Mgmt Insights Inc v. Baxter Healthcare ( 2003 )

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
August 18, 2003
Charles R. Fulbruge III
FOR THE FIFTH CIRCUIT Clerk
No. 02-10229
MANAGEMENT INSIGHTS, INC.,
Plaintiff-Counter Defendant-Appellant,
versus
BAXTER HEALTHCARE CORPORATION,
Defendant-Counter Claimant-Appellee.
Appeal from the United States District Court
for the Northern District of Texas
(3:00-CV-2130-R)
Before KING, Chief Judge and HIGGINBOTHAM and STEWART, Circuit Judges.
CARL E. STEWART, Circuit Judge:*
Management Insights, Inc. (“MII”) appeals from the district court’s judgment dismissing its
claim against Baxter Healthcare Corporation (“Baxter”) for additional compensation that MII claims
Baxter owes for tax support services provided by MII to Baxter under a contract between the parties.
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published
and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
MII furt her appeals from the district court’s award of damages to Baxter for MII’s breach of
contract. For the following reasons, we affirm the dismissal of MII’s claim against Baxter and reverse
the district court’s award of contractual damages to Baxter.
FACTUAL AND PROCEDURAL BACKGROUND
In January 1991, MII and Baxter entered into a contract, the State Tax Benefits Agreement
(the “Agreement”), whereby MII would provide Baxter consulting and tax support services. As
outlined in the Agreement, Baxter desired to “obtain certain services from MII with regard to
qualifying for Tax Benefits.” The Agreement further delineated the “Services to be Rendered by MII”
as follows:
1. Services to be Rendered by MII MII shall exercise its best efforts to assist
[Baxter] in qualifying for Tax Benefits available under the Statutes. . . . Under this
Agreement, MII will provide the following services as appropriate: (a) Research
state tax benefit programs; (b) Assist in the identification and collection of necessary
data; (c) Edit and match client location data to enterprise zones in MII’s database; (d)
Process necessary state applications for benefits; (e) Determine client eligibility for
state programs; (f) Calculate tax benefits; (g) Provide a quarterly report on the status
of MII activity; (h) Prepare an annual tax report and supporting documentation that
can be used to file returns with the appropriate taxing authority; and (i) Communicate
with state and local agencies.
In return, Baxter agreed to “fully cooperate with MII in identifying and implementing Tax Benefit
programs available under the Statutes.” Specifically, Baxter agreed to furnish certain information to
MII within ninety-days, including the amount of state taxes paid by Baxter within the preceding two
years, the amount of tax benefits previously claimed by Baxter within the last two years, copies of
Baxter’s unemployment compensation returns for the prior two years, information concerning new
and existing locations of Baxter’s business operations, and information concerning any future
locations, additions, expansions, and remodeling.
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Under the Agreement, Baxter was to pay MII a fee equal to twenty percent of the tax benefits
“made available to” Baxter by MII “for each and every taxing authority.” This fee was limited each
year to “the amount of Tax Benefit actually used to offset a tax liability otherwise owed to a taxing
authority.” MII agreed to reimburse Baxter “for any fees paid by [Baxter] to MII with respect to any
Tax Benefits which are ultimately disallowed by the taxing authority.”1
The initial term of the Agreement was fifteen months. The Agreement further provided for
automatic renewal fo r one-month periods unless canceled by either party upon thirty days written
notice. Upon termination, MII is entitled to “its fees with respect to all Benefits which have been
made available by MII to [Baxter] even though such Tax Benefits are not available to [Baxter] until
after the termination of this Agreement as long as such Tax Benefits are attributable to periods ending
on or befo re t he date” of cancellation. Finally, the Agreement contains a merger clause and the
following provision concerning MII’s liability:
(h) IN THE EVENT THAT ANY TAX BENEFITS ARE NOT OBTAINED OR
ULTIMATELY DISALLOWED AS A RESULT OF ANY NEGLIGENT ACT OR
OMISSION BY MII, THEN MII SHALL REIMBURSE CLIENT FOR ANY FEES
PAID TO MII WITH RESPECT TO SUCH DISALLOWED TAX BENEFITS. MII
SHALL NOT BE LIABLE, OTHER THAN AS SET FORTH HEREIN, FOR ANY
DISALLOWANCE OF TAX BENEFITS OR FOR THE RENDITION OF ITS
SERVICES UNDER THIS AGREEMENT.
