elect to remove the Medical Director for any reason or for no reason upon

at leasf ninety (9n) days' prior written notice to the Mc;:dical Director and the Partners'

Representative. The Medical Director may voluntarily resign and terminate his ot her services

under the Corporate Medical Director Agreement for any reason or for no reason upon at least

ninety (90) days' prior written notice to the Comp@y and the Partners' Repre~entative. A

majority of the Physicians shall have the power and authority to appoint, by written notice to the

Company, a replacement for n;ny terminated Medical Director (a "~Replacement Medical

Director"), which replacement shall satisfy the qualifications set forth in Addendum 1 to the

Corporate Medical Director Agreement ("Addendum 1") an!l otherwis_e be acceptable to the

Company (such acceptance not to be unreasonably withheld or delayed). The parties

acknowledge that under the terms of the Corporate Medical Director Agreement, if the

Physicians fail to appoint a Replacement Medical Director who satisfies the qualifications set

forth in such Addendum 1 and is otherwise acceptable to the Company (such acceptance not to

be unreasonably withheld or delayed) on or before the ninety-first (91 51) day following notice of

the termination of the Medical Director or the date of death of the Medical Director, then the

Co111pany will h:ave the power and authority to appoint a Replacement Medical Director in good

faith. If, for any reason, there is a vacancy in the Medical Director position, then pending any

replacement thereof in accordance with the terms hereof and the Corporate Medical Director

Agreement, a majority of the Physicians shall have the right to immediately appoint a temporary

successor to have responsibility for and authority to conduct the rights and duties granted to the

Medi_ccai Director Under the Purchase Agreement and the Physifans' Employment Agreements,

which temporary successor shall satisfy the qualifications set forth in Addendum 1 and otherwise

be acceptable to the Company (such acceptance not to be unreasonably withheld or delayed);

provided that the Company shall appoint a temporary successor if none i~ appointed by a

majority of the Physicians within ten (1 0) Business bays of any vacancy in the position of

MediCal Director. For the avoidance of doubt, the Advisory Board may at any time recommend

to the Physicians that the Medical Director be removed upon the required vote of the Physicians

specified above.

(c) T11e parties acknowledge that under the Corporate Medical Director

Agreement, the Medical Director will receive an a:tiliual service stipenq from the Company or

general group funds of the practice in an amount equal to Ten Thousand Dollars ($1 0,000). The

M{dical Director shall defray p~rsonal cos1s of all non-clinical work, i!lcludi]1g per diem

coverage, from any such stipend received for his other duties as the Medical Director. The

Advisory Board may determil1e in its sole discretion that the Medical Director should receive

additional compensation or bene:tits in consideration for the Medical Director's services in such

role, and in such event the Advisory BQard shall recommend to the Medical Director the source

of such additional compensation or bendits.

4

165

(d) The Medi_cal Director shall abide by all of the terms and conditions of this

Agreement. The Medical Director shall maintain his or her share ofciinical responsibilities

throughout his or her service tenn as Medical Director. The Medical Director is expected to be

an effective liaison between the Company and the Physicians and is expected to faithfully and

reciprocally communiq.te all expectations,demands and/or decisions as pertinent to the

Companf and tbe Physicians. The Medical Director shall not, and shall fisc coimneteially

reasonable efforts to cause the Company notto, without seeking approval from the Advisory

Board: (i) Ul}ilaterally hir~ or fire any Physicians, associate physiCians or other professionals or

office staff; (ii) unilaterally alter salaries ofthe Physicians, associate physicians or other

or

professiona}s or offt_ce staff; (iii) unil{iterally altefaaily monthly schedules; (iv) unilaterally

alter physician service sites ortimes; or (v) make recommendations to the President of the

Company on salary and bonus disbursement and the division ~nd allocatiop. of the "Performance

Incentive Bonus,"as de:flped in the Physicians' Employment Agreements; provided further, that

the Medical Director shall make bonus disbursement reports available for inspection by the

Physicians at the offices of the Practice. During the Initial Te11n of the Physiciails' Employm~ht

Agreements and during the applicable period for negotiating the Renewal term of the

Physicians' EmploymentAgreements, the Medical Director shall not on behalf of the Company,

either directly or indirectly, (i) negotiate, recomrricnd, approve or offer any Physician

employment terms and conditions inconsistent in any material respect with the employment

terms and conditions of other Physicians (except for the pre-approval of Outside Activities (as

defined in the Phys!cians' Employment Agreements)), or (ii) negotiate, recommend, approve or

offer any Physician-special incentives, bonuses or other benefits not alTered to the other

Physicians.

(e) The Corporate Medical Director shall use co:mifiercially reasonable efforts

to delegate appropriate duties and responsibilities to the Advisory Board from time to time. The

Medical Director shall use comin~rcially reasonable efforts to sH~re information fr()m or related

to the Company with the Advisory Board.

(f) Notwithstanding anything to the contrary herein, (i) in the event of any

conflict between the terms of this Agreement and the Medical Director Agreement, then the

terms Of the Medic-al Director Agreement shall control; and (ii) in the event the Medical Director

receives advice and/or directives from the Advisory Board and/or the Physicians that conflicts

With advice and/or directives from the Company or its Affiliates, then the Physicians understand

and agree thaithe Medical Director will follow the advice and/or directives from the Company

and its Affiliates,

4. Partners' Representative.

(a) ThePhysicians acknowle~ge and agree that Chi B. Vo, M.D. has been

appointed as the Pat1ner.s' Represent~tive pursuant to the Purchase Agreement and wil1 act as an

agent of the Physicians under the Purchase Agreement and is granted such powers as are

delegated under the Purchase Agreement,

(b) Notwithstanding the foregoing and the powers that are delegated to the

Partners' Representative under the Purchase Agreement, the Partners' Representative shall

5

166

provide to the Physicians prompt notice and copies of all notices and communications

transmitted to the Partners' Representative by the Buyer under the Purchase Agreement. In

addition, the Partners' Representative shall not, without first consulting in good faith with and

receiving prior written consent from, a majority of the Physicians:

(A) waive provisions of the Purchase Agreement or any other

Transaction Document;

(B) resolve any dispute arising under the Purchase Agreement or any

other Transaction Document, including, btit not limited to, as contemplated by Section 6

of the Purchase Agreement;

(C) make any material decisions with respect to the defense of any

litigation described in Section 6.3 of the Purchase Agreement;

(D) agree to, negotiate, enter into settlements and compromises of, or

d~mand arbitration with respect to any such claims referenced in subparagraphs (ii) and

(iii) above; or

(E) take or fail to take any other actions that would have an adverse

impact on the rights of the Physicians, economic or otherwise, under the Purchase

Agreement.

