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 con- Avenell, 66 F.3d at 722 ("'[W]here the subject matter of
demning ."). Agreement: An Interpretive Accounting, 54 Okla. L.R.
211, 254-55 (2001). Dorsett provides precedent in neither
The contract also provides unambiguously that those
law nor logic suggesting that liquidated bonus clauses
who do consent get 300% recoupment of certain costs, for
should be unenforceable, nor why she should get a bonus
which nonconsenting parties again pay nothing. These are
for a risk she never took. Accordingly, this is not a
not damages. 4
"non-consent penalty."
Scott Brister, Justice
 Page 1

WESTERNGECO, L.L.C. AND SCHLUMBERGER TECHNOLOGY CORPORA-
TION, Appellants v. INPUT/OUTPUT, INC., Appellee

NO. 14-06-00357-CV

COURT OF APPEALS OF TEXAS, FOURTEENTH DISTRICT, HOUSTON

246 S.W.3d 776; 2008 Tex. App. LEXIS 480

January 24, 2008, Judgment Rendered
January 24, 2008, Majority and Concurring Opinions Filed

PRIOR HISTORY: [**1] Inc. ("Input") and former Schlumberger employees
On Appeal from the 164th District Court, Harris working for Input. Schlumberger sought damages and
County, Texas. Trial Court Cause No. 04-67890. also asked the court to permanently enjoin Input from (1)
using or disclosing Schlumberger's confidential [**2]
information and (2) soliciting for employment any
COUNSEL: For APPELLANTS: Kendall Matthew Schlumberger employee who is involved in the design of
Gray, Joel W. Mohrman, Houston, TX. seismic data acquisition systems or who has been exposed
to confidential Schlumberger information regarding
For APPELLEES: Charles S. Baker, Houston, TX. seismic data acquisition systems. To resolve the 1998
lawsuit the parties entered into a settlement agreement in
JUDGES: Panel consists of Justices Frost, Seymore, and November 1998 ("Settlement Agreement"). The material
Guzman. (Guzman, J., concurring). terms are as follows:

OPINION BY: Kem Thompson Frost This Settlement Agreement is made by
and among Schlumberger Technology
OPINION Corporation ("Schlumberger"), a Texas
corporation . . ., acting on behalf of itself
[*778] MAJORITY OPINION and its Affiliates; Input/Output, Inc.
("I/O"), a Delaware corporation . . ., acting
This case arises out of a dispute over the terms of a
on behalf of itself and its Affiliates; and
settlement agreement between business competitors. One
the following individuals: Rex K. Reavis,
party brought a declaratory judgment action seeking
James "Jerry" Iseli, and Kambiz Afkhami
various declarations regarding the terms of the settlement
(these three individuals collectively re-
agreement. The trial court granted the plaintiff's motion
ferred to herein as the "Individual De-
for summary judgment, impliedly making the three dec-
fendants").
larations sought in the motion. The defendants never
sought declaratory relief; rather, they asserted in a WHEREAS, the Geco-Prakla division
cross-motion for summary judgment that all of the re- of Schlumberger ("Geco-Prakla") provides
quested declarations should be denied as a matter of law. seismic services to the oil industry, and I/O
We reverse and render in part and affirm in part. supplies seismic equipment and systems to
various companies, including Schlum-
FACTUAL AND PROCEDURAL BACKGROUND berger, that provide such seismic services
(such seismic services and seismic
In 1998, appellant Schlumberger Technology Cor-
equipment and systems referred to herein
poration ("Schlumberger") filed suit asserting various
as "Seismic Field"); . . .
contract and tort claims against appellee Input/Output,
 Page 2
246 S.W.3d 776, *; 2008 Tex. App. LEXIS 480, **

