ACCEPTED
03-15-00378-CV
7899900
THIRD COURT OF APPEALS
AUSTIN, TEXAS
11/19/2015 10:15:27 AM
JEFFREY D. KYLE
CLERK
No. 03-15-00378-CV
In the FILED IN
3rd COURT OF APPEALS
AUSTIN, TEXAS
Third Court of Appeals 11/19/2015 10:15:27 AM
JEFFREY D. KYLE
at Austin, Texas Clerk
JAMES HANSEN
Appellants
v.
LONNIE ROACH and
BEMIS, ROACH & REED
Appellees
APPELLEES' BRIEF
John R. Shepperd
State Bar No. 18236050
713-353-2010
713-784-7780 (fax)
John.shepperd@wilsonelser.com
WILSON ELSER MOSKOWITZ
EDELMAN & DICKER, LLP
909 Fannin Street, Suite 3300
Houston, TX 77010
Oral Argument Requested
2110219v.3
TABLE OF CONTENTS
TABLE OF CONTENTS
INDEX OF AUTHORITIES iii
STATEMENT OF THE CASE 1
STATEMENT REGARDING ORAL ARGUMENT 1
ISSUES PRESENTED 2
STATEMENT OF FACTS 2
SUMMARY OF ARGUMENT 10
ARGUMENT AND AUTHORITIES . 14
A. Standard of Review: Two Standards Apply 14
1. Legal sufficiency standard of review applies
to evidentiary rulings . . . 14
2. De Novo standard of review applies when
interpreting the contract 16
B. The trial court correctly held that Hansen's business
ended on April 8, 2011 when he voluntarily surrendered
his medical license 17
1. The facts indicate the practice ended when
Hansen surrendered his medical license 17
2. Hansen did nothing after the injury to continue
his practice, and he took positive steps to end
his practice 18
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C. The Lower Courts Interpreted Hansen's DOE Policies
Correctly 20
1. The policy language defines when a practice ends
and when DOE payments stop 20
2. The position of Texas courts on insurance policy
exclusion provisions that are found to be
ambiguous 22
3. The Benefit Termination provision of Hansen's
DOE policy is not ambiguous 23
4. Hansen's interpretation of the Benefit Termination
provision is unreasonable 28
D. The Business Organizations Code is Irrelevant . . 31
1. The policy does not recognize a "winding up"
period as a prerequisite to a business ending . 31
2. Hansen cites no case law that says the Business
Organizations Code applies 33
3. Hansen cannot prevail even if the Business
Organizations Code applies .. . 34
E. Northwestern Mutual's Breach Does Not Entitle
Hansen to All the Benefits Under the Policy . . . 36
Conclusion 38
Prayer 39
Certificate of Compliance with TRAP, Rule 9.4(i)(3) 40
Certificate of Service 40
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2110219v.3
INDEX OF AUTHORITIES
CASES
Barnett v. Aetna Life Insurance Co., 723 S.W.2d 663, 666
(Tex. 1987) 23, 28
Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983) 16
City of Keller v. Wilson, 168 S.W.3d 802, 822 (Tex. 2005) . . . . 15
Dow. Chem. Co. v. Francis, 46 S.W.3d 237, 241 (Tex. 2001) . . 14, 15
El Paso Natural Gas Co. v. Minco Oil & Gas, Inc.,
8 S.W.3d 309, 312 (Tex. 1999) 16
Grider v. Mike O'Brien, PC, 260 S.W.3d 49 (Tex. App.—
Houston [1st Dist.] 2008, pet. den) 14
Kelly-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462,
464 (Tex. 1998) 22, 23
Mead v. Johnson Group, Inc., 615 S.W.2d 685, 689
(Tex. 1981) 36
Milhouse v. Weisenthal, 775 S.W.2d 626 (Tex. 1989) 8, 9
Quick v. City of Austin, 7 S.W.3d 109, 116 (Tex. 1998) 16
Paul Revere Life Insurance Company v. Klock, 169 So.2d 493
(Fla. Ct. App. 1964) 24
Principal Mutual Life Insurance Company v. Toranto,
1997WL 279751 (N.D. Tex. 1997) 25, 26, 27, 28
Waggoner v. Marrow, 932 S.W.2d 627, 631 (Tex.App.
— Houston [14th Dist.] 1996, no writ) 16
iii
2110219v.3
Wilson v. Monarch Life Insurance Company, 971 F.2d 312
(9th Cir. 1992) 24, 25
STATUTES AND CODES
TEX. BUS. ORG. CODE Chapt. 11.052 . 34
TEX. BUS. ORG. CODE Chapt. 11.052(a) 35
TEX Bus. ORG. CODE ANN. §301.003(2)(A) 34
TEX Bus. ORG. CODE ANN. §301.006 35
TEX Bus. ORG. CODE ANN. §301.007(a) 35
TEX BUS. ORG. CODE ANN. §301.007(b) 35
TEX Bus. ORG. CODE ANN. §301.007(e) 35
iv
2110219v.3
No. 03-15-00378-CV
In the
Third Court of Appeals
at Austin, Texas
JAMES HANSEN
Appellants
v.
LONNIE ROACH and
BEMIS, ROACH & REED
Appellees
APPELLEE'S BRIEF
Comes now Appellees Lonnie Roach and Bemis, Roach & Reed
("Roach") and files this Appellees' Brief.
STATEMENT OF THE CASE
Appellees accept Appellant's Statement of the Case.
STATEMENT REGARDING ORAL ARGUMENT
Oral argument is requested by Appellees insofar as it was
requested by Appellant.
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ISSUES PRESENTED
Appellees accept Appellant's Issues Presented.
