Preston Law Firm, L.L.C. v. Mariner Health Care Management Co. , 622 F.3d 384 ( 2010 )

Case: 09-31016 Document: 00511250998 Page: 1 Date Filed: 10/01/2010
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
October 1, 2010
No. 09-31016 Lyle W. Cayce
Clerk
PRESTON LAW FIRM, L.L.C., successor in interest to Preston Law Firm,
L.L.P.
Plaintiff-Appellee Cross-Appellant
v.
MARINER HEALTH CARE MANAGEMENT COMPANY, doing business as
Mariner Health Care
Defendant-Appellant Cross-Appellee
Appeal from the United States District Court
for the Eastern District of Louisiana
Before JOLLY, D EMOSS, and DENNIS, Circuit Judges.
PER CURIAM:
This appeal arises from a dispute between Mariner Health Care (Mariner)
and the Preston Law Firm (the Law Firm) over legal fees. Because a valid
compromise was formed through email communications, and because the terms
of the compromise clearly and explicitly provided for a permanent discount, we
vacate and remand for entry of judgment in favor of Mariner.
FACTS AND BACKGROUND
For many years, the Law Firm represented Mariner in numerous litigation
matters. For the most part, they maintained a good working relationship. In
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late 2004 and early 2005, Mariner fell behind on paying its legal fees 1 to several
law firms, including the Law Firm. Discussions ensued between Mariner and
the Law Firm over reaching an agreement on a payment plan for approximately
$2 million in legal fees owed through February 28, 2005, and for all legal fees
earned thereafter. At first, all communications attempting to resolve the
payment dispute were between Paul Preston (Preston), managing partner of the
Law Firm, and Devin Ehrlich (Ehrlich), general counsel for Mariner. In March
2005, Roslyn Lemmon (Lemmon), another partner at the Law Firm, took
primary responsibility for negotiating payment from Mariner.
Prior to March 21, 2005, telephone discussions had taken place between
Lemmon and Ehrlich. On March 21, 2005, Lemmon sent Ehrlich an email
setting forth an agreement regarding payment of the legal fees. Ehrlich sent a
reply email the same day (collectively, the March 21 Emails). The March 21
Emails had the subject line “Payment of Bills” and read in full:
Devin,
Paul asked that I put my understanding of the proposal in writing
so that we all have a clear and consistent understanding.
Bills submitted through February 28, 2005 will be paid out in 12
equal monthly payments. By way of example, if Mariner owes P&C
$1.5 million in bills submitted during this time frame, monthly
payments in the amount of $125,000 will be made until the bills are
paid in full. No reduction of the bills will be made. Going forward
from March 1, 2005, bills will be paid within 90 days.
Please let me know if my understanding is correct. Thanks.
Roslyn
[Reply by Ehrlich]
1
For ease of reference, the amount in dispute is referred to as “legal fees” while the
claim for fees incurred in prosecuting this case is referred to as “attorneys’ fees.” In 2005, the
Law Firm was named Preston & Cowan LLP, or P&C.
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We have never discussed reductions in bills, but otherwise your
understanding is correct.
Pursuant to the March 21 Emails, an initial contract for payment by Mariner of
legal fees was formed.
On March 24, 2005, following additional telephone discussions, Ehrlich
sent Lemmon an email (the March 24 Email) setting forth an agreement with
terms different from the March 21 Emails. The March 24 Email had the subject
line “Fee Payment Agreement” and read in full:
This will confirm we will pay all fees incurred as of February 28,
2005 as follows:
The total will be discounted by 25 percent.
• $300,000 will be paid on or before March 31
• $300,000 will be paid on or before April 30
• $400,000 will be paid on or before May 31
• $500,000 (or whatever the true balance is) will be paid on or
before June 30
All fees incurred from March 1 forward will be paid on a 90 day
basis.
Please let me know if your understanding differs. Thanks.