. [**3] . . After WesternGeco threatened to sue Input to enforce
the above paragraph 4 of the Settlement Agreement
4. I/O agrees that it will not offer em-
(hereinafter "Paragraph 4"), Input filed this lawsuit
ployment to or engage as a consultant any
against Schlumberger and WesternGeco (hereinafter the
current or former employee [*779] of
"Schlumberger Parties") asking the court to make various
Schlumberger who is working or has
declarations regarding the proper construction of Para-
worked in the Seismic Field unless at least
graph 4 and also seeking attorney's fees. 2 The Schlum-
two (2) years have passed from the date
berger [**5] Parties never asserted a counterclaim for
such employee or former employee either
declaratory relief; they simply argued that, as a matter of
ceased working for Schlumberger in the
law, Input was not entitled to the relief it sought.
Seismic Field or has left Schlumberger.
... 2 Although the parties often refer generally to
the Settlement Agreement, it is clear that the im-
13. This Agreement is binding upon
plied declarations before this court on appeal
and shall inure to the benefit of the parties
pertain only to Paragraph 4.
hereto and their respective successors in
interest and legal representatives. Input filed a motion for summary judgment seeking a
declaration that the Settlement Agreement is void on the
...
alleged grounds that it is (1) an illegal restraint of trade,
15. As used herein, "Affiliate" means and (2) a covenant not to compete that violates section
any present or future corporation that di- 15.50 of the Texas Business and Commerce Code. The
rectly or indirectly controls, is controlled trial court denied this motion.
by, or is under common control with either Input filed a second motion for summary judgment
party, where "control" means the owner- asserting that the trial court should render a summary
ship, direct or indirect, of at least 50% of
judgment making the following declarations:
voting securities of such corporation.
(1) Because Paragraph 4 is silent as to
its duration, either party may terminate it at
Approximately two years later, in September 2000, will.
Schlumberger and Baker Hughes, Inc. entered into a
(2) Alternatively, any implied rea-
Master Formation Agreement, in which Schlumberger
sonable time period during which Para-
transferred to a joint venture all of its seismic business
graph 4 was not terminable at will [*780]
assets, including but not limited to, contracts, claims
already has expired so that Paragraph 4 is
against third parties, intellectual property, and infor- now terminable at will.
mation technology. The summary-judgment evidence
does not show whether appellant [**4] WesternGeco, (3) Paragraph 4 applies to Schlum-
L.L.C. ("WesternGeco") is the joint venture to which this berger employees who are within its scope
transfer was made, and it does not reflect whether but not to WesternGeco employees.
WesternGeco is an affiliate of Schlumberger. 1 For the
purposes of this appeal, we presume, without deciding,
that Schlumberger and Baker Hughes created Input also sought attorney's fees. In its second [**6]
WesternGeco to handle their seismic business and that motion, Input did not seek a final summary judgment
WesternGeco is an "Affiliate" of Schlumberger, as de- because, even if the trial court granted all the relief sought
fined in the Settlement Agreement. in this motion, Input still had pending requests in its peti-
tion for additional declaratory relief. The Schlumberger
1 The trial court struck two paragraphs from the Parties filed a cross-motion for summary judgment, in
affidavit of Dale Gaudier, in which Gaudier stated which they argued that, as a matter of law, the trial court
that WesternGeco is the successor-in-interest to should deny all of the requests for declaratory relief in
Schlumberger's seismic business and that Input's petition and award Chapter 37 attorney's fees to
Schlumberger owns at least 50% of the voting the Schlumberger Parties. In this cross-motion the
securities in WesternGeco. Although Schlum- Schlumberger Parties did seek a final judgment.
berger and WesternGeco challenge this eviden-
After a hearing on these cross-motions, the trial court
tiary ruling on appeal, we need not address this
signed an interlocutory order in which it granted Input's
issue to adjudicate this appeal.
motion and did not mention the Schlumberger Parties'
motion. Input then filed a motion to modify the sum-
 Page 3
246 S.W.3d 776, *; 2008 Tex. App. LEXIS 480, **