STATEMENT OF FACTS
On June 5, 2010, James Hansen, M.D., an Austin neurosurgeon,
sustained an injury while biking. (Tab F, Jnt. Ex. 1, Joint Stipulation
of Facts #1) Since this accident, Hansen has not performed surgery,
seen patients or otherwise returned to his solo surgical practice. (Tab
F, Jnt. Ex. 1, Joint Stipulation of Facts #s 16 — 18) Likewise, Hansen's
P.A., Austin Neurosurgical & Spine Institute, P.A. ("P.A.") has not
provided medical services to patients since that date. (Tab F, Jnt. Ex. 1,
Joint Stipulation of Facts # 19)
Hansen was in solo practice, so he was the only member licensed
to perform the type of service for which the P.A. was formed. (Tab F,
Jnt. Ex. 1, Joint Stipulation of Facts # 35). Neither Hansen nor his P.A.
employed any other neurosurgeons since the date of the accident to
continue the operation of the business. (Tab F, Jnt. Ex. 1, Joint
Stipulation of Facts # 20) Hansen has never had another neurosurgeon
practicing with his P.A. before or after the accident. (Tab F, Jnt. Ex. 1,
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Joint Stipulation of Facts # 21) Hansen has not attempted to practice
neurosurgery since the accident. (Tab F, Jnt. Ex. 1, Joint Stipulation of
Facts # 22)
Regarding the dissolution of his practice, Hansen testified as
follows in various depositions:
Q: Now I know you closed your practice. When did you do
that?
Kind of officially about a month after my injury, so it
would have been early July last year.
(Tab F, Jnt. Ex. 1, Joint Stipulation of Facts # 40)'
Q: I understand you've closed your office?
A: That is correct.
Q: Do you currently have any employees in the practice of
medicine?
A: I don't have any employees. My corporation has no
employees other than myself.
(Tab F, Jnt. Ex. 1, Joint Stipulation of Facts # 41)
Q: Have you sent out a letter to all your patients advising
them that you were closing your practice?
A: Yes.
(Tab F, Jnt. Ex. 1, Joint Stipulation of Facts # 41)
Q: Has anything changed with regard to your condition
that suggests that you plan to return to the practice of
medicine?
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A: No.
(Tab F, Jnt. Ex. 1, Joint Stipulation of Facts # 42)
In October 2010, Hansen terminated his malpractice insurance
coverage. (Tab F, Jnt. Ex. 1, Joint Stipulation of Facts # 25) On April
8, 2011, Hansen surrendered his Texas medical license. At that time he
was under a medical board investigation. (Tab F, Jnt. Ex. 1, Joint
Stipulation of Facts # 28) In addition, since January 1, 2010, twenty
medical malpractice lawsuits was filed against Hansen. (Tab F, Jnt.
Ex. 1, Jnt Stipulation of Facts # 31)
Prior to the bike accident, Hansen purchased disability policies
covering both the loss of his personal income and his business overhead
expenses in the event of a disability. (Tab F, Jnt. Ex. 1, Jnt Stipulation
of Facts #s 2 and 7) These policies were issued by Northwestern
Mutual Life Insurance Company ("Northwestern Mutual"), the
defendant in the Underlying Suit. (Tab B, Page 1) After his biking
injury, Hansen submitted claims for benefits under both the disability
and the overhead expense policies. (Tab F, Jnt. Ex. 1, Jnt Stipulation of
Facts #s 9 and 10) Northwestern Mutual began paying the disability
income benefits, and that policy was not in issue in the Underlying Suit,
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2110219v.3
nor is it at issue in the present case. (Tab F, Jnt. Ex. 1, Jnt Stipulation
of Facts # 9)
The Underlying Suit dealt with Northwestern Mutual's actions
under the two Disability Overhead Expense ("DOE") policies that
Hansen purchased. (Tab B). The DOE policies provided a combined
benefit of up to $25,000.00 per month with aggregate benefits of
$600,000.00. (Tab F, Jnt. Ex. 1, Jnt Stipulation of Facts #s 6 and 13;
Tab F, Pl. Exhibit #s 1 and 2) The parties stipulated that if benefits
were not terminated under the policy, Hansen's covered overhead
expenses would exceed the maximum benefit of $25,000.00 per month
for each month benefits were payable. (Tab F, Jnt Ex 1, Jnt Stipulation
of Facts # 13)
After completing its investigation, Northwestern Mutual denied
Hansen's claim for DOE benefits. (Tab F, Jnt. Ex. 1, Joint Stipulation
of Facts # 12) Northwestern Mutual gave the following explanation for
why the benefits could not be paid:
As previously communicated to Dr. Hansen, we are still
unable to provide benefits under these polices because it is
our determination that the operation of the business has
ended. The contracts define business as follows at section
1.6: "Except as provided in sections 8.3 and 8.9, the word
"business" means the Insured's business or the Insured's
5
2110219v.3
professional practice at the time disability starts." Also, as
you know, at section 2.2 under Benefit Termination or
Adjustment the contract goes on to say that "If the Insured
ends the operation of the business while totally or partially
disabled, benefits for Covered Overhead Expense and Waiver
of Premium will end."
The business or professional practice that Dr. Hansen was
engaged in at the time his disability started was that of
neurosurgery. Dr. Hansen admits that he was the practice.
Because he was a solo practitioner and he cannot perform
the duties of his practice, there is no practice. Without a
practice, the operation of the business (as that term is
defined by the policy) has ended.
(Tab F, Pl. Ex 1, No. 8)
Northwestern Mutual offered to pay Hansen $75,000,
representing three months of coverage associated with a reasonable
time for Hansen to wind down his business. (Tab F, Jnt Ex 1, Jnt
Stipulation of Facts # 14) Hansen rejected that offer and retained Roach
to file suit. (Id.) Prior to trial, the parties stipulated to the facts. (Tab
F, Jnt. Ex. 1, Jnt Stipulation of Facts #s 1 — 42) The Underlying Suit
was tried to the court without a jury. (Tabs H and I) No additional
testimony was heard at trial. (Tab L) The court determined the
following:
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Findings of fact:
• Hansen closed his business on the date he surrendered his
medical license, April 8, 2011.
Conclusions of law:
• Northwestern Mutual breached its contract with Plaintiff when it
denied his claim;
• Hansen's entitlement to monthly benefits ended on the date he
surrendered his medical license pursuant to section 2.2 of the
policy which provides in part:
BENEFIT TERMINATION OF ADJUSTMENT. If the
Insured ends the operation of his business while totally
or partially disabled, benefits for Covered Overhead
Expense and Waiver of Premium will end.