(c) The Partners' Representative may resign by delivering written notice t9

the Physicians with a copy to the Buyer, at least thirty (30) days prior to the effective date of

s11ch resignation. A majority ofthe Physicians may terminate the appointment ofthe Partners'

Representative, by delivering written notice thereto, with a copy to the Buyer, whiCh notice shall

designate the effective date of such termination not earlier than five (5) Business Days after the

B\lyer's rec~ipt of such notice. In the event of such resigmition or termination, a successor

Prutners' Representative shall be appointed by a majority ofthe Physicians and written notice of

such appointment shall be delivered to the Buyer. If, at any time, the Partners' Representative

has resigned or has been termitmted and a successor Partners' Representative has not been

appointed in accordance with the foregoing sentence, then _unless and until a successor Partners'

Representative is so appointed, the Medical Director shall be deemed to be the successor

Partners' Representative for purposes ofthis Agreement and the Purchase Agreement. After the

appointment (or deemed appointment) of a personas a successor Partners' Representative, all

references to such Partners' Representative shall be deemed to include such successor.

5. Physician Obligations.

(a) Each Physicianlihderstarids and (lgrees that (i) in addition to the

consideration under the Purchase Agreement, beginningon January 1, 2013, the Physicians are

eligible fpr certain bonuses \Ulder the Company's PhysiCian Performance Incentive Program

based upon the proilts of the Company, (ii) he or she has entered into an Employment

Agreement with the Company to perfoi:m certain services for the Compatiy for an initial term as

set forth in his or her Employment Agreement (the "Initial Terni") and (iii) if he or she

6

167

terminates his or her employment with the Company prior to the expiration of the Initial Term,

the Physicians may suffer harm, including, without limitation, increased workloads necessitated

by such terrrlination, mat¢rial impairment of the ability of the Physicians to earn bqrtuses under

the Company's Physician Perfbtmance Incentive Program, material impairment of the Physician'

relationships with hospitals and other health-care facilities, third-party payors and other

stakeholders, and hiring and tnrlning costs related to replacement physicians.

(b) In light oftheforegoing, if a Physician's employment With the Company

is terminated for any reason duringothe Initial Term of a te1minating Physician's Employment

Agreement other than atertninatio:h without cause by the Company, subject to Section 5(c)

hereof, theri such terminating physician (a "Terminating Physician") shall promptly pay to the

non-terminating Physiciaps, but in any event within five (5) Business Days of the termination of

s).lch Terminating Physician's employment, n.cs liquid11ted damages, and not as a penalty, the

amount set forth below to be shared equally by the non-terminating .Physicians (th~ ''Llguidated

Damages Amount"). If the Liquidated Damages Amount is not paid by the Terminating

Physician within such five (5) Business Day period, then the Liquidated Damages Amount shall

thereafter bear interest at the rate often percent (1 0%) per animm until such Liquidated Damages

Amount, together with the accrued interest, is paid in full.

Terminating Physician Liquidated Damages Amount

Carolyn G. Biebas, M.D. $400,000

James C. Chapin, M.D. $400,000

Richard S. Himes, Jr., M.D. $~~(),000

Richard L. Laube, M.D. $320,000

Gary J. Mihm, M.D. $240,000

Sharon A. Oxford, M.D. $400,000

All other Physicians $500,000

The Liquidated Damages Amount for Ann John, M.D. shall be (i) $375,000 ifthc terrilination

date occurs prior to the two (2) year anniversary of employment with the Company, or (ii)

$300,000 if the termination date occurs at anytime thereafter during the initial Term of her

Employment Agreement.

In addition to the Liquidated Damages A!nount, the Terminating Physician shall

reimburse the Company and the Physicians for all out of pocket costs and attorneys' fees

incurred by the Company and/or the Phy~icians in any arbitration or litigation to enfotce the

Terminating Physician's Employment Agreement or this Agreement. The Physicians each

acknowledge and agree that the Liquidated Damage Amount is reasonable in light of the

anticipatedharm which would be causco by a Termin!lting Physician's breach of ordefault under

this Agreement, the difficulty ofproof ofloss, the inconvenience and non-feasibility of otherwise

optaining an adequate remedy, and the value of the transactions to be consummated under the

Purchase Agreement and the other Transaction Documents.

7

168

(c) Notwithstanding the foregoing and for the avoidance of doubt, i1 is hereby

acknowledged and agreed that the provisions set forth in this Section 5 shall not apply to a

Physician in the event (i) of the death of such Physician, (ii) such Physician suffers a permanent

Disability (as defined in the Physician's Employment Agreement) or an "own occupation"

disabiBty 1 (iii) such Physician is terminated due to a Material Decline or Right-Sizing (as such

tertl)s·ai'edefineci in the P}1ysician's Employ111eilt AgreeJ1ient), (iv) the Company's contract with

St: David's Healthcare Partnership is terminated, (v) ofPhysician's Qualifying Termination (as

cl~fined in the Physicia:il's Employment Agreement), or (vi)of an approved termination pursuant

to Section 5(d) below. the Physicians also acknowledge and agree that unforeseen conditions

may arise during the Initial Term that rriay prompt a Physician to tertninate his or her

employment with the Company. Under such circumstances, a Physician may petition the

Advisory Board and upon receiving the written consent ofa majority of the Advisory Board,

may t~@inate his or her employment with the Company without being required to pay the

Liquidated Damages Amount and the out of pocket costs and attorneys' fees referenced in

Section $(b) above.

(d) Conflict of Interest. In the event that a Physician desires to voluntarily

terminate his or her Employment Agreefuent in order to provide other services to the Company

or its Affiliates, such Physician may petition the other Physicians to allow the termination of his

or her employment with the Company, and upon receiving the written consent of at least a

majority of the other Physicians, may terminate his or her employment with the Company

without beip.g required to pay the Liquidated Damages Am()unt and the out ofpocketcosts and

attorneys' fees referenced in Section 5(b) above. During the Initial Term of the Physicians'

Employment Agreements and during the applicable }Jeriod for negoti~ting the Renewal Ts:rm of

the Physicians' Employment Agreements, each Phys:lcian shall report to the Advisory Board the

occurrence of any offer, negotiation or discussion whereby any such Physician would receive

¥rriployment terms and conditions inconsi~tent in any material respect with the employment

terms and conditions of other Physicians (except for the pre-approval of Outside Activities (as

defined in the Physicians' Employment Agreements)), or any special incentives, bonuses oi other

benefits not Offered to the other Physicians;

(e) The Physicians ackfi{)wledge and agree that nothing contained in this

Agreement shall in any way limit or impair the Company's rights under any Employment

Agreements or other agteements with the Physicians.