mary-judgment order. Input asked the trial court to mod- cause each party was a movant, the burden for each was
ify its order to (1) deny the Schlumberger Parties' motion, the same: to establish entitlement to a summary judgment
(2) deny Input's request for Chapter 37 attorney's fees, and by conclusively proving all the elements [**9] of the
(3) deny all of Input's claims the court did not expressly claim or defense as a matter of law. Id.
grant in the partial summary judgment in its favor. The
III. ISSUES AND ANALYSIS A. Is there a justi-
trial court granted this motion and rendered a final judg-
ciable case or controversy to support this court's ju-
ment as requested. Even though in its motion for summary
risdiction?
judgment Input sought [**7] alternative and inconsistent
declarations, the trial court did not make any declarations The Schlumberger Parties have filed a motion to
in its judgment. Instead, the court simply stated that it dismiss this appeal for lack of jurisdiction asserting that
granted Input's second motion for summary judgment. No there is no case or controversy. The Texas Declaratory
party has complained about the form of the trial court's Judgment Act is a remedial statute whose purpose is to
judgment; therefore, we need not address the omission of afford relief from uncertainty and insecurity with respect
express declarations in the court's declaratory judgment. to rights, status, and other legal relations. See TEX. CIV.
We treat the trial court's judgment as having impliedly PRAC. & REM. CODE ANN. § 37.002(b) (Vernon 1997);
made the three declarations requested in the motion. The Bonham State Bank v. Beadle, 907 S.W.2d 465, 467 (Tex.
Schlumberger Parties have appealed from the trial court's 1995). We must construe and administer this statute lib-
final judgment. 3 Input has not appealed. erally. See TEX. CIV. PRAC. & REM. CODE ANN. §
37.002(b); Bonham State Bank, 907 S.W.2d at 467. A
3 The Schlumberger Parties seek a reversal of court of record, acting within its jurisdiction, has power to
the trial court's judgment for lack of a justiciable declare rights, status, and other legal relations whether or
controversy, or in the alternative, a reversal and not further relief is or could be claimed. TEX. CIV. PRAC.
rendition of judgment based on their cross-motion. & REM. CODE ANN. § 37.003(a). A person with an
No party has sought a reversal and remand to the interest in a written contract may ask a court to determine
trial court. any question of construction or validity arising under the
contract and obtain a declaration of rights, status, or other
II. STANDARDS OF REVIEW legal relations thereunder. Id. § 37.004(a). [**10] A
contract may be construed either before or after a breach.
In a traditional motion for summary judgment, if the
Id. § 37.004(b).
movant's motion and summary-judgment evidence fa-
cially establish its right to judgment as a matter of law, the A declaratory judgment is appropriate only if a jus-
burden shifts to the nonmovant to raise a genuine, mate- ticiable controversy exists as to the rights and status of the
rial fact issue sufficient to defeat summary judgment. parties and the controversy will be resolved by the dec-
M.D. Anderson Hosp. & Tumor Inst. v. Willrich, 28 laration sought. Bonham State Bank, 907 S.W.2d at 467.
S.W.3d 22, 23 (Tex. 2000). [**8] In our de novo review For a justiciable controversy to exist, there must be a real
of a trial court's summary judgment, we consider all the and substantial controversy involving a genuine conflict
evidence in the light most favorable to the nonmovant, of tangible interests and not merely a theoretical dispute.
crediting evidence favorable to the nonmovant if rea- Id. The Schlumberger Parties have described Input as a
sonable jurors could, and disregarding contrary evidence "business competitor" who had been "poaching"
unless reasonable jurors could not. Mack Trucks, Inc. v. Schlumberger employees in 1998 in an effort to have
Tamez, 206 S.W.3d 572, 582 (Tex. 2006). The evidence these employees work on seismic systems that would
raises a genuine issue of fact if reasonable and compete directly with the systems on which they had
fair-minded jurors could differ in their conclusions in worked at Schlumberger, making disclosure of Schlum-
light of all of the summary-judgment evidence. Goodyear berger's confidential information inevitable. Schlum-
Tire & Rubber Co. v. Mayes, 236 S.W.3d 754, 756 (Tex. berger filed suit against Input and others, and the parties
2007). settled that case in 1998 by means of the Settlement
Agreement. The summary-judgment evidence contains
We may review the trial court's denial of the
the affidavit of Input's Vice President and General
Schlumberger Parties' motion because in it they sought a
Counsel, in which he testifies as follows:
final summary judgment. See CU Lloyd's of Texas v.
Feldman, 977 S.W.2d 568, 569 (Tex. 1998). When both
It is [Input's] belief that it has fully
parties move for summary judgment, each party must
performed all of its obligations under the
carry its own burden, and neither can prevail because of
Settlement Agreement, [**11] and the
the failure of the other to discharge its [*781] burden.
terms thereof, including Paragraph 4, are
INAC Corp. v. Underwriters at Lloyd's, 56 S.W.3d 242,
no longer in force. [WesternGeco], on the
247 (Tex. App.--Houston [14th Dist.] 2001, no pet.). Be-
other hand, has represented to [Input] that
 Page 4
246 S.W.3d 776, *; 2008 Tex. App. LEXIS 480, **