• Hansen is entitled to recover monthly benefits of $201,827.96
(representing 8 months and two days of benefits payable at a rate
of $25,000 per month).
• Hansen is entitled to a premium refund of $6,056.01, representing
the amount of the premium paid by Hansen to Northwestern
Mutual in November 2010.
• Hansen is entitled to recover statutory interest (at 18% pursuant
to §542.060 of the Texas Insurance Code) in the amount of
$105,203.70, plus reasonable attorney fees.
(Id.)
In essence, the trial judge in the Underlying Suit disagreed with
Northwestern Mutual's position that Hansen ended the operation of his
business approximately three months after the biking accident on June
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5, 2010. Likewise, the trial judge disagreed with Hansen's position that
the operation of his business had not ended and would continue into the
indeterminate future. Rather, the court concluded that Hansen ended
the operation of his business on April 8, 2011, when he surrendered his
medical license. (Id.)
Hansen was dissatisfied with this verdict and requested that
Roach appeal the judgment. Based on correspondence received from the
Court's Clerk, Roach erroneously believed that the Final Judgment was
entered on October 25, 2013. Consequently, Roach missed the deadline
file his notice of appeal. The Third District Court of Appeals dismissed
the appeal for want of jurisdiction. In a letter dated March 8, 2014,
Roach notified Hansen of his error and the dismissal by the court of
appeals. (Tab P) Hansen then sued Roach and the Firm.
(Tab 0) In response to Request for Admissions filed in the present
lawsuit, Roach admitted that his failure to file a timely Notice of Appeal
in the Underlying Suit was negligence. (Tap P)
In an appellate malpractice case where the issue of causation
hinges on the possible outcome of an appeal, the issue is to be resolved
by the trial court as a matter of law. Millhouse v. Weisenthal, 775
8
2110219v.3
S.W.2d 626, 628 (Tex. 1989). Consequently, the trial judge who
presided over Hansen's legal malpractice case against Roach found
herself standing in the shoes of the Third Court of Appeals who
otherwise would have heard the appeal had it been timely filed. Id.
The same stipulated evidence before the court in the Underlying
Case was also before the trial court in the legal malpractice case, which
is the same stipulated evidence before this Court today. On May 27,
2015, the court in the legal malpractice case granted judgment for the
Defendants, because it did not find legally sufficient evidence to
overturn the court's verdict in the Underlying Case. (Appendix A to
Appellant's Brief) In so doing, the court concluded that Roach's
negligence did not proximately cause injury to Hansen.
That court reached the following conclusions of laws:
2 Plaintiff's entitlement to monthly benefits ended on
April 8, 2011, the date he closed his business.
Collection of accounts receivable did not constitute the
"continuing operation of the Insured's business" within
the plain meaning of the applicable provisions of the
insurance policy between Northwestern Mutual Life
Insurance Company and Plaintiff.
I The trial court in the legal malpractice case made a finding of fact that the judge in the Underlying Suit did
not abuse her discretion in finding Plaintiff closed his business on April 11, 2011, when he surrendered his
medical license. Appellant noted in his Brief that a review as to whether a judge abused her discretion is a
conclusion of law. However, the determination that Hansen's practice ended when he surrendered his
medical license on April 8, 2011 is a finding of fact.
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2110219v.3
4 A timely filed appeal would not have changed the
outcome in the Underlying Case. Accordingly,
Defendants' failure to timey (sic) appeal did not
proximately cause loss or harm to Plaintiff.
SUMMARY OF ARGUMENT
Hansen's DOE policy provided for payment of expenses incurred
"in the continuing operation of the insured's business.), The DOE policy
included a Benefit Termination provision stating payments would end if
Hansen "ends the operation of his business" while totally or partially
disabled. The issues before the court in the Underlying Suit were (1)
What is meant by the phrase "operation of his business" as that phrase
is used in the policy?; and (2) When did Hansen end the operation of his
business?" The court in the Underlying Suit found that Hanosen's
business was seeing patients and performing surgery on them. The
continuing operation of Hansen's business did not include the collection
of accounts receivable and the payment of debts. Therefore, Hansen's
business ended when he voluntarily surrendered his medical license.
The court in the legal malpractice trial heard the same evidence
and reached the same conclusions on all questions of law and fact.
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Hansen wants this Court to ignore the definitive end of his
practice on April 8, 2011, and focus on the continued existence of his
P.A. He argues that his business has not ended so long as there are
accounts receivable to collect and debts to pay. That logic ignores the
distinction between Hansen's practice of neurosurgery and Hansen's
collection of fees and payment of debts. The Benefit Termination
provision in Hansen's DOE policy states the specific circumstances
when benefits will end. Applying Hansen's flawed logic would negate
the Benefit Termination provision of the policy. Physicians who
permanently ended their medical practice due to disability could avoid
the Business Termination provision simply by dragging out their
financial affairs until every last penny available under the policy was
collected.
Hansen similarly argues that he is entitled under the Texas
Business Organizations Code to a winding up period to dissolve his
P.A.. Since his P.A. was formed under the Texas Business
Organizations Code, Hansen argues that he is entitled a reasonable
amount of time to settle the affairs of the P.A.; i.e., collect accounts
receivable and pay existing debts.
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The fact that Hansen created a P.A. to protect himself from
personal liability has no bearing on when his business ended under the
terms of the policy. Determining that coverage persists based on
whether a practice was incorporated would result in an inconsistent
application of the policy. It would entitle Hansen to ongoing DOE
payments even after he ended his practice due to disability, so long as
he was still winding up the corporation. But Hansen would not receive
those same DOE payments if he was unincorporated and stopped
practicing due to disability.
There is no mention in the DOE policies about affording Hansen a
winding up period to dissolve his professional association. Indeed, there
is no mention that the dissolution of Hansen's P.A. is a prerequisite to
ending the operation of his business. Rather, the policy says in plain
terms that the DOE benefits end when "the insured ends the operation
of his business while totally or partially disabled."