On August 25, 2000, MII brought suit against Baxter in Texas state court, alleging breach
of the Agreement. MII asserted that Baxter owed it additional compensation because MII “made
available” to Baxter certain state tax credits, Baxter obtained the benefits from these credits, but
Baxter did not pay MII the required twenty-percent fee. On October 13, 2000, Baxter sent MII
1
Exhibit A to the Agreement contained a list of tax benefits that Baxter was currently claiming
as of the date of the Agreement. Under the Agreement, MII could not claim compensation for
assisting Baxter in procuring these tax credits.
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written notice of its intent to terminate the Agreement. The case was removed to federal court based
on diversity jurisdiction. Baxter filed a counterclaim alleging that MII breached the Agreement by
failing to provide “documentation support services” during an audit of Baxter’s 1994 and 1995
California state tax returns. Aft er a bench trial, the district court dismissed MII’s claims with
prejudice and awarded $148,632 to Baxter on its counterclaim. MII appeals.
DISCUSSION
We review the district court’s findings of fact for clear error and its conclusion of law de
novo. Triad Elec. & Controls, Inc. v. Power Sys. Eng’g, Inc., 117 F.3d 180, 186 (5th Cir. 1997).
Under the clear error standard, we will reverse the district court’s findings of fact “only if we have
a definite and firm conviction that a mistake has been committed.” Mid-Continent Cas. Co. v.
Chevron Pipe Line Co., 205 F.3d 222, 229 (5th Cir. 2000). “[W]hether a contract is ambiguous, as
well as the interpretation of an unambiguous contract, are questions of law review de novo.” Triad
Elec. & Controls, Inc., 117 F.3d at 187.
In this case, we look to the law of Texas to provide the rules of contract interpretation. See
id. at 191. Under Texas law, a contract is ambiguo us if, “after applying established rules of
interpretation, the written instrument remains reasonably susceptible to more than one meaning.” Id.In determining whether the contract is ambiguous, we “examine and consider the entire writing in an
effort to harmonize and give effect to all the provisions of the contract so that none will be rendered
meaningless.” Id.I. Compensation Due Under the Agreement
The district court held that MII was not entitled to any additional compensation because it
had not performed the necessary services required under the Agreement. MII argues that the
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Agreement does not require it to perform all of the services delineated in section 1(a)-(i). MII
contends that its compensation is not dependent on it providing services each and every year, rather
that “[t]he only reasonable interpretation is that MII contracted for a right somewhat akin to a
royalty.” Under this view, once MII identified a credit to Baxter, that credit was “made available”
to Baxter, thus MII would be entitled to twenty-percent of Baxter’s tax savings each year Baxter used
the credit. Baxter asserts that the plain language of the Agreement illustrates that it was as an
agreement for services, specifically that MII agreed to provide support services in order to assist
Baxter in qualifying for tax benefits.
We find that the only reasonable interpretation of the Agreement is that is was an agreement
for services. As such, MII is not entitled to compensation for years in which it provided no services.
Under the Agreement, MII was entitled to twenty-percent “of the Tax Benefits made available to
[Baxter].” (emphasis added). Under the Agreement, MII was obligated to do more than just initially
identify a tax credit in order to reap this benefit every year the tax credit was utilized. MII was
entitled to compensation for those years in which Baxter reaped a benefit from MII’s consulting and
tax support services by way of a tax savings and MII assisted Baxter in reaping this benefit. Although
the Agreement does not require that MII perform each and every one of the delineated services each
year, we are unpersuaded by MII’s contention that the language “MII will provide the following
services as appropriate” indicates that MII need not perform any services in order to reap twenty-
percent of the benefit Baxter received in tax savings for a given year.2 After considering the entire
2
MII further asserts that it is owed additional compensation resulting from the use of the
Louisiana Inventory Franchise Tax Credit (“LITC”) by Allegiance, a spin-off company of Baxter.