Devin M. Ehrlich
The installment payments totaled $1.5 million (a 25% discount on legal fees
assumed to total $2 million). Each installment payment was made on time,
except that the May installment (paid on May 27, 2005) was for only $300,000
with the remaining $100,000 being paid on June 10, 2005. Payments for legal
fees incurred after February 28, 2005, and subject to a 90-day payment schedule
were made by Mariner prior to this lawsuit, but most were several days or weeks
late.
Between May 27 and May 31, 2005, several emails were exchanged
between Lemmon and Ehrlich regarding the underpayment of the May
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installment by $100,000 (the May Email Chain). The May Email Chain had the
subject line “P&C Payment” and effectively clarified that the May installment
was the third scheduled installment pursuant to the terms of the March 24
Email and should have been for $400,000. Lemmon insisted on immediate
payment of the additional $100,000 and Ehrlich responded that he would “get
on it right away.” The additional $100,000 was paid on June 10, 2005.
On August 9, 2005, more than one month after $1.5 million had been paid
pursuant to the March 24 Email, Lemmon sent Ehrlich an email (the August 9
Email) with the subject line “Payment of Overdue P&C Bills.” The August 9
Email read in relevant part:
Dear Devin,
At some point last fall, our bills simply stopped being paid without
any warning or explanation whatsoever. . . . Long overdue bills
remained unpaid notwithstanding repeated inquiries. Negotiations
began and we finally and reluctantly agreed to reduce the total
amount owed by 25% for all time incurred through the end of
February 2005, with the further understanding that all time
incurred from the end of February 2005 forward would be paid on
a ninety (90) day cycle. . . .
Very truly yours,
Roslyn Lemmon
The next relevant communication between the Law Firm and Mariner was
an email sent by Lemmon to Ehrlich on September 20, 2005 (the September 20
Email). The September 20 Email, included in an email chain, had the subject
line “RE: Preston & Cowan Revised Proposal” and read in full:
Devin,
The timing is not great, but at some point soon, we need to reach an
agreement. With the upcoming trial dates, we need to talk about a
retainer for payment. As an additional request, we would also ask
that Mariner consider paying at least a portion of the amount
previously compromised. In other words, we took $1.5 million out
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of $2 million owed, and now request that Mariner consider paying
the debt in full.
Thank you,
Roslyn
The final relevant communication between the Law Firm and Mariner was
an email sent by Lemmon to one of Ehrlich’s colleagues, copying Ehrlich, on
October 27, 2005 (the October 27 Email). The October 27 Email had the subject
line “P&C Fee Proposal” and read in relevant part:
Marty,
[W]e conditionally accepted a partial payment of $1.5 million on a
debt of $2 million to accommodate Mariner during its
merger/acquisition with SAVA. In accordance with my previous e-
mail and discussions with Devin, we would ask that Mariner now
consider paying the debt in full. . . .
Thanks and best regards,
Roslyn
No further communications concerning payment of legal fees occurred until the
Law Firm threatened and then brought this lawsuit.
In 2008, the Law Firm filed suit in Louisiana state court under petition on
open account for unpaid legal fees of $419,851.43, later corrected to $444,600.92.
The Law Firm also claimed additional attorneys’ fees for prosecuting its claim
under L A. R EV. S TAT. A NN. § 9:2781(A) (2005), the Louisiana open account
statute. Mariner removed to federal district court, and the Law Firm amended
its complaint to add breach of contract and fraud claims.
Mariner moved for summary judgment which the district court denied in
part on June 10, 2009, finding that there remained genuine issues of material
fact as to the existence, validity, and breach of a compromise agreement.2 The
2
All fraud claims were dismissed pursuant to the June 10, 2009 summary judgment
order and are not on appeal.
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district court later denied cross summary judgment motions on August 13, 2009,
finding again that “an issue of fact exists as to whether a compromise was
reached, and an issue of fact exists as to whether the contract was modified.”