Austin Neurolosurgical & Spine Institute, P.A. may have been the
name Hansen practiced under, but his business was seeing patients and
operating on them. When Hansen voluntarily surrendered his medical
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2110219v.3
license, he gave up his ability to see patients and operate on them. In
so doing, he ended his business.
Finally, Hansen argues he is entitled to every penny of the DOE
policy benefits because Northwestern Mutual breached the contract.
Hansen contends that this breach means that the Benefit Termination
provision of the policy no longer applies. Appellees agree that when one
party to a contract commits a material breach of the contract, the other
party is excused from a subsequent breach. But that has nothing to do
Hansen's decision to surrender his medical license. Hansen's voluntary
surrender of his medical license was not a breach of the insurance
contract. Indeed, there was no evidence at trial in the Underlying Case
that Hansen's voluntary surrender of his medical license was in any
way related to Northwestern Mutual's breach of contract.
The trial court in the legal malpractice action correctly ruled that
a timely appeal would not have changed the outcome in the Underlying
Case. Therefore, Roach's failure to timely appeal did not proximately
cause Hansen any harm. This ruling was based on the plain language
of the contract, and the application of that language to the stipulated
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facts. Hansen's practice ended when he surrendered his medical license
on April 8, 2011. He was not entitled to benefits after that date.
ARGUMENT & AUTHORITIES
A. Standard of Review: Two Standards Apply
1. Legal sufficiency standard of review applies to
evidentiary rulings
In determining whether Roach's negligence proximately caused
injury to Hansen, the trial court in the legal malpractice case stepped
into the shoes of this Court. Grider v. Mike O'Brien, P.C., 260 S.W.3d
49 (Tex. App. — Houston [1st Dist.] 208, pet. den.). It was charged with
determining whether Hansen would have been successful in the appeal
of the Underlying Case had this Court presided over a perfected appeal.
Id. This Court must now determine whether the trial court in the legal
malpractice case ruled correctly when it found that Roach's negligence
did not proximately cause injury to Hansen.
The legal sufficiency standard applies when a court assesses the
sufficiency of the evidence supporting the trial court's ruling. Dow
Chem. Co. v. Francis, 46 S.W.3d 237, 241 (Tex. 2001). When a party
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2110219v.3
attacks the legal sufficiency of an adverse finding on an issue in which
he has the burden of proof, he must demonstrate on appeal that the
evidence establishes, as a matter of law, all vital facts in support of the
issue. Id. In conducting its review, this Court "must first examine the
record for evidence that supports the [trial court's adverse] finding,
while ignoring all evidence to the contrary." City of Keller v. Wilson,
168 S.W.3d 802, 822 (Tex. 2005). If there is no evidence to support the
trial court's finding, the reviewing court then must examine the entire
record to determine if the contrary position is established as a matter of
law. Id.
The court in the Underlying Case made one finding of fact:
Hansen "closed his business on the date he surrendered his medical
license, April 8, 2011." (Tab L) Since Hansen challenges this finding of
fact, this Court must determine whether there is any evidence to
support it. This Court can reject the trial court's finding if there is (1) a
complete absence of evidence of a vital fact (2) the court is barred from
reviewing evidence offered to establish a vital fact; or (3) no more than a
scintilla of evidence was offered to prove a vital fact; or (4) the evidence
conclusively establishes the opposite of that fact. Id. at 811.
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2. De Novo standard of review applies when
interpreting the contract
Once this Court determines the legal sufficiency of the findings of
facts reached by the trial court, it then must consider those facts in
light of the language found in Hansen's DOE insurance policy. Whether
a contract is ambiguous is a question of law. Coker v. Coker, 650
S.W.2d 391, 393 (Tex. 1983). De novo review is applied to address
issues that are purely a question of law. See, e.g., El Paso Natural Gas
Co. v. Minco Oil & Gas, Inc., 8 S.W.3d 309, 312 (Tex. 1999). Under a de
novo standard of review, the reviewing court "exercises its own
judgment and re-determines each issue of fact and law," affording the
lower court's decision absolutely no deference. Quick v. City of Austin,
7 S.W.3d 109, 116 (Tex. 1998). The appellate court simply substitutes
its judgment for the judgment of the trial court.
This Court must uphold conclusions of law on appeal if the
judgment can be sustained on any legal theory the evidence supports.
Waggoner v. Morrow, 932 S.W.2d 627, 631 (Tex. App. -- Houston [14th
Dist.] 1996, no writ). Incorrect conclusions of law do not require
reversal if the controlling findings of fact support the judgment under a
correct legal theory. Id.
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B. The Trial Court Correctly Held that Hansen's Business
Ended on April 8, 2011 When he Voluntarily
Surrendered his Medical License
1. The facts indicate the practice ended when
Hansen surrendered his medical license
Hansen's ability to practice medicine ended when he suffered
neurological injuries in a biking accident on June 5, 2010. After that
date, he never returned to his solo practice. (Tab F, Jnt. Ex. 1, Joint
Stipulation of Facts # 16) He never performed another surgery. (Tab F,
Jnt. Ex. 1, Joint Stipulation of Facts # 18). He never treated another
patient. (Tab F, Jnt. Ex. 1, Joint Stipulation of Facts # 17). Indeed,
Hansen testified that he "kind of officially" closed his practice in July,
2011. (Tab F, Jnt. Ex. 1, Joint Stipulation of Facts # 40). At this point,
one could argue that Hansen's business had ended. Yet he still had his
medical license and was undergoing physical therapy presumably in an
effort to regain the ability to return to work. It wasn't until Hansen
took the affirmative act of voluntarily surrendering his medical license
that his business unequivocally came to an end pursuant to the terms of
the policies.
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On April 8, 2011, the operation of Hansen's business ended when
the Texas Medical Board formally accepted the Agreed Order wherein
Hanson represented under oath that he had closed his medical practice
and was voluntarily surrendering his medical license. Monthly
expenses incurred after a business has closed are not normal and
customary in the continuing operation of the insured's business,
because the business is not continuing to operate. The policy provides
unambiguous language as to when the payments under the DOE policy
end: payments end when the insured "ends his business while totally or
partially disabled." Once Hansen voluntarily surrendered his medical
license the continuing operation of his business ceased.