6. Indemnification.

(a) Any person who at any time serves or has served as an Advisory Board

Member shall have a right to be indemnified by the Physicians to the fullest extent permitted by

law agairist (i) reasonable expenses, including attorneys' fees, actually and necessarily incurred

by him or her in cohifection with any threatened, pending or completed action, suit or

proceeding, whether civil, criminal, administrative or investigative (and '"1Y appeal therein), and

whether Qr not brought by or on behalf.ofthe Physicians, seeking to hold hi111-or het lhtblc by

reason of the fact that he or she is or was acting in such capacity, and (ii) reasonable payments

made by him or her in satisfaction of any judgment, money decree, fine, penalty or settlement for

which he or she may have become liable in any such action, suit or proceeding; provided

8

169

however, that an Advisory Board Memb_er shall only he entitled to ind~mnification pursuant to

this Section 6 so long as such Advisory Board Member acted in good faith in carrying out the

decisions or actions which were the subject or basis of liability as set forth abovcin items (i) and

(ii); provided further, that no Advisory Board Member shall be entitled to indeJ1111ification in the

event of such Advisory Board Member's gross negligence.

(b) The Advisory Board ~shall take all such action as may be necessary and

appropriate to require the Physicians to pay the indemnification requirecl by this provision,

including without limitation, to the extent needed, making a good faith evaluation of the manner

in which the claimant for indemnity acted and of the reasonable amount of indemnity due him or

her. The Physicians shall pay their Pro Rata Shan~ of such indemnity claim to tlie claimant within

ten (1 0) business days of receipt of notice of any such claim for indemnity. Forpurposes ofthis

Section 6, the "Pro Rata Share" shall he an amount equal to the total amount ofthe indemnity

claim approved by the Advisory Board divided by the then-cuiTent number of Physicians party to

this Agreement. If a Physician's Pro Rata Share is not paid within teh (1 0) business days, then

interest shall accrue at the rate often percent (10%) per annum until such Pro Rata Share,

together with the accrued interest, is paid in full.

(c) Any person who at any time after the adoption of this provision serves or

has serv(!d on the Advisory Board s}1all be deemed to be doing or .to have done so :in reliance

upon, and as consideration for, the right of indemnification provided herein. Such right shall

inure to the benefit of the legal representatives of any such person and shall not be exclusive of

any other rights to which such person may be entitled apart from the provision of this provision.

(d) The Physicians shall (upon receipt of an undertaking by or on behalfofthe

Advisory Board Member involved) pay expenses (including attorneys' fees) incuiTed by such

Advisory Board Member in defending any threatened, pending or completed action, suit or

proceeding and any appeal therein whether civil, criminal, administrative, investigative or

arbitrative and whether formal or informalor appearing as a witness at a time when he or she has

not been named as a defen:aartt or a respondent with respect thereto in advance of the flnal

disposition ofsuch proceeding. ·

7. Miscellaneous.

(a) Notices and Voting Procedures. All notices and other communications

hereunder shall be in writing and may be given by personal delivery, reputable express courier,

registered or certified fuail (return receipt requested), or by email, in t11e discretion of the

Advisory Board. Such notice shall be deemed effective when received if it is given by personal

delivery, reputable expre.ss courier or einail, and will be effective three (3) days after mailing by

registered or certified mail, so long as it is actually received within five (5) days (arid, if not so

receivs:o within five ($) days, is effective when actually received), fo the parties at the addre·~s.es

specified on Exhibit Rhcreto or such other address of which notice is provided pursuant to th:is

provisign. Any vote, consent or approval of either the Advisory Board or the Physicians may be

delivered and conducted by email ballot or any other means determined by the Advisory Board.

Meeting minutes and voting records shall be recorded and disseminated by the Advisory Board

in a maill1er substantially consistent with the past practices of AAG.

9

170

(b) Enforcement. The Physicians agree that a breach or violation of fhe tem1s

of

of this Agreement by any them may cause irreparabl~ damage to the other, the exact amount

of which is impossible to ascertain, and for that reason the Physicians agree that the non-

breaching parties wi11 be entitled to a decree of specific performance of the terms of this

Agreement or an itl.juhction restrai:tling further breach or violation thereof by the breaching party

or parties, said nght to be in addition to any other remedies of the parties.

(c) Amendments. This Agreement may be amended only with the approval of

at least fl. majority of the Physicians. Any amendments tQ this Agreement shall be binding on all

Physicians, the Medical Director and the Partners' Representative.

(d) No Third Party Beneficiaries. This Agreement is entered into solely for the

benefit of the parties hereto and no term, provision or covenant hereunder shall confer or be

deemed to confer a benefit on any other person, oth(}r than as may be set forth hei'ein.

(e) Assignment. Np party hereto may assign, delegate or otherwise transfer

any of such party's rights, interests or obligations under this Agreement.

(f) Severability. Each provision of this Agreement is intended to be

severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such

illegality ot invalidity sha11, to the greatest extent possible, not affecttbe legality or validity of

the remainder of this Agreement. In the event that any provision ofthis Agreement shall be

declared by a COUrt of COmpetent jurisdjctign to exceed the limits St1Ch ~OUrt deems tea~sonable

and enrorceable, said provisions shall be deemed modified to the minimum extent necessary to

make suchprovisions reasonable and enforceable.

(g) No Waiver. Neither the failure nor any delay on the part of any party

hereto in exe:rcising any right_, power or privilege granted herein shall op(!tatc as a waiver

thereof, nor shaH any single orpartial exercise thereof preclude any other or further exercise of

any other right, power or privilege which Il1ay be provided by law.

(h) Counterparts: Delivery by Facsimile. 'Ibis Agreement may be executed in

any number of 90Unterparts with the saJI1,e effect as if all parties hereto h.aci signed the same

document. All counterparts shall be construed together and shall constitute one agreement. This

Agreement and any amcndil).enls hereto, to the extent signeo and delivcrt!d by mean~ of a

facsimile machine or by e-mail in PDF or similar format, shall be treated in all manner and

respects as an original agreement or instrument and shall be considered to have the same binding

legal effect as if it were the original signed version thereof delivered in person. At the request of

any party hereto, each other party hereto or thereto shall re-cxecute original forms of this

Agreefiieht and deliver thelJl to all other parties. N() PrfrtY hereto shall raise the l!Se Of a facsimile

machine or e-mail to deliver a signature or the fact that any signature or agreement or instrument

was transmitted or coffil!lunicated through the use of{l. facsimile l1l~chine or e-mail as a defense

to the formation of a contract and each such party forever waives any such defense.