it is the successor-in-interest to Schlum- [Input] is threatening to hire any particular current or
berger's rights under the Settlement former Schlumberger employee," and (3) Input has not
Agreement and is entitled to and intends to shown that it has "any present or prospective intention to
enforce the language of Paragraph 4. violate the Settlement Agreement." Schlumberger argues
[WesternGeco] has asserted to [Input] that that to show a justiciable controversy, Input must identify
the language of Paragraph 4 prevents, in in some way a current or former Schlumberger employee
perpetuity, [Input] from hiring any current that it wants to hire but cannot hire if Paragraph 4 is still in
or former employee of [WesternGeco], or effect. We conclude Input is not required to do so.
any of its affiliates, who have any connec-
This case presents a bona fide, concrete controversy
tion to the seismic industry.
ripe for resolution by way of declaratory judgment. See
[WesternGeco] has also threatened to
Bonham State Bank, 907 S.W.2d at 467. The record re-
bring suit against [Input] to enforce the
flects a real and substantial controversy involving a gen-
provision.
uine conflict of tangible interests and not merely a theo-
retical dispute. See id.; City of Dallas v. VSC, LLC, 242
S.W.3d 584, 597, 2008 Tex. App. LEXIS 50, *26, 2008 WL
No summary-judgment evidence contradicts this testi-
54484, at *8-9 (Tex. App.--Dallas 2008, no pet. h.); Monk
mony. Input also attached to its motion for summary
v. Pomberg, No. 01-05-00429-CV, S.W.3d , ,
judgment a prior filing in the trial court in which the
2007 Tex. App. LEXIS 2513, *17-18, 2007 WL 926491, at
Schlumberger Parties state that Input "declares that it is
*6 (Tex. App.--Houston [1st Dist.] Mar. 29, 2007, no
suffering from a material [*782] competitive disad-
pet.). Furthermore, [**14] presuming, without deciding,
vantage in the seismic industry" and has apparently de-
that it is necessary to show a justiciable controversy, the
termined that it must break its promise [not to solicit for
evidence mentioned above indicates that Input is threat-
employment any of Schlumberger's employees who
ening to hire current or former employees of the
worked in the seismic field until two years after they have
Schlumberger Parties whom the Schlumberger Parties
left the company] . . . ." 4
claim are covered by Paragraph 4. A justiciable contro-
versy exists. Therefore, we deny the Schlumberger Par-
4 The Schlumberger Parties are quoting from an
ties' motion to dismiss.
affidavit that Input [**12] filed in support of its
first motion for summary judgment. This exhibit is
B. Did the trial court err by concluding that Para-
not a judicial admission but it is part of the sum-
graph 4 has been impliedly terminable at will since the
mary-judgment evidence.
execution of the Settlement Agreement?
The undisputed summary-judgment evidence sup-
Under their first issue, the Schlumberger Parties
ports a conclusion that Input wants to hire the Schlum-
challenge the trial court's implied declaration that Para-
berger Parties' employees in the Seismic Field and that
graph 4 is impliedly terminable at will by either party. In
WesternGeco is threatening to sue Input to prevent it from
Paragraph 4, Input agreed not to offer employment to or
taking such action. WesternGeco asserts that its employ-
engage as a consultant any current or former employee of
ees are protected by Paragraph 4 because they constitute
Schlumberger who is working or has worked in the
"current or former employee[s] of Schlumberger" under
Seismic Field unless at least [*783] two years have
Paragraph 4. Even though WesternGeco did not exist in
passed from the date such employee or former employee
1998 when the Settlement Agreement was signed,
either ceased working for Schlumberger in the Seismic
WesternGeco asserts that Schlumberger entered into the
Field or has left Schlumberger. The Settlement Agree-
Settlement Agreement on its behalf.
ment is silent as to the duration of Input's covenant in
The Schlumberger Parties do not argue that Input Paragraph 4. The trial court ruled as a matter of law that
must offer employment to or engage as a consultant a there is an implied contractual [**15] term under which
Schlumberger or WesternGeco employee who has worked Paragraph 4 is terminable at will by either party.
or is working in the Seismic Field before there can be a
There is uncertainty as to the legal standard for de-
justiciable controversy. The Schlumberger Parties
termining the duration of an agreement that contains no
acknowledge that their construction of the Settlement
express term. In some cases courts indicate that the im-
Agreement differs significantly from Input's construction;
plied term should be terminable at will, while in other
however, they contend that this controversy is not justi-
cases courts state that the implied term should be for a
ciable because (1) "[Input] has not identified -- even
reasonable time. See Clear Lake City Water Auth. v. Clear
[**13] anonymously -- one current or former Schlum-
Lake Utilities Co., 549 S.W.2d 385, 390-91 (Tex. 1977). In
berger employee that it would otherwise hire if not for the
one of the cases upon which Input relies, Clear Lake City
[Settlement Agreement]," (2) "[t]here is no indication that
Water Authority v. Clear Lake Utilities Co., the Texas
 Page 5
246 S.W.3d 776, *; 2008 Tex. App. LEXIS 480, **