2. Hansen did nothing after the injury to continue
his practice, and he took positive steps to end his
practice
Hansen could have taken measures to continue the business. For
instance, he could have hired a locum tenens physician to provide
neurosurgical services. This point was raised in the following excerpt
from the deposition of Sharon Ann Hyde, corporate representative for
Northwestern Mutual:
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Q: How does a solo practitioner, who is insured under this
Northwestern DOE policy who becomes totally
disabled, not have — be deemed to have ended his
practice?
A: We have had claims where people have brought in, for
instance, a locum tenens.
Q: I'm sorry. A what?
A: A locum tenens.
Q: What is that?
A: Like a fill-in doctor, a temporary doctor. They could
bring somebody in — maybe not a locum tenens — but
they could bring somebody else in to continue keeping
the business afloat. You know, it — they could hire
somebody to take on any of those patients that were to
be referred.
(Tab F, P1. Ex. 1, Deposition of Sharon Ann Hyde, p. 31)
Hansen took no measures to keep his doors open. Indeed, he took
the opposite approach by sending letters to all of his patients advising
them that he was closing his practice. (Tab F, Jnt. Ex. 1, Joint
Stipulation of Facts # 41) The end of his medical practice was solidified
when he proactively surrendered his medical license on April 8, 2011
rather than simply let it expire. (Tab F, Pl. Ex 6)
Hansen's medical practice was already closed on the date he
surrendered his medical license as evidenced by the following excerpts
from the Finding of Facts set forth in the Medical Board Order:
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6. . . . Respondent has closed his medical practice.
7 Respondent has indicated to the Board that he agrees
to surrender his Texas medical license in lieu of further
disciplinary proceedings.
(Tab F, Pl. Ex 6, page 2) Under the terms of the Agreed Order of
Voluntary Surrender, Hansen agreed to "immediately cease practice in
Texas." (Tab F, Pl. Ex 1, No 6)
The DOE policy only provides coverage for normal and customary
expenses incurred in the continuing operation of the business. (Tab F,
P1. Ex 1, Nos. 1 and 2, page 6) Since Hansen testified that he kind of
officially closed his practice in July 2010, that he contacted all of his
patients and told them he closed his practice, and that he told the Texas
Medical Board in an official proceeding that he had closed his practice
in order to secure an Agreed Order dismissing its investigation of him,
there was no continuing operation of Hansen's business.
C. The Lower Courts Interpreted Hansen's DOE Policies
Correctly
1. The policy language defines when a practice ends
and when DOE payments stop
Appellant correctly noted that the following provisions from the
DOE policy are relevant
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GENERAL TERMS AND DEFINITIONS. The policy
provides a monthly benefit for Covered Overhead Expenses
when the Insured is totally or partially disabled. (Tab F, Pl.
Ex 1, No. 1, Insurance policy, page 5)
BUSINESS. Except as provided sections 8.3 and 8.9, the
word "business" means the Insured's business or the
Insured's professional practice at the time disability starts.
(Tab F, Pl. Ex 1, No. 1, Insurance policy, page 5)
COVERED OVERHEAD EXPENSE. Covered Overhead
Expense is the total of monthly expenses that are normal
and customary in the continuing operation of the insured's
business." (Emphasis added) (Tab F, Pl. Ex 1, No. 1,
Insurance policy, page 6)
BENEFIT TERMINATION. If the Insured ends the
operation of his business while totally or partially disabled,
the benefits for Covered Overhead Expense and Waiver of
Premium will end. (Emphasis added) (Tab F, P1. Ex 1, No. 1,
Insurance policy, page 8)
Hansen omitted another important provision found in the
Definitions Section of the Disability Overhead Expense Supplement.
This provision provides the following:
BENEFIT TERMINATION. Your Disability Overhead
Expense policy is designed to help cover overhead expense
for the owner during your covered partial or total disability.
Therefore, if you end the operation of your business or
professional practice while disabled, benefits for Covered
Overhead Expense and Waiver of Premium will terminate.
(Emphasis added) (Id.)
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Hansen's DOE policy only provides coverage for "expenses that are
normal and customary in the continuing operation of the insured's
business." The DOE policy makes it clear that the policy benefits
terminate when "the Insured ends the operation of the business while
totally or partially disabled." The DOE Supplement gives greater
specificity to the terms by stating that benefits end if the insured ends
the operation of his business or professional practice. Benefits under
the policy do not end when the insured stops collecting accounts
receivable and paying debts. Likewise, benefits do not end when the
insured winds up his professional association. Benefits end when the
insured ends his professional practice.
2. The position of Texas courts on insurance policy
exclusion provisions that are found to be
ambiguous
The court is obligated to construe an insurance contract so as to
ascertain the true intent of the parties as expressed in the instrument.
Kelly-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex.
1998). A contract is deemed ambiguous only if it is subject to two or
more reasonable interpretations. Id. If the language of the contract
leads to a definite or certain legal meaning, then it is not ambiguous.
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Id. If the language of the contract is subject to two or more reasonable
interpretations, then it is ambiguous. Id. Where an insurance contract
drafted by the insurer is ambiguous, then it should be construed strictly
against the insurer and in favor of the insured. Barnett v. Aetna Life
Insurance Co., 723 S.W.2d 663, 666 (Tex. 1987). Where the language at
issue in the policy involves an exclusion of liability under the policy,
then the insured's construction of the exclusionary clause must be
adopted so long as that construction is not itself unreasonable. Id.
3. The Benefit Termination provision of Hansen's
DOE policy is not ambiguous
Hansen argues that the Benefit Termination provision of the DOE
policy contains an ambiguity that mandates it be interpreted in his
favor. This provision provides that DOE benefits end if the Insured
ends the operation of his business" while totally or partially disabled.