10

171

(i) Controlling Law. This Agreement has been entered into inthc State of

Texas, artd this Agreement, including any rights, remedies, or obligations provided for

hereunder, shall be construed and enforced in accordance with the laws of the State of Texas.

G) Non-Voting Physicians. Notwithstanding anything herein to the contrary,

]Uchard S.ijimecs, Jr., M.D., l9chard L. Laube, M.D. and (}aryJ. Mihni, M;D. (the "Non-Voting

Physicians'!) slrall not be entitled to vote on any matter set forth herein and are not eligible to

serve oJl the Advisory Board; provided how~ver, that sm.:h Non-Voting Physicians shiill have all

other rights, and be boundby all obligations, of the Physicians underthis Agreement.

(k) Additional Physicians. From time to time after the Effective Date of this

Agreement, the Advisory Board may invite new physicians hired by the Company ("New

PHysicians") to participate in the beilefits and become bound by the tem1s of this Agreement by

signing a joinder to this Agreement in a manner determined by the Advisory Board. In such

event, the Advisory Board will deterinine any and all conditions, rights and duties associated

with any New Physician's joinder to this Agreement~and such NewPhysicians shall thereafter be

''Physicians" hereunder for all purposes; provided however, that New Physicians shall not be

subject to the provisions of Sections 4 ana S(a) through S(d) ofthis Agreement and shall not be

considered a "Physician'' for the purposes of such sections.

(1) Replacement Medical Directors. Any Replacement Medical Director must

becom~ bound by the terms of this AgfeeJUent by signing a joinder to this Agreement in the form

of Exhibit C hereto.

(m) Spousal Consent. As a condition precedent to the effectiveness ofthe

Agreement, each Physician's spouse shall execute a consent substantially in the form attached

hereto as EXhibit D.

[Signature Pages Follow]

11

172

IN WITNESS WHEREOF, the undersigned have executed and delivered this Advisory

Board and Internal Operations Agreement to be effective as of the date first above written.

PHYSICIANS:

Erick S. Allen, M.D.

Mark Archibald, M.D.

Scott Bale, M.D.

Shawn A. Barrett, M.D.

T. MarkBedillion, M.D.

Carolyn G. Biebas, M.D.

Ravneet K. Birmg, M.D.

Elizabeth L. Buchholz, M.D.

W. Andrew Buchholz, M.D.

Noah S. Bunker, M.D.

Paul Carrell, M.D.

23502.2-668675 v1

173

IN WI'INESS WHEREOF, the undersigned have executed and delivered this Advisory

Board and Internal Operations Agreement to be effective as of the date first above written.

James C. Chapin, M;D.

Holly Clause, M.D.

David J. Cross, M.D.

William J. Crowley, Ill, M.D.

B. Will Curtis, M.D.

Jad L. Davis, M.D.

Brian D. Dewan, M.D.

Khoa J:)o, ~M.D.

Allen D. Dornak, M.D.

Cedric Dupont, M.D.

Stanley R. Eckert, M.D.

23502.2-688675 v1

174

IN WITNESS WHEREOF, the undersigned have executed and delivered this Advisory

Board and Internal Operations Agreement to be effective as of the date first above written.

Joseph D. Eddings) M.D.

William A. Eilers) III, M.D.

S. Dralq: Fason, M.D.

Troy W. Gras, M.D.

Deborah L. Hamill, M.D.

Christine Harrison) M.D.

LD R. Herz_og) M.D.

StevenS. Hewitt, M.D.

RichardS. Himes, Jr., M.D.

Everett Brew Houston, Jr., M.D.

Rima Jakstys) M.D.

23502.2-688675 v1

175

IN WITNESS WHEREOF, the undersigned have executed and delivered this Advisory

Board and Internal Operations Agreement to be effective as of the date first above written.

Zeeyoung T. Jang, M.D.

Jeffrey M. Jekot, M.D.

Ann John, M.D.

Joe D. Kocks, Jr., M.D.

Richard L. Laube, M.D.

~ ~

Jonathan J. Lee, M.D.

Scott J. Leighty, M.D.

SuzatmeN. Litna, M.D.

Shelby Marquarat, M.D.

Gary J. Mihm, M.D.

George M. Miller, M.D.

23502.2-686675 v1

176

IN WITNESS WHEREOF, the undersigned have executed a11d delivered this Advisory

Board and Internal Operations Agreement to be effective as of the date first above written.

Steven E. Miller, M.D.

Mattin C. Milliken, M.D.

Paul B. Nelson, M.D.

Jeffrey J. Nitzsche, M.D.

Oliver E. Orth, M.D.

Slfaron A. Oxford, M.D.

Diinpal R. Patel, M:D.

M. Brett Pillow, M.D.

Vijay K. Ravula, M.D.

Jeffrey J. Rockwell; M.D.

Kevin R. Shelly, M.D.

23502.2-688675 v1

177

. IN WITNESS WHEREOF, the undersigned have executed and delivered this Advisory

Board and Internal Operations Agreement to be effective as ofthe date first above written.

Gary W; Smith, M.D.

Tracy D. Stranc1hagen, M.D.

Ryan Sturgeon, M.D.

ChiB. Vo,M.D.

David J. Walton, M.D.

MEDICAL DIRECTOR:

Noah Bunker,· M.D.

Address:

PARTNERS' REPRESENTATIVE:

Chi B. Vo, M.D.