Supreme Court noted both lines of cases. See id. Howev- written instrument. See HECI Exploration Co. v. Neel,
er, the Clear Lake City Water Authority court stated that it 982 S.W.2d 881, 888 (Tex. 1998); Fein v. R.P.H., Inc., 68
did not need to decide which line of cases to follow be- S.W.3d 260, 268 (Tex. App.--Houston [14th Dist.] 2002,
cause the court was required to imply the contract was pet. denied). In the Settlement Agreement, the parties
terminable at will given that one of the parties was a settled a lawsuit in which Schlumberger sought a per-
governmental entity incapable of contracting for a rea- manent injunction [**18] precluding Input from (1)
sonable time for performance. See id. Because the high using or disclosing Schlumberger's confidential infor-
court's holding was based on one of the parties' status as a mation [*784] and (2) soliciting for employment at
governmental entity, Clear Lake City Water Authority is Input any Schlumberger employee who is involved in the
not on point in the case at hand, and the court's statements design of the seismic data acquisition systems or who has
regarding the two lines of cases are obiter dicta. See id. been exposed to confidential Schlumberger information
Likewise, [**16] the other statements from cases upon regarding seismic data acquisition systems. In the Set-
which Input relies for implying a terminable-at-will pro- tlement Agreement, Input agreed that it would not solicit
vision are either based on one of the parties' status as a or induce, directly or indirectly, the use or disclosure of
governmental entity or are obiter dicta. 5 Neither the Clear certain confidential information belonging to Schlum-
Lake City Water Authority opinion nor any other Texas berger. This covenant remains in effect beyond December
case appears to explain how courts should determine 1, 2001, until that information, as defined in the Settle-
whether to imply that an agreement is terminable at will or ment Agreement, no longer exists. Part of Input's agree-
to imply that it lasts for a reasonable time. However, we ment in Paragraph 4 is to not offer employment to any
need not address how this determination should be made current Schlumberger employee who is working in the
today. Seismic Field unless at least two years have passed from
the date the employee either stopped working for
5 One of these cases is based on one of the par- Schlumberger in the Seismic Field or left Schlumberger.
ties' status as a governmental entity. See City of Implying an agreement that Input's covenant in Paragraph
Corpus Christi v. Taylor, 126 S.W.3d 712, 722-23 4 is terminable at will is not necessary to effectuate the
(Tex. App.--Corpus Christi 2004, pet. withdrawn). purposes of the Settlement Agreement as a whole as
Others are cited for statements that are obiter gathered from the written instrument; in fact, it would
dicta. See Kennedy v. McMullen, 39 S.W.2d 168, contradict these purposes. [**19] Therefore, we con-
174 (Tex. Civ. App.--Beaumont 1931, writ ref'd) clude that the trial court erred by implicitly declaring an
"overruling appellate contention based on appel- implied term that Paragraph 4 is terminable at will by
lants" inability to terminate contract unless they either party. See HECI Exploration Co., 982 S.W.2d at
stopped operating a bus line while stating in dicta 888; Fein, 68 S.W.3d at 268. The trial court should have
that generally a contract that does not specify du- denied Input's motion in this regard and granted the
ration may be terminated at will); Farah v. Schlumberger Parties' motion seeking a take-nothing
Mafrige & Kormanik, P.C., 927 S.W.2d 663, 678 judgment as a matter of law as to this requested declara-
(Tex. App.--Houston [1st. Dist.] 1996, no writ) tion. We sustain the Schlumberger Parties' first issue to
(stating that contract was [**17] also terminable this extent.
at will only after concluding the contract was too
indefinite to be enforced); Ingram Freezers v. C. Did the trial court err by concluding that Para-
Atchison, T & S. F. Ry. Co., 464 S.W.2d 915, 920 graph 4 is terminable at will because any implied
(Tex. Civ. App.--Dallas 1971, writ ref'd n.r.e.) reasonable duration has expired as a matter of law?
(concluding that trial court correctly rendered di-
Under their first issue, the Schlumberger Parties also
rected verdict because there was no agreement to
challenge the trial court's implied declaration that Input's
furnish rail service and then stating that another
covenant under Paragraph 4 is terminable at will because
reason for affirming the directed verdict is that any
any reasonable time period during which Paragraph 4 was
such agreement would have been termina-
not terminable at will already has expired, so that Para-
ble-at-will); Tanenbaum Textile Co. v. Sidran, 423
graph 4 is now terminable at will. Though obiter dicta in
S.W.2d 635, 637 (Tex. Civ. App.--Dallas 1967,
Clear Lake City Water Authority suggests such an implied
writ ref'd n.r.e.) (indicating that agreement was
duration may be possible, precedent from the Texas Su-
terminable at will in the course of holding that
preme Court and this court shows that, if the "reasonable
contract was not valid for being indefinite because
duration" rule applies, this court would imply that Para-
it did not specify a time for performance).
graph 4 [**20] expires after a reasonable period of time
To imply a term into an agreement, it must appear rather than becoming terminable at will after a reasonable
that it is necessary to do so in order to effectuate the time. Compare Clear Lake City Water Auth., 549 S.W.2d
purposes of the contract as a whole as gathered from the at 390-91 (stating in dicta that, under one line of cases,
 Page 6
246 S.W.3d 776, *; 2008 Tex. App. LEXIS 480, **