CC
Hansen recognizes that "operation of his business" could mean
practicing neurosurgery, and that the "operation of his business" ended
when he surrendered his medical license. But Hansen argues that an
ambiguity exists since "operation of his business" also could mean his
P.A.'s ongoing payment of debts and collection of accounts receivable.
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Only a handful of cases across the country have dealt with the
subject in this lawsuit. None of these cases considered whether the
pertinent policy language was ambiguous. None of those cases held
that the operation of a medical practice means collecting accounts
receivable and paying debts after the physician practice has ended.
The most noted opinion on the subject is Wilson v. Monarch Life
Ins. Co., 971 F.2d 312 (9th Cir. 1992). In that case Wilson, an Oregon
chiropractor, sought to collect benefits under his DOE policy after he
was deemed totally disabled by his physician. Meanwhile, Wilson's
license was revoked and he sold his chiropractic practice. The
insurance company discontinued the DOE benefits. Wilson sued the
insurance company and argued that he continued running his business
because he continued to collect accounts receivable, and he continued to
incur overhead expenses related to those collections. The 9th Circuit
Court of Appeals rejected that argument in the following passage:
The mere collection of accounts receivable does not
constitute running a chiropractic office or business in the
plain meaning of those words. This case is analogous to Paul
Revere Life Insurance Company v. Klock, 19 So.2d 493
(Fla.Ct.App. 1964). In Klock, the court held that a dentist
could not collect overhead expenses "in the conduct and
operation of the insured's office," after the dentist sold his
practice but during the period he retained his obligations on
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an office lease. Id. at 495. Here, we have not merely the sale
of a practice, but a state order forbidding Wilson from
practicing as a chiropractor. Under these circumstances, he
no longer was running his office or business.
Id. at 313.
Hansen argues that Wilson can be distinguished from this case
because the chiropractor seeking ongoing DOE payments had sold the
corporate entity under which his practice operated. But that was only
one of several factors that guided the Wilson court's reasoning. While
the court noted that Wilson's sale of his business to another was a factor
in its decision, it also reasoned that Wilson could not be running his
business when he was forbidden by state order from practicing. Id. The
trial court in the Underlying Case took the identical position when it
held that Hansen's business ended when he surrendered his medical
license on April 8, 2011.
A Texas case following Wilson is Principal Mutual Life Insurance
Co. v. Toranto, 1997 WL 279751 (N.D. Tex. 05/15/1997), an unpublished
opinion out of the Northern District of Texas. In that case, Dr. Toranto,
a plastic surgeon practicing in Dallas, purchased several DOE polices.
These DOE policies stated that they would cover "the usual and
customary monthly business expenses [Dr. Toranto was] responsible for
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in the operation of [his] business." Id. at *5. After he became disabled,
Dr. Toranto made a claim under the DOE policies. Meanwhile, Toranto
entered into a Practice Management Agreement with another surgeon
whereby the second surgeon completely took over Toronto's practice. Id.
at *5. Nevertheless, Toronto provided evidence that he continued to
incur business overhead expenses associated with his practice in excess
of $24,000 per month even after this Practice Management Agreement
was signed. Id. at *6.
The insurance company moved for summary judgment, arguing
that it had no obligation to continue paying on the policy since Dr.
Toranto had stopped practicing and had sold his practice. The court
noted that the policy was "specifically designed to pay benefits for
overhead expenses incurred while the insured continued to operate his
trade or business." Id. at *5 (emphasis in original). In finding that the
insurance company's obligation to pay under the DOE policy had ended,
the court held the following:
. . . any expenses Toranto may have incurred after February
13, 1996, are irrelevant if he was no longer operating his
practice, and there is no indication anywhere in the records
that he continued to operate his practice after February 13,
1996. Id. at *6.
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2110219v.3
It made no difference whether Toranto sold his practice or closed
it. Once the practice ended, the right to recover under the DOE policy
ended as well. Hansen's ongoing debt collection and debt payment is no
more relevant in this case than it was in Toranto.
It is important to note that the definition of "covered overhead
expenses" found in Dr. Toranto's policy is very similar to the definition
of that same phrase in Hansen's policy:
Toranto Policy
Covered Overhead Expenses — "[Toranto's] share of the usual
and customary monthly business expenses [he is]
responsible for in the operation of [his] business.
Id.
Hansen Policy
Covered Overhead Expense — "the total of monthly expenses
that are normal and customary in the continuing operation
of the insured's business . . . "
(Tab F, Jnt. Ex. 1, DOE Policy, Section 1.7, page 6) The court never
entertained the argument that the language in the Toranto Policy was
ambiguous.
The court found that once Dr. Toranto ceased the operation of his
business, the insurance company's obligation to make disability
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payments ceased. Toranto, 1997 WL 279751 at *5. The same logic
applies to Hansen. Once Hansen surrendered his medical license, the
operation of his business ceased, and Northwestern Mutual's obligation
to continue disability bnefits ceased. The fact that overhead expenses
continued had no bearing on the courts' determination in the Wilson
decision or in the Toranto decision, so it should have no bearing in
Hansen's case.
4. Hansen's interpretation of the Benefit
Termination provision is unreasonable
Even if the Benefit Termination Provision is found to be
ambiguous, the court cannot accept the insured's construction of the
provision if that construction is unreasonable. Barnett, 723 S.W.2d at
666. Hansen wants this Court to ignore the definitive end of his
practice on April 8, 2011, and focus on the continued existence of his
P.A. He argues that his "business" is Austin Neurosurgical & Spine
Institute, P.A. While that may be the name of his P.A., that is not his
business as that term is used in the policy. Interpreting whether
coverage exists based on how Hansen titled his business will lead to an
inconsistent application of the policy.
28
2110219v.3
Hansen was a neurosurgeon in solo practice, plain and simple.
His business was a surgical practice where he saw patients and
operated on them. Filing articles of incorporation with the Secretary of
State didn't change the nature of his business. That business ended
from a practical standpoint when Hansen suffered his injury on June 5,
2010, and it ended from a legal standpoint when he surrendered his
medical license on April 8, 2011.
