American Medical Enterprises, Inc., D/B/A A.M.E. Laboratories v. Judi Dunagen Rowley ( 2006 )

                                                NO. 12-05-00047-CV

IN THE COURT OF APPEALS

TWELFTH COURT OF APPEALS DISTRICT

TYLER, TEXAS

AMERICAN MEDICAL ENTERPRISES, §                      APPEAL FROM THE

INC. d/b/a A.M.E. LABORATORIES,

APPELLANT

V.                                                                    §                      COUNTY COURT AT LAW #2

JUDI DUNAGEN ROWLEY,

APPELLEE                                                   §                      SMITH COUNTY, TEXAS

MEMORANDUM OPINION

            Appellant American Medical Enterprises, Inc. d/b/a A.M.E. Laboratories appeals a judgment entered in favor of Appellee Judi Dunagen Rowley following a bench trial.  AME raises three issues on appeal.  We reverse and render.

Background

            Rowley approached AME, a company that performs laboratory testing for medical facilities, about obtaining a sales position.  AME agreed to hire Rowley, but Rowley insisted that her compensation be stated in writing.  Rowley requested a compensation contract because after she had worked to obtain a number of new clients, her former employer wanted to transfer her to another position where she would not receive commissions.  After meeting with Joe Bowman,¹ one of AME’s partners, Rowley and Bowman executed a contract outlining Rowley’s job duties and compensation.  The contractual terms appear on one page. The contract provided that AME would pay Rowley a base salary of $30,000.00.  AME also promised to pay Rowley a  7% commission on “net new business” for the first twelve months as long as Rowley achieved her monthly quota of $5,000.00 in net new business. Additionally, AME promised to pay Rowley a 3% retention bonus on net new business after Rowley had been with AME for twelve months.  Specifically, AME agreed to  pay “3% of the [net new] business months 13 and after as long as they are a client of AME.” Attached to the contract is a one page model worksheet, which includes sample calculations illustrating the sales and commission structure described in the contract.

            After Rowley worked for AME for fourteen months, AME fired her upon learning that  Rowley and her husband had formed a business that would be competing with AME. Almost four years later, Rowley sued AME for breach of contract, claiming that AME’s obligation to pay the 3% commission did not end with her termination, but continued for the rest of her lifetime.  In a bench trial, the trial court concluded that AME breached the contract.  The court awarded Rowley $214,266.66 in past commissions, $60,258.83 in prejudgment interest, and $787,090.84 in future commissions.  The court also awarded Rowley $400,543.00 in attorney’s fees.  AME filed a motion for judgment notwithstanding the verdict or, alternatively, a motion for new trial.  The trial court denied AME’s motion, and this appeal followed.

Interpretation of Unambiguous Contract

            In its first issue, AME asserts the trial court erred in failing to find as a matter of law that the contract was intended to apply only while Rowley was working for AME and was not intended to provide for posttermination compensation.  Rowley contends that the contract provided for a lifetime commission of 3%, regardless of her employment status with AME.

Applicable Law

            The primary concern in the interpretation of written contracts is to ascertain and give effect to the intentions of the parties as expressed within the four corners of the instrument.  R & P Enter. v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 518 (Tex. 1980).  Under Texas law, a contract is ambiguous only when application of applicable rules of interpretation to the contract leave it genuinely uncertain which one of two meanings is the proper meaning.  Id. at 519.  A contract is not ambiguous because it suffers from mere uncertainty or lack of clarity.  J. M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 240 (Tex. 2003).

            Here, both parties agree that the contract is unambiguous.  Accordingly, the intent of the parties must be determined as a matter of law by the court from the plain language of the contract.  Allison v. Nat’l Union Fire Ins. Co., 734 S.W.2d 645, 646 (Tex. 1987).  To achieve this object, we will examine and consider the entire contract so that none of the provisions will be rendered meaningless.  R & P Enter., 596 S.W.2d at 519.  If the language used in the contract is susceptible of two constructions, we will adopt the interpretation that renders the contract fair and reasonable, rather than an interpretation that leads to unreasonable, oppressive, ridiculous, or inequitable results.  See Portland Gasoline Co. v. Superior Mktg. Co., 150 Tex. 533, 534, 243 S.W.2d 823, 824 (1951), overruled on other grounds, 986 S.W.2d 603, 608 (Tex. 1998).

            As a general rule, it is not proper to rely on a single clause alone when attempting to ascertain the meaning of the contract. State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 432, 433 (Tex. 1995). We presume that the parties intended every clause to have some effect when interpreting a contract; thus, we consider each part of the document with every other part of the document so that the effect and meaning of one part on any other part may be determined.  See Consol. Petroleum Partners, I, LLC v. Tindle, 168 S.W.3d 894, 898-99 (Tex. App.–Tyler 2005, no pet.).  We give terms their plain, ordinary, and generally accepted meaning unless the document shows that the parties used terms in a technical or different sense.  Id. at 899.  We enforce an unambiguous contract as written.  Id.  We cannot rewrite or change the contract simply because we or one of the parties comes to dislike its provisions or thinks that something else is needed in it. Id.  Parties to a contract are masters of their own choices and are entitled to select the terms and provisions to include or omit from a contract.  Id.