Address:

23502.2-688675 v1

178

EXHIBIT A

ADVISORY BOARD

Noah S. Bunker, M.D. (term expires on [October 6], 2Ql~)

Paul Carrell, M.D. (term expires on Decernber31, 2012)

Jad L. Davis, M.D. (tenn expires on December 31, ~013)

LD R. I-lerzog, }v1.D. (term expires on Decen1ber 31, 2011)

Everett Brew Houston, Jr., M.D. (term expires on December 31, 2013)

Jonathan J. Lee, M.D. (term expires on December31, 2012)

Jeffrey J. Rockwell, M.D. (term expires on December 31, 2011)

23502.2-688675 v1

179

EXlllBITB

NOTICE ADDRESSES

last First Full Adclress

Allen Erick S. 68Q2 Edgefield Drb1e Au~tin TX, 78731-2~06

Archibald Mark 12909 ParkDr Austin TX, 78732

Bal.e Scott 3421 Bunny Run Austin TX, 78746

Barrett Shawn A. 1205 Nprwalk Lane, Unit E Austin TX, 78703

Bedillion T. Mark PO Box50536 Austin TX, 78763-053()

Biebas Carolyn G. 2504 Velasquez Austin TX,78703

Siring Ravneet K. 714 w. Monroe, #4 Austin TX, 78704

Buchnolz Elizabeth L. 1905 Manana Street A.ustili TX, 78730

Buchhblz W.Andrew 1905Manana Street Austin TX, 78730

.'· Bunker Noah$. 2900Roi.md Table Road Austin TX, 78746

Carrell Paul 3101T()ro Canyon Road Austin TX, 78746

Chapin James C. 2003 Ringtail Ridge Austin TX, 78746

Clause Holly 4017 Bunny Run Austin TX, 7c8746

cross David_t 511 Texas Ave Austin TX, 787()5

Crowley, Ill William J. 4505 Elkwater Cove AIJ_stin TX, 78746 0

Curtis B. Will 421 W~st 3rdStreet, #1910 Austin TX, }8701

Davis Jad l. 2319 WppdwayRound_Rock TX, 78681 _

Dewan Brian D. 5805 Gentle Br('!eze Terrace Austin TX, 78731

DO Khoa 1753 Gaylord Drive Au~tin TX, 78728 _

Dornak Allen D. 801 W. Stli St #1706 AI,Jstin, TX,~78703

Dupont C~dric 29 Pascal lane Austin 1]<, 787A6

Eckert Stanley R. 7713 Sandia LoopAustin TX, 78735

Eddings Joseph D. 404 Talkeetna Lo Cedar Park TX, 78613

tilers, Ill William A. 502 Indigo Ln GeorgetoWn TX,78628

Fason s. Drake 3410 Foothill Terrace Austin TX, 18731

Gras Troy W. 1609 Lynnville Trail Austin TX,78727

Hamill Deborah L. 4005 Hidden Canyon Cove Austin TX,78746

Harrison Christine 708 Garner Avenue Austin TX, 78704

Herzog LOR. 3010 Hatley Drive Austin TX, 78746

Hewitt Steven 1105 Sprague Lane AuStin TX,o78746

Himes, Jr: RichardS. _714 WihdsongTrail AustinTX, 78746

l:iouston. Jr. Everett B. . 2901Wade AVenue AJJstin TX, 78703

--

Jakstys Rima . 4601N.Lamar Blvd Unit 5211 Austin TX, 78751

Jang Zeeyoung 4009 Lewis Lane, #AAustin T)(, 7875.6

Jekot Jeffrey M. .. 3804Woodcutter's Way Austin TX, 78746-1543

John Ann 2002 Kinney Unit B.,1\ustin tx, 78704

Kocks, Jr. Joe D. 1607 Mt. Larson Road Austin TX, 78746

23502.2-688675 v1

180

Laube Rh::hard L. 412 Beardsley Lane Austin TX,78746

Lee Jonathan J. 1806 lntervail Dr. Austin TX, 78746

Leighty s"cottJ. 390Q Walnut Clay Drive Austin TX, 78731

Lima Suzanne N. 4112 Avenue B AustlnTX, 78751

Marquardt Shelby 19_0!lW. Koenig Lane_Au_stin TX, 78756

Mihm Gary J. 4708 Peace Pipe Pa!h Austin TX, 78746

Miller George M. 4603 Strass D[~Austin TX, 78731

Miller St~ven E. 7206 Villa_Maria Lane Austin lX 7~759

Milliken Martin c. 1810 RaJeigh Avenue Austin, TX, 78703

Nelson Paul B. 311 WesJ 5th st. #1103 Austin TX, 78701

Nitzsche Jeffrey J. 5408 Cuesta Verde Au~tinTX, 78746

Orth Oliver E. 5013 Spartanburg Cove Austin TX, 78730

Oxford Sharon A. 3606 Fall Trail Austin TX, 78731

Patel Dimpal R. 4613 Twin Valley Circle AustinTX, 78731

Pillow M. Brett 316 Eanes School Rd. Austin TX, 78746

Ravula Vijay K. 4206 Bellvue Ave. AustinTX, 78756

Rockwell Jeffrey J. 2914 Montebello Court Austin TX, 78746

Shelly Kevin R. 3008Pescadero Cove Austin TX, 78746

Smith GaryW. 34161\tlt Bonnell Circle Austin TX, 78731

Strand hagen Tracy D. 600 RidersTrail Austin TX, 78733

Sturgeon Ryan 11425 Dpna_Villa Drive AustinTX, 78726

Vo Chi B. 5911 Mo1.mtain Villa Drive Austin TX, 78731

Walton DavidJ. 3501 Native Dancer Cove Austin TX, 78746

23502.2-688675 v1

181

EXHIBITC

JOINDER TO ADVISORY BOAR]) AND

INTERNAL OPERATIONS AGREEMENT

I hereby accept my appointment as Med!c.a.! Director pursuant to the Advisory Board and

Internal Operations Agreement dated October 6, 2.011 (the "Agrement"), and agree to be bound

by the tctn1s of, and to comply with and fulfill all obligations, Goilirilitirients, and agreements

otherwise imposed upon the Medical Director thereunder.

----------'M.D.

''Replacement Corporate Medical Director"

23502.2-688675 v1

182

EXHIBITD

FORM OF SPOUSAL CONSENT

WRITTEN CQNSENT

OF SPOUSE OF

"'--------'----~--' M.D.

In cgnnection with that certain Advisory Board and Internal Operations Agreement entered

into on October_, 2011 (the "Advisory Board Agreement"),.by, between and among the individual

physicians, jncluding the Signatory (as defined below), whoseh!!tnes are set forth on the signature

pages thereto (collectively, the ''Physicians"), the undersigned, being the lawful spouse of

--------~--' M.D. (''Signatory'') hereby certifies as follows:

1. I hereby consent to the execution by Signatory of the Advisory Board Agreement

and the performance by Signatory of Signatory's obligations under the Advisory Board Agreement.