courts imply a reasonable duration during which time the D. Did the trial court err by concluding that Para-
agreement is not terminable at will), with Hall v. Hall, 158 graph 4 applies to Schlumberger employees who are
Tex. 95, 308 S.W.2d 12, 16 (Tex. 1957) (stating that within its scope but not to WesternGeco employees?
"[w]hen the parties omit an express stipulation as to time,
Under their third issue, the Schlumberger Parties also
it is in accord with human experience and accepted
challenge the trial court's implied declaration that Para-
standards of law for us to assume that they meant what-
graph 4 applies to Schlumberger employees who are
ever term of days or years might be reasonable in the light
within its scope but not to WesternGeco employees. 7
of the circumstances before them at the date of the con-
Input's covenant in Paragraph 4 covers "any current or
tract"); Cheek v. Metzer, 116 Tex. 356, 291 S.W. 860, 864
former employee of Schlumberger who is working or has
(Tex. 1927) (holding that, in the absence of a stipulation as
worked in the Seismic Field unless at least two (2) years
to the time for performing the terms of a contract, the law
have passed from the date such employee or former em-
allows a reasonable time); Hart v. Bullion, 48 Tex. 278,
ployee either ceased working for Schlumberger in the
289 (Tex. 1877) (stating that, where a contract does not fix
Seismic Field or has left Schlumberger." In the Settlement
a time for performance, the law allows a reasonable time
Agreement, "Schlumberger" [**23] is defined as
for performance); Metromarketing Services, Inc. v. HTT
"Schlumberger Technology Corporation." WesternGeco
Headwear, Ltd., 15 S.W.3d 190, 195-96 (Tex.
is a separate corporate entity from Schlumberger, and
App.--Houston [14th Dist.] 2000, no pet.) (stating that
there has been no pleading or proof of any theory by
when the parties do not fix the time of performance,
which the corporate veil between these two entities may
[**21] courts imply a reasonable time for performance).
be pierced. The trial court correctly determined that under
For this reason, the trial court erred in ruling [*785] as
the unambiguous language of the Settlement Agreement,
a matter of law that Paragraph 4 is terminable at will
Paragraph 4 applies to Schlumberger employees who are
because any implied reasonable time period during which
within its scope but not to WesternGeco employees. See
Paragraph 4 was not terminable at will already has ex-
Humble Explor. Co. v. Amcap Petroleum Associ-
pired. The trial court should have denied Input's motion in
ates-1977, 658 S.W.2d 860, 862 (Tex. App.--Dallas 1983,
this regard 6 and granted the Schlumberger Parties' motion
writ ref'd n.r.e.) (applying unambiguous contractual def-
seeking a take-nothing judgment as a matter of law as to
inition in declaratory-judgment case).
this requested declaration. We sustain the Schlumberger
Parties' first issue to this extent.
7 They also argue that Input's affiliates are
subject to the Settlement Agreement. However,
6 In addition, even if the trial court had ruled
because the trial court made no such implied
that any reasonable duration for Input's covenant
declaration, that issue is not before us.
in Paragraph 4 has expired as a matter of law, this
ruling still would have been error. If a reasonable The Schlumberger Parties assert that the term
time is implied, the determination of what is a "Schlumberger," as used in the Settlement Agreement,
reasonable time is generally a question of fact that must include WesternGeco to avoid rendering meaning-
is based on the circumstances surrounding the less the language making WesternGeco a party to the
adoption of the agreement, the situation of the Settlement Agreement. The Schlumberger Parties base
parties when they entered into the agreement, and this argument on the following reasoning:
the subject matter of the agreement. See Hall, 308
S.W.2d at 16-17; Cheek, 291 S.W.2d at 864; Hart, . The Settlement Agreement defines
48 Tex. at 289; Metromarketing Services, Inc., 15 "Affiliates" as "any present or future cor-
S.W.3d at 195-96. Although summary judgment poration [**24] that directly or indirectly
would be possible if the [**22] evidence is un- controls, is controlled by, or is under
controverted regarding these matters, the only common control with either party, 'where
evidence that Input provided the trial court in this control' means the ownership, direct or
regard is the Settlement Agreement itself. Lacking indirect, of at least 50% of voting securi-
any extrinsic evidence bearing on this issue, the ties of such corporation."
trial court could not have determined as a matter of
[*786] . WesternGeco is an "affili-
law that any reasonable duration for Input's cov-
enant in Paragraph 4 has expired. See Hall, 308 ate" of Schlumberger because it is a future
S.W.2d at 16-17; Cheek, 291 S.W.2d at 864; Hart, corporation that is controlled by Schlum-
berger, where "control" means the own-
48 Tex. at 289; Metromarketing Services, Inc., 15
ership, direct or indirect, of at least 50% of
S.W.3d at 195-96.
voting securities of such corporation.
 Page 7
246 S.W.3d 776, *; 2008 Tex. App. LEXIS 480, **