            When interpreting the provisions of a contract, we may consider the circumstances surrounding the execution of the contract regardless of whether or not the contract is ambiguous.  Balandran v. Safeco Ins. Co. of Am., 972 S.W.2d 738, 741 (Tex. 1998).  Additionally, multiple documents, executed at the same time as part of the same transaction and for the same purpose, may be construed together.  Jim Walter Homes, Inc. v. Schuenemann, 668 S.W.2d 324, 327 (Tex. 1984).  Unsigned documents may be incorporated into and become part of a written contract.  Owen v. Hendricks, 433 S.W.2d 164, 166 (Tex. 1968).  Even if the parties executed the instruments at different times and the instruments do not expressly refer to each other, we may determine that, together, they comprise a written contract in ascertaining the parties’ intent.  Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 840 (Tex. 2000). 

            We review the interpretation of an unambiguous contract de novo.  See Tindle, 168 S.W.3d at 898 (citing MCI Telecomm. Corp. v. Tex. Util. Elec. Co., 995 S.W.2d 647, 650-51 (Tex. 1999)).  In a de novo review, we accord no deference to the lower court’s decision.  Quick v. City of Austin, 7 S.W.3d 109, 116 (Tex. 1998). 

The Contract

            In this case, the parties agree that the contract is unambiguous, but each interprets its language differently.²   Neither concedes that its interpretation of the relevant passages is any less reasonable than the other party’s interpretation.  The contract³ states as follows:

Sales Representative Job Description

Achieve sales quota on a monthly basis.

Quota is $5000 per month net in new business.

                Service existing clients to ensure continued business with AME.

Retention bonus equal to 3% of new business after 12 months continuous service.

Communicate with Tyler management and inside personnel and outside phlebotomists on a routine basis as necessary to keep any existing business.

Communicate with Owners in Lubbock on a weekly basis [regarding] any pertinent information including accomplishments and future goals.

Reward for Achieving Quota:

7% of net new business per month for 12 months.

3% of the above business months 13 and after as long as they are a client of AME.

(See attached model worksheet.)

Disciplinary Action if quota not met:

First month not meeting quota, verbal warning.

Second consecutive month, written warning.

Third consecutive month, Termination.

/s/ Judi Dunagen                  /s/Joe Bowman

Base salary to be $30,000 per year. JB [Handwritten term added to contract, initialed by Joe Bowman]

            Rowley concedes that she was an at will employee and that she was not entitled to 7% of net new business per month after AME terminated her.  This appeal concerns payment of the 3% retention bonus, which is referred to in the first two sections of the contract.  AME argues that its obligation to pay Rowley 3% of net new business “months 13 and after as long as they are a client of AME” ended with Rowley’s termination. Rowley contends that the phrase, “as long as they are a client of AME,” means that AME must pay her 3% for the remainder of her lifetime for as long as her clients continue to do business with AME.

Analysis

            As a preliminary matter, we agree with the parties that the contract is unambiguous.  However, we are unable to conclude that Rowley’s interpretation of the contract language is reasonable.  

            The contract is divided into three sections. The first section, “Sales Representative Job Description,” required Rowley to achieve a sales quota of $5,000.00 in net new business each month.  In addition, she was to service AME’s existing clients and regularly communicate with AME’s Tyler personnel and AME’s Lubbock owners.  In return, she would  receive a “retention bonus equal to 3% of new business after 12 months continuous service.” 

            The second section, “Reward for Achieving Quota,” describes how Rowley’s compensation would be calculated.  For the first twelve months, AME would pay Rowley 7% of net new business per month. AME would also pay Rowley  “3% of the [net new] business months 13 and after as long as they are a client of AME.” This 3% appears to be the same 3% that is referred to in the first section as a “retention bonus.” 

            The second section also includes a reference to a model worksheet, which is attached to the contract and marked “example.” The worksheet contains illustrations of how Rowley’s 7% commission and 3% retention bonus would be calculated. The worksheet lists seventeen consecutive months and includes columns for new business, the 7% commission, the 3% retention bonus, and total compensation.  For each month, including months thirteen and after, the new business column  reflects Rowley’s $5,000.00 sales quota.  Additionally, Rowley’s total compensation for months thirteen and after includes a 3% retention bonus in addition to the 7% monthly commission on her $5,000.00 sales quota. 