2. I have had an opportunity to review the Advisory Board Agreement.

3. I have had an opportunity to consult with an attorney and other advisors regarding

the Advisoty Board Agreement arid the tnmsactions contemplated thereurtder priotto executing and

delivering this written consent.

. .. 4. I hereby acknowledge and agree that the Physicians and their respective agents and

affiliates are entitled to rely on the consent provided hereunder.

IN WITNESS WIIEREOF, the undersigned has duly executed this Written Consent on

October _ _, 2011.

Name:

Witness

23502.2-.688675 v1

183

Filed

13 October 23 A9:43

Amalia Rodriguez-Mendoza

District Clerk

Travis District

CAUSE NO. D-1-GN-13-002811 D-1-GN-13-002811

TRACY D. STRANDHAGEN, § IN THE DISTRICT COURT

PLAINTIFF, §

§

§

v. § TRAVIS COUNTY, TEXAS

§

§

NOAH S. BUNKER, PAUL CARRELL, §

EVERETT BREW HOUSTON, JR., §

W. ANDREW BUCHHOLZ, SCOTT J. §

LEIGHTY, JAD L. DAVIS, and §

HOLLY CLAUSE §

DEFENDANTS. § 353RD JUDICIAL DISTRICT

DEFENDANTS' FIRST AMENDED ANSWER

TO THE HONORABLE JUDGE OF SAID COURT:

COME NOW, NOAH S. BUNKER, PAUL CARRELL, EVERETT BREW HOUSTON,

JR., W. ANDREW BUCHHOLZ, SCOTT J. HEIGHTY, JAD L. DAVIS and HOLLY

CLAUSE, Defendants in the above entitled and numbered cause, and file their First Amended

Answer, and would show unto the Court as follows:

I.

As authorized by Rule 92 of the Texas Rules of Civil Procedure, Defendants NOAH S.

BUNKER, PAUL CARRELL, EVERETT BREW HOUSTON, JR., W. ANDREW

BUCHHOLZ, SCOTT J. HEIGHTY, JAD L. DAVIS and HOLLY CLAUSE generally deny

each and every allegation contained in Plaintiffs Original Petition or any superseding or

supplemental petitions, and respectfully request that Plaintiff be required to prove same by a

preponderance ofthe evidence as required by the Constitution and the laws of the State of Texas.

II.

Defendants assert some and/or all of the issues the subject of Plaintiffs Declaratory

Judgment have not matured and Plaintiffs claims should be dismissed.

74

III.

Defendants invoke §37.006 of the TEX. CIV. PRAC. & REM. CODE and assert all persons

who have or claim any interest that would be affected by this declaratory action have not been

made parties to this action.

IV.

Defendants invoke §37.008 of the TEX. CIV. PRAC. & REM. CODE, which states that the

court may refuse to render or enter a declaratory judgment or decree if the judgment or decree

would not terminate the uncertainty or controversy giving rise to the proceeding.

v.

Defendants assert that Plaintiff does not have a separate, valid cause of action against the

named Defendants.

VI.

Defendants have retained the services of Carls McDonald & Dalrymple, L.L.P. to assist

them in this matter. Accordingly, Defendants seek recovery of their attorneys' fees incurred in

this matter pursuant to TEX. CIV. PRAC. & REM. CODE §37.009.

WHEREFORE, PREMISES CONSIDERED, Defendants NOAH S. BUNKER, PAUL

CARRELL, EVERETT BREW HOUSTON, JR., W. ANDREW BUCHHOLZ, SCOTT J.

HEIGHTY, JAD L. DAVIS and HOLLY CLAUSE respectfully pray as follows:

1. That upon trial of this matter judgment be entered that Plaintiff take nothing;

2. That Defendants be awarded reasonable attorneys' fees;

3. That Defendants be discharged with their costs incurred herein; and

4. For such other and further relief to which Defendants may be justly entitled.

DEFENDANTS' FIRST AMENDED ANSWER

Page 2 of3

75

Respectfully submitted,

CARLS, MCDONALD & DALRYMPLE, L.L.P.

Barton Oaks Plaza 1

90 I South Mopac Expressway

Suite 280

Austin, Texas 78746

(512) 4 72-4845

(512) 472-8403 (fax)

,

~

·, / "'7,: . ·(·'"\.__ I ./

;[L~ U v VlD u/VU-v/

By: _ _ _ _ " -----ttdi----------

Kelly A. McDonald

State Bar No. 13551275

Carla Garcia Connolly

State Bar No. 076311 00

ATTORNEYS FOR DEFENDANTS

NOAH S. BUNKER. PAUL CARRELL, EVERETT

BREW HOUSTON, JR., W. ANDREW BUCHHOLZ,

SCOTT J. I-IEIGHTY, .lAO L. DAVIS and HOLLY

CLAUSE

CERTIFICATE OF SERVICE

I certify that a true and correct copy of the foregoing has been sent by hand delivery,

cetiified mail, return receipt requested, electronic means or facsimile to:

Daniel H. Byrne

Lessie G. Fitzpatrick

FRITZ, BYRNE, HEAD & HARRISON, PLLC

98 San Jacinto Boulevard, Suite 2000

Austin, TX 78701-4286

VIA FAX

in accordance with the Texas Rules of Civil Procedure, on the 23rd day of October, 2013.

Kelly AJ McDonald

DEFENDANTS' FIRST AMENDED ANSWER

Page 3 of 3

76

1/30/2014 4:51:30 PM

Amalia Rodriguez-Mendoza

District Clerk

Travis County

CAUSE NO. D-1-GN-13-002811 D-1-GN-13-002811

TRACY D. STRANDHAGEN, § IN THE DISTRICT COURT

PLAINTIFF, §

§

§

v. § TRAVIS COUNTY, TEXAS

§

§

NOAH S. BUNKER, PAUL CARRELL, §

EVERETT DREW HOUSTON, JR., §

W. ANDREW BUCHHOLZ, SCOTT J. §

LEIGHTY, JAD L. DAVIS, and §

HOLLY CLAUSE §

DEFENDANTS. § 353RD JUDICIAL DISTRICT

DEFENDANTS' RESPONSE IN OPPOSITION TO

PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

TO THE HONORABLE JUDGE OF SAID COURT:

COME NOW, NOAH S. BUNKER, PAUL CARRELL, EVERETT DREW

HOUSTON, JR., W. ANDREW BUCHHOLZ, SCOTT J. HEIGHTY, JAD L. DAVIS and

HOLLY CLAUSE, Defendants in the above entitled and numbered cause, and file their

Response in Opposition to Plaintiff's Motion for Summary Judgment, and would show the

Court as follows:

I. Summary of Argument

Plaintiff is not entitled to summary judgment because (1) she has failed to establish

that the liquidated damages provision in the Advisory Board and Internal Operations

Agreement is an unenforceable penalty; and (2) the liquidated damage provision does

not require Defendants to assert rights under Plaintiff's employment agreement.