But under Hansen's theory, his business continues and he is
entitled to receive benefits under the DOE policies so long as his P.A.
exists. What if Hansen had registered his practice under an assumed
name or d/b/a rather than a P.A.? Under Hansen's theory, his business
would continue to exist and he could keep getting money under the
DOE policy so long as he continued to pay the nominal annual fee to the
county where the assumed name is registered.
What if Hansen merely practiced under his own name rather than
as a P.A. or under an assumed name? Using Hansen's reasoning, this
Court would have to reach a different result because Hansen would
have no corporate structure or assumed name standing between him
and the end of his practice. Instead, Hansen's DOE benefits would end
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2110219v.3
once he surrendered his license. The mere fact that Hansen formed a
professional association to limit his personal liability should not create
an exception to the Benefit Termination provision of his DOE policy.
Hansen further tries to obfuscate the clear language of the DOE
policies when he directs this court's attention to dictionary definitions of
the terms "close" and "end." Definitions for these common words are
unnecessary and represent an attempt to divert this Court's focus from
the key issue in this case. This case isn't about whether "close" and
"end" mean the different things. This case is about whether Hansen's
practice ended on the date he surrendered his medical license versus an
unknown date in the future when he eventually decides to dissolve his
P.A. Hansen wants this Court to rule that his practice ends when he
winds up his P.A. But the unambiguous language in his DOE policy
states that the practice ends when he ends the operation of his business
or professional practice. Hansen's business was treating patients. His
business ended when he permanently ended his ability to see patients
by surrendering his license on April 8, 2011.
Hansen interprets "operation of his business" to include collecting
accounts receivable and paying bills even if they continue years after
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2110219v.3
Hansen closed his practice and surrendered his license. This
interpretation of the phrase is unreasonable. It would force the court to
recognize the business as ongoing so long as there are unpaid invoices
or debt obligations related to the practice. Under that reasoning, if
Hansen doesn't aggressively pursue one receivable then the business
hasn't ended. Likewise, if Hansen decides to extend the terms of the
loan that he personally made to his P.A., then the business continues.
In short, Hanson could make the business last in perpetuity.
It is evident that Hansen kept his P.A. alive largely for the
purpose of repaying a loan he made to himself so that he could claim
those payments under his DOE coverage. (Tab F, Pl. Ex 9) This activity,
long after Hansen has left the practice of medicine, does not reflect
normal and customary expenses incurred in the continuing operation of
the Insured's business as envisioned in Section 1.7 of the policy.
D. The Business Organization Code is Irrelevant
1. The policy does not recognize a "winding up"
period as a prerequisite to the business ending
Hansen contends his business continues until he completes the
winding up of his P.A. He cites Section 11.052 of Business
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2110219v3
Organizations Code to support his position that his business is not
terminated until the winding up process is completed. He contends that
the business continues to the extent necessary to wind up its affairs.
According to Hansen, that winding up is comprised of paying liabilities
and collecting accounts receivable. But Hansen has failed to show that
the Business Organization Code has any bearing on the interpretation
of his DOE policies.
The Underlying Suit was a contract case. The issue was whether
Hansen was entitled to payments under his DOE policies for the
continuing operation of his business after he became permanently
disabled, stopped practicing medicine, closed his doors and surrendered
his medical license. Hansen was a neurosurgeon. His business was
seeing patients and operating on them. Once he surrendered his license
and permanently ended his practice due to disability, his business of
seeing patients and operating on them came to an end. There is no
mention in the DOE policies about affording Hansen a winding up
period to dissolve his professional association. Indeed, there is no
mention that the dissolution of Hansen's P.A. is a prerequisite to ending
the operation of his business. Rather, the policy says in plain terms
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2110219v.3
that the DOE benefits end when "the insured ends the operation of his
business while totally or partially disabled."
If Hansen had no professional association and merely practiced
medicine as an individual, there is no question that the DOE benefits
would end once Hansen, due to disability, stopped seeing patients,
closed his doors and surrendered his medical license. This would be
true whether or not Hansen had ongoing debts to pay and accounts
receivable to collect. Consequently, it should make no difference that
Hansen practiced medicine through a P.A. His practice still ended on
April 8, 2011 when he surrendered his license and thereby ended his
ability to practice medicine. The trial court in the underlying case and
the trial court in the malpractice lawsuit ruled correctly. No harm
came from failing to perfect Hansen's appeal.
2. Hansen cites no case law that says the Business
Organizations Code applies
The Business Organizations Code provides the parameters for
creating and dissolving business entities. Hansen's P.A. is a fictional
entity created, in part, to insulate Hansen from personal liability for the
acts or omissions of his business. Hansen cites no statute or case law
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2110219v.3
supporting his position that the terms of the DOE policies should take
into account the Business Organization Code when determining when
Hansen ended the operation of his business. Therefore, the court
cannot look to the Business Organizations Code for guidance. The court
can look only to the language of the policy and cases interpreting
similar policies under similar facts. As noted above, the policy language
and the case law support the verdict of the underlying trial court that
Hansen's practice ended on April 8, 2011. The trial court committed no
error, so the outcome would not have changed had the appeal in the
underlying case been perfected.
3. Hanson cannot prevail even if the Business
Organizations Code applies
Even assuming that the Business Organizations Code has some
bearing on how Hansen's DOE policies should be interpreted, the
statute still would not change the court's reading of the policy. A
professional association such as Hansen's P.A. is defined as an
association "formed for the purpose of providing the professional service
rendered by a doctor of medicine . . PP
TEX Bus. ORG. CODE ANN.
§301.003(2)(A). Hansen's P.A. may provide medical/surgical services
34
2110219v.3
only through a licensed physician. TEx BUS. ORG. CODE ANN. §301.006.
The owner of Hansen's P.A. must be a licensed physician. TEX BUS.