A bench trial was held on September 14 and September 15, 2009. The
primary evidence was the testimonies of Preston, Lemmon, and Ehrlich, and the
emails exchanged between March 21 and October 27, 2005.
Preston testified that he was the managing partner at the Law Firm in
2005. He stated that he “turned over negotiations, or at least the frontline
negotiations, to Roslyn Lemmon, although [he] continued to control the details
of it.” He explained that an “arrangement” was reached in 2005 that the Law
Firm was “going to receive, over a period of time, a payment of $1.5 million as
partial payment of the approximately $2 million that was owed to [it] for . . . fees
through February of 2005.” He claimed that the agreement was for a temporary
discount and that Mariner was required to pay the balance when its cash flow
problems subsided.
Lemmon testified that she was the partner at the Law Firm responsible
for resolving the legal fees dispute. She stated that her “authority [to resolve the
legal fees dispute with Mariner] was never at issue.” She also stated that the
first she heard that the discount was temporary was “in the context of this
litigation” and that she understood the discount to be permanent. With respect
to the September 20 Email language and the October 27 Email language
requesting that Mariner consider paying the discounted fees in full, she stated
that she “didn’t have any legal authority to request it, but [she] thought that
maybe [Mariner would] appreciate some of [the Law Firm’s] efforts and
compensate [it] for them.”
Ehrlich testified that he was the general counsel for Mariner in 2005 and
that he negotiated with the Law Firm for a permanent discount of the legal fees.
He stated that, pursuant to telephone discussions and the March 21 Emails,
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Mariner had offered to pay the Law Firm, and the Law Firm had accepted
payment of, 100% of the legal fees earned through February 28, 2005, in twelve
monthly installments. He testified that sometime between the March 21 Emails
and the March 24 Email, the Law Firm decided instead to take more money up
front ($1.5 million in installments) in exchange for a permanent discount of 25%
on the total. He stated that he deliberately used the word “discounted” in the
March 24 Email because he believed it “connotes a permanent reduction.” He
stated that during his “discussions with [Lemmon], at no time did we
contemplate that there would be a temporary reduction. It was always
contemplated that there would be a permanent reduction.” He also testified that
he understood the September 20 Email and October 27 Email to be attempts by
Lemmon to leverage the Law Firm’s bargaining position to extract payment of
the discounted amount, but that it was understood that Mariner was never
under any legal obligation to pay because both Mariner and the Law Firm had
agreed that the discount was permanent.
On September 15, 2009, after a two-day bench trial, the district court held
in favor of the Law Firm on the legal fees dispute and in favor of Mariner on the
attorneys’ fees question. It found that while Lemmon did have apparent
authority to enter into a contract on behalf of the Law Firm, the email
communications between Mariner and the Law Firm were “confused” and that
any discount was “a temporary reduction at best.” It also found that Lemmon’s
and Ehrlich’s testimonies failed to “credibly reconcile” the conflicting language
used in the several emails. It awarded the Law Firm $444,600.92 plus interest
but denied the Law Firm additional attorneys’ fees under the open account
statute because the initial amount claimed ($419,851.43) was not the actual
amount due. This appeal followed.
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DISCUSSION
I.
Under Louisiana law, a principal may be bound by the acts of an agent
only if the agent has “apparent authority” to bind the principal. See L A. C IV.
C ODE A NN. art. 3021 (2005); Color Stone Int’l, Inc. v. Last Chance CDP, LLC,
08–35 (La. App. 5 Cir. 5/27/08); 986 So. 2d 707, 713. There is no dispute in this
case that Ehrlich was an agent of Mariner with the authority to negotiate and
enter into a contract. The Law Firm implied through Preston’s testimony,
however, that Lemmon may not have had sufficient authority to enter into a
contract with Mariner. The Law Firm is Lemmon’s principal, not Preston.