II. Background

Plaintiff Tracy D. Strandhagen and the fifty nine other partners in Austin

Anesthesiology Group, PLLC sold their membership interests to American

186

Anesthesiology of Texas, Inc. in October 2011. At the same time that the physicians

negotiated the buyout, they negotiated and entered into employment agreements with the

new group. To further shape their ongoing working relationships, the physicians also

negotiated and entered into an Advisory Board and Internal Operations Agreement

("Agreement") among themselves, pursuant to which they established an advisory board

from their members to provide advice and guidance to the medical director and committed

to each other that they would not terminate their employment with the new company

during their initial terms. They agreed that if a physician did terminate employment with

the new company during the initial term, the other physicians would be subject to harm,

including, increased workloads necessitated by the termination, material impairment of

their ability to earn bonuses under the Physician Performance Incentive Program,

material impairment of the physician's relationships with hospitals and other health care

facilities, third party payers and other stakeholders, and hiring and training costs related

to replacement physicians. In light of the difficulty of proof of loss and the inconvenience

and non-feasibility of obtaining an adequate remedy, the terminating physician would pay

the others a liquidated damage amount. For Plaintiff and most of the others, this amount

was $500,000. The physicians expressly agreed that the liquidated damage amount was

reasonable in light of the terms of their Agreement, the difficulty of proof of losses, the

inconvenience and non-feasibility of otherwise obtaining an adequate remedy and the

value of the transactions consummated under the purchase agreement and other

transaction documents. See Agreement, attached as Exhibit 1-A to Plaintiff's Motion.

Plaintiff's employment terminated in 2013. The facts surrounding her termination

are in dispute. They are the subject of legal proceedings she initiated with the EEOC and

2

187

the ongoing dispute between Plaintiff and her former employer. Plaintiff filed this

declaratory judgment action asking the court to preemptively determine that (1) the

liquidated damages provision in the Agreement could not be enforced against her

because she was terminated without cause; and (2) the liquidated damages provision

was an unenforceable penalty. The Court sustained Defendant's Plea to the Jurisdiction

with regard to Plaintiff's claim that she was terminated without cause. Plaintiff now moves

for summary judgment on her claim that the liquidated damages provision is

unenforceable.

Ill. Plaintiff's First Claim

Plaintiff contends that the liquidated damages provision in the Agreement is an

unenforceable penalty. Liquidated damages are 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 (Tex. 2005), citing Valence Operating Co.

v. Dorsett, 164 S.W.3d 656, 664 (Tex. 2005). Generally, a liquidated damages provision

is enforceable if, at the time the contract is entered into, actual damages are difficult to

estimate and the amount specified in the contract is a reasonable forecast of just

compensation.

Whether a contractual provision is an enforceable liquidated damages provision or

an unenforceable penalty is a question of law, but if fact issues exist, they must be

resolved before the legal issue can be decided. Phillips v. Phillips, 820 S.W.2d 785, 788

(Tex. 1991). A claim that a liquidated damages provision is an unenforceable penalty is

an affirmative defense to the enforceability of the provision and the summary judgment

movant has the burden of conclusively establishing every element of the defense. /d.;

3

188

Brownlee v. Brownlee, 665 S.W.2d 111, 112 (Tex. 1984); Ryland Grp. v. Hood, 924 S.W.

2d 120, 121 (Tex. 1996) (per curiam); Liaquat Ali Khan v. Nizarali Meknojiya No. 03-11-

00580-CV, 2013 WL 3336874, at *2 (Tex. App.- Austin June 28, 2013, no pet.); GPA

Holding, Inc. v. Baylor Health Care System; 344 S.W.3d 467, 475 (Tex. App.- Dallas

2011, pet denied).

In order to prevail on a motion for summary judgment that a liquidated damage

clause was an unenforceable penalty, a movant would have to conclusively establish that

(1) the harm caused by the breach is not incapable or difficult of estimation; and

(2) the liquidated damages amount agreed to among the parties is was not a

reasonable forecast of just compensation.

Phillips, 820 S.W.2d at 788; GPA Holding, p. 476. Evidence related to the lack of difficulty

of estimation of damages and the lack of reasonableness of the forecast must be viewed

as of the time the contract was executed. Baker v. International Record Syndicate, Inc.,

812 S.W.2d 53 (Tex. App. -Dallas 1991, no pet), citing Mayfield v. Hicks, 575 S.W.2d

571, 576 (Tex. Civ. App. -Dallas 1978, writ ref'd n.r.e.).

Additionally, the party seeking to invalidate the liquidated damages provision must

prove the amount of the other party's actual damages and show that the liquidated

damages are disproportionate to the actual damages. Phillips 820 S.W.2d at 788; Baker

at p. 55; citing Commercial Union Ins. Co. v. La Villa School Dist., 779 S.W.2d 102, 107

(Tex. App. - Corpus Christi 1989, no writ); Garden Ridge v. Advance International, Inc.,

403 S.W.3d 432, 440 {Tex. App.- Houston [14 1h Dist.] 2013, pet. filed), citing Chan v.

Montebello Dev. Co., No. 14-06-00936-CV, 2008 WL 2986379, at *3 (Tex. App. -

Houston [14h Dist.] July 31, 2008, pet. denied}.

4

189

Plaintiff cannot prevail on her motion for summary judgment because she has

offered no evidence:

(1) that the damages for breach were not incapable or difficult to ascertain;

(2) the liquidated damages amount agreed to by the parties was not a reasonable

forecast of just compensation when the Agreement was entered into; or

(3) of the actual amount of damages for her breach and that it is disproportionate

to the stipulated liquidated damage amount

In order to prevail, Plaintiff is required to conclusively establish alf three elements. All

three inquiries involve questions of fact. Plaintiff has not offered any facts to establish

any of these three required elements.