ORG. CODE ANN. §301.007(a). Once Hansen ceased being a licensed
physician, he was required to "promptly relinquish [his] ownership
interest" in his P.A. TEX BUS. ORG. CODE ANN. §301.007(b). Thereafter,
Hansen may act as the owner of his P.A. only for the purpose of winding
up the affairs of the P.A. TEx Bus. ORG. CODE ANN. §301.007(e). This
does not mean the P.A. gets to continue so long as any debts are owed or
any accounts receivable exist. Hansen must wind up his P.A. "as soon
as reasonably practicable." TEX Bus. ORG. CODE ANN. §11.052(a).
The Findings of Fact and Conclusions of Law in the underlying
case are silent on whether a winding up under the Business
Organizations Code was contemplated by the verdict. Indeed, there is
no mention of the Business Organizations Code anywhere in the court's
record in the underlying suit. Presumably this is because the statute is
not applicable. Another possibility is that the court took the Business
Organizations Code into consideration and determined that ample time
for a winding up of Hansen's P.A. had passed by the time Hansen
surrendered his license on April 8, 2011. In either event, the Business
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2110219v.3
Organizations Code was not determinative in the Underlying Case or in
the legal malpractice trial, and it should not be determinative today.
E. Northwestern Mutual's Breach Does Not Entitle
Hansen to All the Benefits Under the Policy
Hansen's last argument is that he is entitled to maximum
payment of the DOE policy benefits because Northwestern Mutual
breached the contract. He contends that this breach means the Benefit
Termination provision of the policy no longer applies. Hansen cites
Mead v. Johnson Group, Inc., 615 S.W.2d 685 (Tex. 1981), to further his
position that the date he voluntary surrendered his medical license
should not be construed as the date his business ended.
Mead stands for the position that when one party to a contract
commits a material breach of the contract, the other party is excused
from a subsequent breach. Id. at 689. The problem with this argument
is that Hansen's voluntary surrender of his medical license was not a
breach of the insurance agreement. It was simply an event that
triggered the Benefit Termination provision of the policy.
If Northwestern Mutual's breach of contract caused Hansen to end
his business earlier than he otherwise would have, then Hansen might
36
2110219v.3
be able to argue that he is entitled to DOE payments for that period of
time the practice would have existed but for the breach. This argument
was not made the Underlying Suit. Moreover, there was no evidence in
the Underlying Suit that Northwestern Mutual's breach caused Hansen
to voluntarily surrender his Medical License any sooner than he
otherwise would have. Perhaps that is why Hansen merely implies that
he surrendered his medical license as a consequence of Northwestern
Mutual's breach and offers no evidence to substantiate the claim.
In contrast, there is evidence that the primary financial obligation
of Hansen's P.A. was the $758,313.51 loan that Hansen personally
made to his P.A. just three weeks prior to his career ending bicycle
injury. (Tab F, Pl. Ex 1, No. 9) In addition, there is evidence that
Hansen had more than 20 pending medical malpractice lawsuits filed
against him. (Tab F, Jnt. Ex. 1, Joint Stipulation of Facts, #31)
Finally, there is evidence that Hansen agreed to surrender his license
"in lieu of further disciplinary proceedings." (Tab F, Pl. Ex 1, No. 8).
The trial court had many reasons to conclude that Hansen decision to
surrender his medical license had nothing to do with Northwestern
Mutual's breach.
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2110219v.3
A court of appeals can reverse a trial court's verdict if there is no
evidence to support the trial court's finding. The facts provide the
requisite evidence to support the trial court's finding in the Underlying
Suit that Hansen ended his practice on April 8, 2011.
CONCLUSION
Based on the plain and unambiguous reading of the DOE policy,
the trial court in the Underlying Case correctly ruled that Hansen's
business — treating neurosurgical patients — ended when he stopped
seeing patients, closed his doors to the public, discontinued his
malpractice insurance and voluntarily surrendered his medical license.
The fact that Hansen continued to pursue accounts receivable and pay
debts had no bearing on the date that his practice ended. Likewise, the
fact that Hansen formed a professional association did not create an
exception to the Benefit Termination provision in his DOE policies.
The policy does not provide that the dissolution of Hansen's P.A. is
a prerequisite to ending the operation of his business. If this Court
determined that the Business Organizations Code entitled a physician
to DOE payments pending the dissolution of his P.A., then DOE policies
would apply differently depending on whether a physician was or was
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2110219v.3
not incorporated. A physician with an incorporated practice would
continue to get DOE payments, but an unincorporated physician would
not since the Business Organizations Code would not apply.
Finally, Hansen's argument that Northwestern Mutual's breach of
the contract negates the Benefit Termination provision of the contract is
unsupported by the law and it is unsupported by the facts. Moreover,
there is no evidence that Hansen would have ended his practice at a
later date had Northwestern Mutual's breach not occurred.
Had Roach properly perfected the appeal this Court would have
affirmed the trial court's judgment and Hansen's outcome would not
have changed. Therefore, Roach's failure to perfect the appeal did not
proximately cause any harm to Hansen.
PRAYER
Wherefore, Appellees pray that the court affirm the judgment of
the trial court and render judgment on behalf of Appellees as to all
causes of action.
WILSON ELSER MOSKOWITZ
EDELMAN & DICKER
909 Fannin Street, Suite 3300
Houston, TX 77010
(713-785-7780 (fax)
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2110219v.3
/s/John R. Shepperd
John R. Shepperd
State Bar No. 18236050
713-353-2010
John.Shepperd@wilsonelser.com
Certificate of Compliance with TRAP 9.4(i)(3)
This brief contains a total of 7641 words excluding the parts
exempted under TRAP 9.4(i)(1), as verified by Microsoft Word. This
brief is therefore in compliance with TRAP 9.4(0(2)(B).
/s/John R. Shepperd
Certificate of Service
A copy of this brief has been served on all counsel of record in
accordance with the Texas Rules of Appellate Procedure this 19th day of
November, 2015.
Scott R. Kidd
Scott V. Kidd
Kid Law Firm
819 West 11th Street
Austin, Texas 78701
512-330-1713 - Telephone
512-330-1709 - Facsimile
scott@kiddlawaustin.com
svk@kiddlawaustin. corn
/s/John R. Shepperd
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2110219v.3