MII performed services pertaining to the LITC and made the LITC available to Baxter. As such, MII
argues that it should be paid for Allegiance’s use of the LITC during 1996. The district court
determined that “MII failed to present evidence that Allegiance took the [LITC] for tax year 1996.”
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writing, see Triad Elec. & Controls, Inc., 117 F.3d at 191, we are persuaded that the Agreement is
unambiguously an Agreement for services and that MII’s construction is unreasonable. For these
reasons, we affirm the district court’s decision that MII is owed no additional compensation under
the Agreement.3
II. Counterclaim
Baxter claimed the California Manufacturer’s Investment Tax Credit (“MIC”) for tax year
1995 based, in part, on work performed by MII. MII retained the supporting documentation it
compiled for this credit. In December 1999, Baxter’s claim was audited by the California taxing
authorities. As a result of the audit, MII provided Baxter with copies of the invoices it had compiled
in support of the California MIC. As part of the audit, Baxter received an information and document
request (“IDR”) concerning the California MIC. Baxter asserts that it requested that MII “provide
the appropriate services to help defend the audit.” Specifically, on December 27, 1999, Baxter
forwarded MII a copy of the IDR along with a letter which indicated that Baxter was not “pursuing
the necessary documentation for any items subject to the MIC” valued under $10,000. The letter
indicated, however, that “MII may on its own, wish to use its resources, to further pursue the
requested necessary documentation for the items listed which are less than this amount.” The letter
further stated the following:
After reviewing the record, we agree.
3
We further reject MII’s argument that it is entitled to attorney’s fees under the Agreement
whether or not it prevails in this action. Under the Agreement, MII is entitled to attorney’s fees “[i]n
the event it becomes necessary for MII to enforce its rights under this contract.” Because we have
rejected MII’s claims that it is owed additional compensation, MII has not enforced any “rights”
under the Agreement.
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If you have any additional information or support that MII has gathered and wishes
to provide to the CA Auditor regarding any of the IDR listed items, please provide
us with that documentation just as soon as possible. If we are unsuccessful in
gathering the additional support, information and documentation that has been
requested by the CA auditor for the MII listed 1994 and 1995 Hyland assets, no CA
MIC will be applicable to these purchases.
Baxter claims that MII breached the Agreement by failing to provide documentation support
services to assist Baxter in defending the audit. Unlike the district court’s extensive findings
concerning MII’s claim for additional compensation under the Agreement, with regard to the
counterclaim the district court simply found that MII’s failure to provide the services requested by
Baxter constituted a breach of the Agreement and awarded Baxter $148,632 in damages, i.e. the cost
incurred by Baxter to retain outside audit support services. MII argues that it was not obligated to
provide post-filing audit support services. We agree. Upon a careful review of the record, we find
no evidence to support the district court’s finding. The resolution of this issue turns on the plain
language of the Agreement.
Under the Agreement, MII was to perform the following services as appropriate: “Assist in
the identification and collection of necessary data; . . . Prepare an annual tax report and supporting
documentation that can be used to file returns with the appropriate taxing authority.” MII was not
obligated to provide services beyond what it did - it produced the documentation it had compiled in
support of filing the claimed credit. If the parties had intended for MII to bear the burden of
defending against an audit, which most certainly these parties contemplated might occur, the
Agreement would have clearly stated this duty. 4 The Agreement does not clearly state such an
4
This point is belied by the Agreement’s provision limiting MII’s liability for negligent acts or
omissions to reimbursement of any fees paid to MII with respect to any disallowed tax benefits. As
the Agreement clearly states, “MII SHALL NOT BE LIABLE, OTHER THAN AS SET FORTH
HEREIN, FOR ANY DISALLOWANCE OF TAX BENEFITS OR FOR THE RENDITION OF ITS
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obligation, nor allude to one. Accordingly, we reverse the district court ’s award of contractual
damages to Baxter.
CONCLUSION
For the reasons stated above, we AFFIRM the district court’s dismissal of MII’s claim against
Baxter and REVERSE the award of contractual damages to Baxter.
SERVICES UNDER THIS AGREEMENT.”
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