            The third section, “Disciplinary Action if quota not met,” provides that if Rowley failed to meet her quota for three consecutive months, she would be terminated. 

            In our view, all of the terms relate to the time Rowley was employed by AME.  Rowley was entitled to a 7% commission if she met her monthly sales quota of $5,000.00 net new business.  After twelve months of continuous employment, she was also entitled to 3% of net new business as a retention bonus in addition to her 7% commission.  The worksheet calculations show that during the months in which the retention bonus was payable, Rowley’s 7% commission for meeting her sales quota was included as part of her total compensation.  These calculations are consistent with the language in the second section, that both the 7% commission and the 3% retention bonus are Rowley’s “reward” for achieving her quota.  The worksheet does not include a scenario in which Rowley is no longer employed with AME but continues to receive the 3% retention bonus.

            On the other hand, the contract clearly states that the retention bonus was payable on net new business “months 13 and after as long as they are a client of AME.”  (Emphasis added.)  At first glance, this phrase appears to conflict with the other contract terms.  However, the circumstances surrounding the execution of the contract provide further illumination. 

            Rowley testified at trial that she asked AME to provide the compensation contract so that history did not repeat itself.  She testified that her former employer, like AME, hired her to bring in clients for its laboratory services division.  This employer offered a declining, and ultimately disappearing, commission structure – 5% in the first year, 2% in the second year, and 0% the third year and thereafter.  Rowley commented that she would be “out of business” in three years with this commission structure.  However, after eighteen months there, she was asked to move to a different position within the company and forfeit her commissions.  Rowley did not want to move to the other position because she had worked to obtain the new clients and did not want to forfeit her commissions. Consequently, she went to work for AME, but only after signing the compensation contract.

            In light of this testimony, we conclude that the phrase, “as long as they are a client of AME,” relates to and precludes the situation that occurred with her former employer.  As such, if Rowley was no longer in a sales position but was still employed by AME, she would receive the retention bonus for any of the clients she had acquired who remained clients of AME.  Under Rowley’s interpretation, she could have resigned from AME to take a better position elsewhere and still receive 3% from AME for the rest of her lifetime.  We do not believe that the parties intended, nor do we interpret the phrase to mean, that AME intended to provide a “golden parachute” to Rowley should she leave AME’s employment, whether voluntarily or otherwise.  If AME had intended to reward Rowley for the rest of her life for the clients she brought to AME, regardless of her employment status, the contract could have included language clearly stating that intention.  The language of this contract does not reflect such an intention.

Conclusion

            In our view, the reasonable interpretation of the contract provides that, as a reward for over twelve months of continuous service with AME and meeting the specified quota, Rowley would be paid 3% of the net new business. The phrase, “as long as they are a client of AME,” assured Rowley that, regardless of her position within the company, she would still receive the 3% retention bonus if the clients she brought to AME continued to do business with AME.  This interpretation considers the entire contract and surrounding circumstances, does not rely on a single clause, and renders the contract fair and reasonable.  After AME terminated Rowley, she was no longer entitled to the 3% retention bonus. Accordingly, we sustain Appellant’s first issue.

            Having sustained Appellant’s first issue, we need not address its remaining issues.⁴  See Tex. R. App. P. 47.1.  Accordingly, we reverse the trial court’s judgment and render judgment that Rowley take nothing from AME.

                                                                                                    DIANE DEVASTO   

                                                                                                                 Justice

Opinion delivered March 31, 2006.

Panel consisted of Worthen, C.J., DeVasto, J., Ramey, Retired C.J., Twelfth Court of Appeals, sitting by assignment.

(PUBLISH)

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¹ Mr. Bowman died before the filing of this suit.

² Ambiguity does not arise simply because the parties promote conflicting interpretations of the contract.  See Tindle, 168 S.W.3d at  899.  Ambiguity is an issue that must be raised by the pleadings.  Covered Bridge Condo. Ass’n, Inc. v. Chambliss, 705 S.W.2d 211, 214 (Tex. App.–Houston [14th Dist.] 1985, writ ref’d n.r.e.). However, a court may conclude that a contract is ambiguous even in the absence of such a pleading by either party.   Sage St. Assoc. v. Northdale Constr. Co., 863 S.W.2d 438, 445 (Tex. 1993).

³ AME contends that we should consider two other documents as part of the contract because they were created contemporaneously with the executed one page contract. These documents are one page of questions posed by Rowley and one page of responses to Rowley’s questions, signed by Joe Bowman.  Although we may consider these documents part of the contract, Fort Worth Indep. Sch. Dist., 22 S.W.3d at 840, nothing in the documents alters the conclusions we reach after considering only the one page contract and the attached sample worksheet.  Thus, we need not discuss the other documents.

⁴ AME’s second and third issues challenged the court’s finding that AME breached the contract and the court’s award of damages, respectively.