We review the district court’s factual finding that Lemmon had apparent
authority for clear error. See Gebreyesus v. F.C. Schaffer & Assocs., Inc., 204
F.3d 639, 642 (5th Cir. 2000). We hold that the district court correctly found
that Lemmon had apparent authority. As confirmed by both Lemmon’s and
Preston’s testimonies, the primary negotiations with Mariner were turned over
to Lemmon. Mariner had worked closely with Lemmon for multiple years.
Neither Lemmon nor any other person at the Law Firm ever stated or implied
to Mariner that Lemmon lacked the authority to make decisions or enter into a
contract on behalf of the Law Firm. The district court did not clearly err in
finding that Lemmon had apparent authority as an agent of the Law Firm.
II.
Mariner claims that it entered into a valid compromise with respect to the
unpaid balance of legal fees earned through February 28, 2005. We agree.
Under Louisiana law, a “contract is formed by the consent of the parties
established through offer and acceptance. Unless the law prescribes a certain
formality for the intended contract, offer and acceptance may be made orally, in
writing, or by action or inaction that under the circumstances is clearly
indicative of consent.” L A. C IV. C ODE A NN. art. 1927 (2008). Where a writing
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and/or a signature is required to form a contract, an email will satisfy such
requirement. See L A. R EV. S TAT. A NN. § 9:2607; Klebanoff v. Haberle, 43–102
(La. App. 2 Cir. 3/19/08); 978 So. 2d 598, 600–04; Dozier v. Rhodus, 08–1813 (La.
App. 1 Cir. 6/19/09); 17 So. 3d 402, 409–10. The March 21 Emails and the prior
related telephone discussions between Lemmon and Ehrlich formed an initial
contract for the payment of 100% of the legal fees.
Discussions over the payment schedule continued past March 21, 2005,
however, and Mariner argues that the March 24 Email, when combined with
subsequent emails, formed a valid compromise providing for a permanent 25%
discount and supplanted the initial contract. Because Louisiana law prescribes
several formalities in order to form a compromise, the March 24 Email and
subsequent emails must comport with such formalities, otherwise the agreement
to discount the legal fees is null. See L A. C IV. C ODE A NN. art. 1927 (2008), 2029
(2008), & 3071 (Supp. 2010).
“A compromise is a contract whereby the parties, through concessions
made by one or more of them, settle a dispute or an uncertainty concerning an
obligation or other legal relationship.” Id. at art. 3071. A compromise must be
made in writing and signed by both parties. See id. at art. 3072 (Supp. 2010);
Klebanoff, 978 So. 2d at 601–02; Dozier, 17 So. 3d at 408–10. As stated in
Klebanoff,
There are two essential elements of a compromise: (1) mutual
intention of preventing or putting an end to the litigation, and (2)
reciprocal concessions of the parties to adjust their differences. The
requirement that the agreement be in writing does not necessarily
mean that the agreement must be contained in one document.
Where two instruments, read together, outline the obligations each
party has to the other and evidence each party’s acquiescence in the
agreement, a written compromise agreement has been perfected.
Compromises are favored in the law, and the burden of proving the
invalidity of such an agreement lies with the party attacking it.
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978 So. 2d at 602 (internal citations omitted). Louisiana law requires that we
review a trial court’s finding of the existence or nonexistence of a compromise
under a “manifest error/clearly wrong” standard, without reference to extrinsic
evidence. See id. at 601 (“the existence or validity of a compromise depends on
a finding of the parties’ intent, an inherently factual finding”); see also Parich v.
State Farm Mut. Auto. Ins. Co., 919 F.2d 906, 914 (5th Cir. 1990) (a compromise
must be “unambiguous, perfect, and complete in itself so that nothing is left for
ascertainment by parol proof”).
The first question is whether Mariner and the Law Firm have a sufficient
dispute over the payment of legal fees. The telephone discussions and the March
24 Email show there was a mutual intention of preventing further disputes or
litigation over the payment of legal fees. Mariner was trying to keep its legal
representation and not get sued, and the Law Firm was trying to keep
representing its largest client and keep getting paid. Mariner’s concessions were
making quicker and larger payments than it otherwise felt were possible. The
Law Firm’s concession was offering a 25% discount on the total amount due.
