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Tuesday, June 3, 2014

Texas Supreme Court Finds Settlement Agreement Was Formed Although Mirror Image Rule Not Satisfied

Texas SealAfter two employees of Amedisys, Inc. (Amedisys) went to work for its competitor, Kingwood Home Health Care, LLC (Kingwood), Amedisys sued Kingwood for tortious interference.  The two parties then engaged in a game of legal chicken.  Amedisys threatened that it would not settle below six figures.  Kingwood responded with a settlement offer of $90,000, expecting that Amedisys would reject the offer and trigger Rule 167 of the Texas Civil Practice and Remedies Code, which would allow Kingwood to recover litigation costs if the case went to trial and resulted in a judgment considerably less favorable to Amedisys than the settlement offer.

Amedisys accepted the settlement offer.  This apparently was not what Kingwood wanted or expected, and Kingwood refused to treat Amedisys's response as an acceptance.  Kingwood proceeded with some pre-trial motions, and Amedisys filed an emergency motion for the enforcement of the settlement agreement.  Kingwood claimed that the settlement agreement lacked consideration and that it was fraudulently induced by Amedisys's statement that it would not settle for less than six figures.  Note that Kingwood is thus effectively admitting that it made its settlement offer only in order to avail itself of Rule 167.  After a few more procedural complexities, the trial court granted Amedysis's motion to have the settlement agreement enforced.

On appeal, in addition to its allegations that the settlement agreement lacked consideration and was fraudulently induced, Kingwood claimed that Amedisys's purported acceptance was a counteroffer because it did not match the terms of Kingwood's offer.  While Kingwood offered $90,000 "to settle all claims asserted or which could have been asserted by Amedisys,” Amedisys agreed to accept $90,000 "to settle all monetary claims asserted."  Despite the fact that this argument was first raised on appeal, the Texas Court of Appeals agreed with Kingwood and reversed the trial court's judgment in favor of Amedisys.

Texas FlagThe Supreme Court found that the Court of Appeals acted correctly in considering Kingwood's argument, raised for the first time on appeal, that no contract existed.  Amedisys, as the moving party, bore the burden of proving each element of its claim that Kingwood had breached a contract, including proof of the existence of a contract.  

[Editorializing here: This seems more than a bit off to me.  Amedisys likely thought it had proved the existence of a contract when it presented evidence of offer and acceptance.  At the trial court, Kingwood did not raise any claims that the acceptance was invalid based on the difference in wording between offer and acceptance.  Why should Kingwood be permitted to sit on its legal arguments and save them for appeal?  By not raising them in opposition to Amedisys's motion, Kingwood should have been treated as having waived those arguments.  Otherwise, Amedisys would have to attempt to guess every possible legal challenge that Kingwood might raise to its claims and put them in its motion papers.  In the process, Amedisys would be required to aniticipate every conceivable counterargument to its position, raise and refute each argument.  This places an intolerable burden on the movant.]

While the common law does provide that an acceptance may not qualify or change the material terms of an offer, the Texas Supreme Court found that the differences between offer and acceptance in this case were not material given the full context of the exchanges between the parties.  Amedisys made clear its intention to accept Kingwood's offer on the terms Kingwood presented.  Moreover, there were no additional claims that Amedisys might potentially bring, as the doctrine of res judicata would bar Amedisys for bringing additional, related claims once the suit had been settled.  

Because the Court of Appeals declined to rule on Kingwood's additional defenses, the Supreme Court remanded the case back to the Court of Appeals for resolution of those issues.

For those who would like to explore the Mirror Image Rule with students, this is a pretty interesting case, and the Texas Supreme Court provides a video recording of the oral arguments, so that would be pretty cool to share with students as well.

http://lawprofessors.typepad.com/contractsprof_blog/2014/06/texas-supreme-court-finds-settlement-agreement-was-formed-although-mirror-image-rule-not-satisfied.html

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