Ludwig v. Encore Medical, L.P.

• Decision Date: 09 March 2006
• Docket Number: No. 03-04-00700-CV.,03-04-00700-CV.
• Citation: 191 S.W.3d 285
• Parties: Joyce LUDWIG, Appellant, v. ENCORE MEDICAL, L.P. f/k/a Encore Orthopedics, Inc.; Encore Medical GP, Inc.; and Encore Medical Corporation, Appellee.
• Court: Texas Court of Appeals

Page 285

191 S.W.3d 285

Joyce LUDWIG, Appellant, v. ENCORE MEDICAL, L.P. f/k/a Encore Orthopedics, Inc.; Encore Medical GP, Inc.; and Encore Medical Corporation, Appellee.

No. 03-04-00700-CV.

Court of Appeals of Texas, Austin.

March 9, 2006.

Rehearing Overruled April 19, 2006.

Kevin C. Norton, Cantey & Hanger, LLP, Fort Worth, J. Woodfin Jones, Dana Livingston Cobb, Alexander Dubose Jones & Townsend, LLP, Austin, Richard W. Alexander, Julie K. Lane, Cantey & Hanger, L.L.P., Austin, for appellant.

Eric J. Taube, Paul Guinn, Rosera Tateosian, Hohmann Taube & Summers, LLP, Austin, for Appellee.

Before Justices B.A. SMITH, PATTERSON and PURYEAR.

OPINION

BEA ANN SMITH, Justice.

Appellee Encore Medical L.P.¹ adopted a severance agreement to protect its key executives should a third party take control of the company. Two conditions triggered benefits under the agreement: a change of control and a termination event, defined to include an executive's resigning for "good reason." Joyce Ludwig sued for severance benefits, alleging that control of the company had changed and that she had terminated her own employment for good reason. Encore denied both allegations. The jury found that control of the company had changed but that Ludwig had not terminated her employment for good reason. Consequently, no benefits were provided to Ludwig by the severance agreement. After the jury's verdict, Ludwig presented her claim for attorney's fees to the court, asserting that under the severance agreement, Encore was obligated to pay litigation expenses even to a non-prevailing party. The district court denied her request for attorney's fees and entered a take-nothing judgment on the jury verdict. Ludwig does not appeal the take-nothing judgment but complains only of the court's failure to grant her attorney's fees. We hold that the district court did not err in denying attorney's fees to Ludwig under these circumstances.

BACKGROUND

Encore designs, manufactures, and markets orthopedic devices for medical purposes. Encore was formed in 1992 by seven individuals who all had prior experience with orthopedic implants. Joyce Ludwig and her husband Ken were two of Encore's founding employees. Ken was vice president of sales and marketing, Joyce managed quality assurance.

In 1995, president Nicolas Cindrich decided to reward Encore's founding employees with severance agreements. Ludwig received a severance agreement because she was one of the original employees. Cindrich testified that the purpose of these agreements was to protect the founders "in the event that we [Encore] were acquired and the people that bought the company wanted to either replace or displace" an executive. Harry Zimmerman, Encore's general counsel, drafted the agreements; he testified that the severance agreements were designed "to protect the employees in case the company was sold, somebody came in and bought the company, took it over, and then either fired them or tried to run them away." The severance agreement imposed mutual covenants of non-competition, confidentiality and non-disparagement on the protected executives.

In 1997, Encore became a public company; its stock was traded on the NASDAQ exchange. In 2000, a group known as Galen Entities made a substantial capital investment in Encore in exchange for Series A Preferred Stock. Amon Burton, a professor at the University of Texas School of Law, testified that in his expert opinion "a change of control had occurred at Encore when they closed the transaction to sell those shares to the Galen Entities." Professor Burton's opinion was based on his analysis of the rights Galen Entities received as owners of the preferred shares. One condition of Galen Entities' investment was that all key executives, except Joyce Ludwig, surrender their severance agreements.²

In January 2001, Encore terminated Ludwig's husband, Ken. After failing to find a job locally, Ken began a nationwide search. In November 2001, he accepted a job in Bethlehem, Pennsylvania and moved there the following month. On December 1, 2001, Joyce Ludwig informed her supervisor, J.D. Webb, that she was resigning to follow her husband to Pennsylvania. She asked if she could continue working until her house sold; this arrangement seemed mutually beneficial and was agreed to by Encore. Ludwig testified that she gave Webb notice of her relocation out of professional courtesy. She also indicated that she was willing to assist Webb in finding and training her replacement. Webb informed his supervisor, Craig Smith, and Encore's human resources department of Ludwig's announced departure. Webb began advertising for Ludwig's replacement in January 2002 and Ludwig helped interview the applicants.