While there was no dispute as to the amount of legal fees owed, there certainly
were reciprocal concessions to adjust the parties’ differences and uncertainties
over the timing and amounts of installment payments. See Linda Mercantile
Corp. v. Bowers, (La. App. 1 Cir. 12/22/69); 230 So. 2d 302, 305–06 (defining
“dispute” broadly); Hancock v. Lincoln Am. Life Ins. Co., (La. App. 1 Cir.
5/14/73); 278 So. 2d 561, 564–65 (citing Linda Mercantile in the context of a
compromise). We find these differences are sufficient to qualify as the subject
of a compromise.
The second question is whether there were sufficient writings signed by
both parties. Emails can qualify as the signed writings needed to form contracts.
L A. R EV. S TAT. A NN. § 9:2607; see Klebanoff, 978 So. 2d at 600–04; Dozier, 17 So.
3d at 408–10. In this case, Ehrlich sent the March 24 Email to Lemmon. It
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qualifies as a signed writing and “outline[s] the obligations each party has to the
other and evidence[s] [Mariner’s] acquiescence in the agreement.” See Klebanoff,
278 So. 2d at 602. For the compromise to be perfected, however, there needs to
be at least one writing signed by Lemmon (or by another agent of the Law Firm)
that evidences the Law Firm’s acquiescence to the terms as set forth in the
March 24 Email. In this case, the May Email Chain merely references the
installment amounts and requests full payment of the May installment. It does
not directly express acquiescence by the Law Firm to the terms of the March 24
Email. The August 9 Email however, when read together with the March 24
Email, provides direct evidence of the Law Firm’s acquiescence to the terms of
the March 24 Email. In the August 9 Email, Lemmon acknowledged that the
Law Firm “finally and reluctantly agreed to reduce the total amount owed by
25% for all the time incurred through the end of February 2005.” This email
indicates that there was acceptance of the terms set forth in the March 24 Email;
together, these emails form a valid compromise. The Law Firm’s reluctance
expressed in the August 9 Email does not diminish the fact that it “agreed to”
and recited again the precise terms set forth in the March 24 Email. See
Klebanoff, 978 So. 2d at 604 (stating that “reservations about the commitment
. . . does not alter the showing of consent and mutual concessions”). Further, the
fact that the installment payments were made before August 9, 2005, does not
cast doubt on the August 9 Email’s effect. Louisiana law does not require that
the signed writings exist prior to any performance by one or both parties to a
compromise. The March 24 Email and August 9 Email combine to form a valid
compromise as a matter of law. Therefore we find that the district court clearly
erred in finding that no valid compromise existed.
III.
Because we have determine that a valid compromise exists between the
parties, we now address whether the terms of the compromise are ambiguous
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and thus warranted the district court’s consideration of extrinsic evidence. The
district court relied on extrinsic evidence to determine the intent of the parties
with regard to the terms of the compromise because it found the compromise
ambiguous. Mariner disputes the district court’s finding that the various emails
were “confused” and that the parties’ agreement provided for only a temporary
discount. “Under Louisiana law, the interpretation of a contract and the
determination of ambiguities are questions of law.” Gebreyesus, 204 F.3d at 642.