Plaintiff contends only that because the damages would be the same if she

breached on the first day or the last day, the amount of liquidated damages is not

reasonable. She offers no law to support her contention that the liquidated damage

amount must be calibrated to the date of her breach. It would not be reasonable or

workable to impose such a requirement

At the time the Agreement was entered into, it was unknown when a breach, if

there was one, would occur. At the time the contract was entered into, the parties could

not calculate what the actual damages would be for each identified type of harm that

would be sustained, beginning on an unknown date in the future, or how long the harm

would be suffered. Damage analysis is dependent upon a number of factors that could

not be ascertained in advance, as well as factors that are highly subjective. For example,

the effect of the termination on the other physicians' ability to earn bonuses would depend

on the revenues and expenses at the time of the breach, the impact and duration of a

decline in profits associated with the termination. To quantify damages to the physicians'

5

190

ongoing relationships with hospitals, surgery centers and third party payers, extensive

information would be needed about specifics of those relationships at the time of the

breach. The valuation of the harm caused by increased workloads necessitated by

termination is a subjective analysis.

Given the amount of time and expense and likelihood for disagreement that would

be involved in calculating damages for breach, there is no question why the physicians

found it advantageous to estimate what they considered to be a fair amount of

compensation for harm they believed would occur in the event of a breach. Liquidated

damages provide a means for parties who are faced with unknown, uncertain and difficult

to predict damages to blend all of these unknown factors and agree among themselves

upon an estimate they consider to be reasonable in light of their assessment of the

anticipated harm. Whether the liquidated damages amount might be unreasonable on

the first or last day is not in issue. The issue is whether it was reasonable at the time of

termination. Plaintiff failed to provide any evidence that it was unreasonable at the time

of termination.

IV. Plaintiff's Second Claim

In her second ground for summary judgment, Plaintiff asserts that the liquidated

damages provision of the Agreement is not enforceable against her because it seeks to

render her liable to the Defendants for breach of her employment agreement, which they

are not parties to. She claims that because the Defendants were not parties to or third

party beneficiaries to her employment agreement, they cannot seek damages from her

for terminating her employment.

6

191

Plaintiff's assertion is without merit. Although superficially similar, Plaintiff's

employment agreement with her former employer is not the same as the Advisory Board

and Internal Operations Agreement she entered into with her physician colleagues. The

contractual commitments were made in different contracts, between different parties, for

different reasons, and for different consideration. The enforceability of the Agreement

entered into between Plaintiff and Defendants and its liquidated damages provision does

not require Defendants to have standing to assert rights under Plaintiff's employment

agreement. Plaintiff's citation of Resolution Trust Corp. v. Kemp, 951 F.2d 657, 662 (5th

Cir. 1992) is not on point. In that case, the appellant's claims were based solely on a

subordination agreement to which it was not a party. Those facts are quite different from

those presented in this case. Defendants entered into a separate agreement with

Plaintiff. Defendants have not claimed rights under Plaintiff's employment agreement.

V. Conclusion and Prayer

Plaintiff has failed to prove as a matter of law, all of the essential elements of the

affirmative defense that the liquidated damages clause is an unenforceable penalty. She

has failed to provide any evidence on the three elements she is required to prove in order

to prevail. See MMP, Ltd. v. Jones, 710 S.W.2d 59, 60 (Tex. 1986). Further, evidence

presented by Defendants reflects that issues of fact exist that would preclude a summary

judgment on this issue. Plaintiff has failed to show that no genuine issue of material fact

exists and that she is entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c).

Provident Life &Ace. Ins. Co. v. Knott, 128 S.W.3d 211,215-16 (Tex. 2003).

WHEREFORE, PREMISES CONSIDERED, Defendants NOAH S. BUNKER,

PAUL CARRELL, EVERETT DREW HOUSTON, JR., W. ANDREW BUCHHOLZ, SCOTT

7

192

J. HE!GHTY, JAD L. DAVIS and HOLLY CLAUSE respectfully pray that the Court deny

Plaintiff's Motion for Summary Judgment and award and such other and further relief to

which Defendants may be justly entitled.

Respectfully submitted,

CARLS, MCDONALD & DALRYMPLE, L.L.P.

Barton Oaks Plaza 1

901 South Mopac Expressway Suite 280

Austin, Texas 78746

(512) 472-4845

(512) 472-8403 (fax)

Kelly A Donald

State Bar No. 13551275

Carla Garcia Connolly

State Bar No. 07631100

A TIORNEYS FOR DEFENDANTS

NOAH S. BUNKER, PAUL CARRELL,

EVERETT DREW HOUSTON, JR, W.

ANDREW BUCHHOLZ, SCOTT J. HEIGHTY,

JAD L. DAVIS and HOLLY CLAUSE

CERTIFICATE OF SERVICE

I certify that a true and correct copy of the foregoing has been sent by certified mail, return

receipt requested and by electronic means in accordance with the Texas Rules of Civil

Procedure, on the 30th day of January, 2014 to:

Daniel H. Byrne

Lessie G. Fitzpatrick

FRITZ, BYRNE, HEAD & HARRISON, PLLC

98 San Jacinto Boulevard, Suite 2000

Austin, TX 78701-4286

8

193

2/25/201410:41:46 AM

Amalia Rodriguez-Mendoza

District Clerk

Travis County

CAUSE NO. D-1-GN-13-002811 D-1-GN-13-002811

TRACY D. STRANDHAGEN, § IN THE DISTRICT COURT

PLAINTIFF, §

§

§

v. § TRAVIS COUNTY, TEXAS

§

§

NOAH S. BUNKER, PAUL CARRELL, §

EVERETT DREW HOUSTON, JR., §

W. ANDREW BUCHHOLZ, SCOTT J. §

LEIGHTY, JAD L DAVIS, and §

HOLLY CLAUSE §

DEFENDANTS. § 353R 0 JUDICIAL DISTRICT

DEFENDANTS' REPLY TO PLAINTIFF'S SUPPLEMENTAL BRIEIFING IN SUPPORT

OF PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

TO THE HONORABLE JUDGE OF SAID COURT:

COME NOW, NOAH S. BUNKER, PAUL CARRELL, EVERETT DREW

HOUSTON, JR., W. ANDREW BUCHHOLZ, SCOTT J. HEIGHTY, JAD L. DAVIS and

HOLLY CLAUSE, Defendants in the above entitled and numbered cause, and file their

Reply to Plaintiff's Supplemental Briefing Submitted to the Court after the February 20,

2014 hearing and would show the Court as follows:

After the hearing on Plaintiff's Motion for Summary Judgment, Plaintiff provided

the Court with supplemental copies of the cases presented at the hearing, along with

commentary on those cases and additional cases not cited in her motion or reply brief, or

presented to the Court at the hearing. As Plaintiff

This text is long and has been trimmed here. Open the source document for the complete record.