. The Settlement Agreement states bind an affiliate under agency principles, there
that it was made by, among other parties, must be evidence of conduct by the affiliate that
"Schlumberger Technology Corporation would give rise to actual or apparent authority).
("Schlumberger"), a Texas corporation . . ., However, any facts that might bind WesternGeco
acting on behalf of itself and its Affiliates . under these theories would not have come into
. ." existence until after WesternGeco was created.
The trial court's third implied declaration ad-
. Because Schlumberger entered into
dresses the meaning of Paragraph 4 and does not
the Settlement Agreement on behalf of its
address whether, after its creation, WesternGeco
Affiliates, including WesternGeco, the
engaged in acts that would bind it to the Settle-
term "Schlumberger," as used in the Set-
ment Agreement under one of these theories.
tlement Agreement, includes
Therefore, we need not address these theories;
WesternGeco.
rather, we are addressing the Schlumberger Par-
. The Schlumberger Parties' proffered ties' argument that we must interpret "Schlum-
interpretation is necessary to give meaning berger" to include WesternGeco, because other-
to the contractual language making wise the language making future affiliates parties
WesternGeco a party to the Settlement to the Settlement Agreement would be rendered
Agreement because, if "Schlumberger" meaningless.
does not include WesternGeco, then the
Furthermore, even presuming that the Settlement
Settlement Agreement imposes no burden
Agreement includes WesternGeco as a party, that would
on WesternGeco and gives no benefit to
not render the language meaningless [**27] or leave
WesternGeco. The Schlumberger Parties
WesternGeco without a burden or benefit, as the
[**25] assert that this result would render
Schlumberger Parties urge, because the Settlement
meaningless the language making
Agreement still would refer to WesternGeco in stating
WesternGeco a party to the Settlement
that the agreement is binding upon and inures to the ben-
Agreement.
efit of the parties thereto and that the parties agree that
Texas law will apply. [*787] The statement that the
agreement is binding upon WesternGeco could refer to
The Settlement Agreement contains language under WesternGeco's binding agreement that Texas law gov-
which Schlumberger purportedly "makes" the agreement erns. In addition, because the Settlement Agreement seeks
"on behalf of" its future affiliates. However, when to protect certain confidential information belonging to
Schlumberger entered into the Settlement Agreement in Schlumberger, these protections could inure to the benefit
1998, WesternGeco, allegedly one of its "future affili- of WesternGeco.
ates," did not exist. Because WesternGeco and Schlum-
In sum, the unambiguous definition of "Schlum-
berger are separate entities, a contract with Schlumberger
berger" in the Settlement Agreement does not include
is generally not a contract with WesternGeco. See In re
alleged future affiliates such as WesternGeco, and Para-
Merrilllynch Trust Co. FSB, 235 S.W.3d 185, 191 (Tex.
graph 4 does not apply to WesternGeco employees. In
2007). Moreover, because a non-existent entity cannot
addition, even presuming, without deciding, that
enter into a contract, Schlumberger could not and did not
WesternGeco is an affiliate on whose behalf Schlum-
bind WesternGeco merely by signing a contract in which
berger entered into the Settlement Agreement, this fact
Schlumberger states that it is acting on behalf of itself and
would not render any language of the Settlement Agree-
its future affiliates. The Schlumberger Parties' argument
ment meaningless. Accordingly, we overrule the
fails because they seek to give meaning to language that
Schlumberger Parties' challenge to the trial court's implied
could not have been effective as to WesternGeco. 8
declaration that Paragraph 4 applies to Schlumberger
employees who [**28] are within its scope but not to
8 Even if Schlumberger stated in the Settlement
WesternGeco employees. We have addressed all the is-
Agreement that its non-existent, future affiliates
sues necessary to the disposition of this appeal. 9
are parties to the Settlement Agreement, that
would not bind these future affiliates to the
9 Input asserts that the issue of whether Para-
agreement unless [**26] they are so bound under
graph 4 is an illegal restraint of trade is before this
a legal theory such as piercing the corporate veil,
court. We disagree. This issue was a ground in
agency, estoppel, or ratification. See, e.g.,
Input's first motion for summary judgment, which
CNOOC Southeast Asia Ltd. v. Paladin Res.
the trial court denied. The Schlumberger Parties
(SUNDA) Ltd., 222 S.W.3d 889, 899 (Tex.
have not argued on appeal that the trial court erred
App.--Dallas 2007, pet. denied) (stating that to
 Page 8
246 S.W.3d 776, *; 2008 Tex. App. LEXIS 480, **