We review the district court’s factual findings concerning the parties’ intent for
clear error only if we determine that the terms of the compromise were
ambiguous. See id.; but see Klebanoff, 978 So. 2d at 601.3
Louisiana law provides that where the terms of a contract are “clear and
explicit and lead to no absurd consequences, no further interpretation may be
made in search of the parties’ intent.” L A. C IV. C ODE A NN. art. 2046 (2008). We
give the words used in a compromise their “generally prevailing meaning.” Id.at art. 2047 (2008). As summarized in In re Liljeberg Enters., Inc.,“‘the
contract’s meaning and the intent of its parties must be sought within the four
corners of the document and cannot be explained or contradicted by extrinsic
evidence,’ such that, ‘if a court finds the contract to be unambiguous, it may
construe the intent from the face of the document—without considering extrinsic
evidence—and enter judgment as a matter of law.’” 304 F.3d 410, 439–40 (5th
Cir. 2002) (quoting Exxon Corp. v. Crosby-Mississippi Res., Ltd., 154 F.3d 202,
205 (5th Cir. 1998)); see also Taita Chem. Co., Ltd. v. Westlake Styrene Corp., 246
3
It appears that Louisiana courts may apply a “manifest error/clearly wrong” standard
of review not only to the existence of a compromise but also to the interpretation of a
compromise. See Klebanoff, 978 So. 2d at 601 (“trial court’s interpretation of an alleged
compromise agreement is subject to manifest error/clearly wrong review”). We need not
resolve this potential inconsistency with general Louisiana contract interpretation principles,
however, because we hold that in this case the language of the compromise unambiguously
provided for a permanent discount as a matter of law; thus, the district court clearly erred in
finding the that the language of the compromise was “confused” and the intent of the parties
was ambiguous.
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F.3d 377, 386-87 (5th Cir. 2001). “A contract is ambiguous only if its terms are
unclear or susceptible to more than one interpretation, or the intent of the
parties cannot be ascertained from the language employed.” Gebreyesus, 204
F.3d at 643. Parties may not create an ambiguity where none exists within the
four corners of the contract. See In re Liljeberg, 304 F.3d at 440.
The March 24 Email and the August 9 Email together constitute the four
corners of the compromise; from these emails we interpret the terms of the
compromise. The May Email Chain, the September 20 Email, the October 27
Email, and any trial testimony or other statements by the parties constitute
extrinsic evidence and can be considered only if the words used in the
compromise are “ambiguous” such that we must look outside of the four corners
of the compromise to determine its meaning. See Gebreyesus, 204 F.3d at 642.
We find that the words used in the compromise clearly and explicitly set
forth the terms of the compromise. The March 24 Email provides that “all fees
incurred as of February 28, 2005” will be “discounted” and that the “true
balance” of the “total” will be paid “on or before June 30.” The August 9 Email
provides that the parties “agreed to reduce the total amount owed by 25% for all
time incurred through the end of February 2005.” The prevailing meaning of the
word “discount” is “[a] reduction from the full or standard amount of a price or
debt.” See T HE A MERICAN H ERITAGE D ICTIONARY OF THE E NGLISH L ANGUAGE 516
(4th ed. 2009). The word “discount” clearly meant a permanent reduction of the
legal fees debt. Reading “discount” to mean a deferred payment, as the Law
Firm would have us do, stretches the plain meaning of the word, and the Law
Firm may not create such an ambiguity through extrinsic testimony where none
otherwise exists. See In re Liljeberg, 304 F.3d at 440. Moreover, a permanent
discount is not an absurd result. We therefore hold that the terms of the
compromise are unambiguous; that is, that the parties agreed to a permanent
25% discount of legal fees. Because the terms of the compromise are clear and
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explicit, the district court erred in looking to extrinsic evidence to determine the
intent of the parties with regard to the meaning of the terms.
CONCLUSION
We find that the district court did not err in denying summary judgment
because a genuine issue of material fact existed as to whether Lemmon had
apparent authority as an agent of the Law Firm to enter into a compromise with
Mariner. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
586 (1986). We hold as a matter of law that Mariner and the Law Firm entered
into a valid compromise pursuant to the March 24 Email and the August 9
Email and the terms of the compromise unambiguously provided for a
permanent 25% discount. Therefore, we find the district court did err in
considering extrinsic evidence to determine the intent of the parties and in
interpreting the words used in the compromise. Because we hold in Mariner’s
favor on the legal fees question, we do not reach the attorneys’ fees question.
The judgment of the district court is REVERSED and VACATED and the case
is REMANDED for entry of judgment in favor of Mariner.
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