Three months later, after consulting with a local employment attorney, Ludwig delivered a letter to Webb on March 1, 2002, stating that as a "single mom" she was terminating her employment "effective immediately" because of increased travel requirements:

I have decided to terminate my employment with Encore for `Good Reason' as that term is defined in my Severance Agreement. Specifically, despite my repeated objections, the Company has significantly increased the travel requirements of my position by requiring that I spend more than twice the number of nights away from home during the present 6 month period (9/2001 through 2/2002) than were necessary during the previous six month period, or any six month period since I began working at Encore in 1992. Accordingly, I have experienced a `Termination Event' under Section 2(a) of my Severance Agreement and am therefore entitled to the severance benefits set forth in Section 2(b) of the Severance Agreement. I expect the Company to honor its obligations under the Severance Agreement.

Harry Zimmerman responded the same day that Encore believed that it was not obligated to honor her severance agreement demands because she had previously tendered her resignation for personal reasons on December 1, 2001. Ludwig responded that she did not "actually" resign in December 2001 but merely informed Webb that she "would eventually resign to join my husband in Pennsylvania." She also asserted that her March 2002 resignation, which occurred prior to the sale of her house, was "premature and directly attributable to the strain of the increase in travel that has been required over the past 6 months." Ultimately, Encore determined that Ludwig was not entitled to benefits provided by the severance agreement because she had previously terminated her employment for personal reasons rather than for "good reason" under the agreement.

In May 2002, Ludwig sued Encore. Ludwig claimed that Encore had breached her severance agreement. She also insisted that her severance agreement required Encore to pay all of her legal fees, whether or not she prevailed. Ludwig authorized her attorneys to bill Encore for any fees or expenses incurred as a result of her litigation. In addition, Ludwig filed an application for a temporary injunction asking the district court to enjoin Encore from continuing to refuse to pay her ongoing litigation expenses. Encore maintained that it was not obligated to pay Ludwig's litigation expenses because she was not entitled to any benefits or rights provided by the severance agreement. The district court denied Ludwig's application for interim attorney's fees.

Ludwig's suit was tried in March 2005. The parties agreed that the severance agreement did not provide any benefits unless (1) there was a change in control of Encore, and (2) a "termination event" occurred. The only termination event claimed was that Ludwig terminated her employment with Encore for "good reason," as that term is defined in the agreement.³ Encore insisted that neither condition had occurred. Encore admitted that a significant increase in Ludwig's travel requirements could constitute good reason for leaving, but disputed that increased travel was the actual reason for Ludwig's resignation, which had already been tendered December 1 for personal reasons. Encore insisted that Ludwig's real reason for leaving the company was her desire to move to Pennsylvania to be with her husband, as she stated to her supervisor three months before she decided to claim benefits under the severance agreement on March 1, 2002. Encore noted that Ludwig did not complain about the travel requirements until January and February 2002; however, when she did complain the trips were either canceled or postponed.⁴ Ultimately, the jury found that Encore did undergo a change in control but that Ludwig did not terminate her employment for good reason.

After the jury was excused, the district court held a hearing on Ludwig's motion for an instructed verdict on attorney's fees and litigation expenses. Both parties stipulated that this issue would be tried to the court and that the court could consider all evidence presented during the trial to the jury. Ludwig insisted that Encore was contractually obligated to pay her litigation expenses, even though she did not prevail. Encore contended that Ludwig was not entitled to any benefits provided by the severance agreement, including litigation expenses, because she had previously resigned for personal reasons. The district court denied attorney's fees and rendered a take-nothing judgment based on the jury's verdict.

Ludwig requested findings of fact and conclusions of law pertaining to the denial of attorney's fees. The district court issued one finding of fact that Ludwig "did not seek to obtain or enforce any right or benefit provided by the Severance Agreement." The district court issued four conclusions of law in support of its denial of attorney's fees: (1) Ludwig was not entitled to any attorney's fees or expenses incurred in the prosecution of her claims against Encore; (2) Ludwig was not entitled to have the court make a finding on the reasonableness and necessity of her attorney's fees; (3) the litigation expenses...