in denying Input's first motion for summary and Input, acting on behalf of itself and its Affiliates.
judgment. The illegal-restraint-of-trade issue was These parties agreed that the term "Affiliates" would refer
not a ground in Input's second motion for sum- to "any present or future corporation that directly or in-
mary judgment, which the trial court granted. directly controls, is controlled by, or is under common
Furthermore, by stating that the grant of its second control with either party, where 'control' means the own-
motion and denial of the Schlumberger Parties' ership, direct or indirect, of at least 50% of voting securi-
motion "ended the dispute" and by moving the ties of such corporation." In addition, Input agreed:
trial court to render a take-nothing judgment as to
all the declaratory relief sought in Input's petition [*788] that it will not offer employ-
but not in its second motion, Input waived all of ment to or engage as a consultant any
these requests, including the requested declaration current or former employee of Schlum-
that Paragraph 4 is an illegal restraint of trade. berger who is working or has worked in
This reality is not altered by the Schlumberger the Seismic Field unless at least two (2)
Parties' appeal of the trial court's final judgment or years have passed from the date such em-
by their briefing on appeal in support of the ployee or former employee either ceased
proposition that Paragraph [**29] 4 is not an il- working for Schlumberger in the Seismic
legal restraint of trade. Field or has left Schlumberger.

IV. CONCLUSION
Settlement Agreement, P 4. And in paragraph 13 of the
We deny the Schlumberger Parties' motion to dismiss
Settlement Agreement, Schlumberger and Input agreed,
for lack of jurisdiction because a justiciable controversy
on their own behalf and on behalf of their respective Af-
exists. The trial court erred in impliedly declaring as a
filiates, that "[t]his Agreement is binding upon and shall
matter of law that (1) Paragraph 4 is terminable at will by
inure to the benefit of the parties hereto and their respec-
either party and (2) alternatively, Paragraph 4 is termina-
tive successors in interest [**31] and legal representa-
ble at will because any implied reasonable time period
tives."
during which Paragraph 4 was not terminable at will
already has expired. Accordingly, we reverse these por- I agree with the majority that WesternGeco is not
tions of the trial court's judgment and render judgment encompassed within the parties' agreed definition of the
that Input take nothing as to these two requested declara- term "Schlumberger," which is instead defined by the
tions. Under the unambiguous language of the Settlement parties as "Schlumberger Technology Corporation, a
Agreement, the trial court correctly determined that Par- Texas corporation having a place of business" at a specific
agraph 4 applies to Schlumberger employees who are address in Sugar Land, Texas. Thus, I agree that Para-
within its scope but not to WesternGeco employees. Ac- graph 4 of the Settlement Agreement requires Input to
cordingly, we affirm the remainder of the trial court's refrain from offering employment to current or recent
judgment. employees of Schlumberger Technology Corporation, but
does not prohibit Input from hiring WesternGeco's current
/s/ Kem Thompson Frost
or recent employees in the Seismic Field.
Justice
For reasons that differ somewhat from those ex-
Judgment rendered and Majority and Concurring pressed by the majority, I also agree that it is unnecessary
Opinions filed January 24, 2008. to expand the definition assigned by the parties to the term
"Schlumberger" in order to give full effect to the Agree-
Panel consists of Justices Frost, Seymore, and Guz-
ment. The purpose of the Agreement was "to settle and
man. (Guzman, J., concurring).
compromise the issues raised in the [Fort Bend] Lawsuit .
Publish -- TEX. R. APP. P. 47.2(b). . . ." Thus, the unambiguous language of the Agreement
manifests the parties' intent to resolve the existing dispute,
CONCUR BY: Eva M. Guzman i.e., the alleged "poaching" of Schlumberger employees
by Input. The record does not indicate that any issue was
CONCUR raised in the Fort Bend [**32] Lawsuit concerning In-
put's recruitment of WesternGeco's present or former
I join the majority's opinion expressed in sections III. employees. Although similar, that is a separate dispute not
A, III. B, and [**30] III. C, and concur in the result addressed in the former lawsuit or in the Settlement
reached in section III. D. Agreement. This construction, which is required by the
The Settlement Agreement was made between plain meaning and the defined terms of the Settlement
Schlumberger, acting on behalf of itself and its Affiliates,
 Page 9
246 S.W.3d 776, *; 2008 Tex. App. LEXIS 480, **

Agreement, does not deprive WesternGeco of any benefit employees. I therefore concur in the result reached in
actually conferred by the Agreement. section III. D.
Because it is unnecessary to the disposition of the /s/ Eva M. Guzman
case, I would not address the question of whether the
Justice
Agreement binds WesternGeco in the absence of pleading
and proof of legal theories such as piercing the corporate Judgment rendered and Majority and Concurring
veil, agency, estoppel, or ratification. Regardless of Opinions filed January 24, 2008.
whether WesternGeco is bound by the Agreement, the
Agreement does not bar Input from hiring WesternGeco