Judge Dorfman ascends to the First Court of Appeals

The Honorable Samuel Grant Dorfman, presiding judge of the 129th District Court and occasional professor of law, helps Justices George C. Hanks, Jr. and Jane Bland decide that former fellow civil trial court judge Gary Block (since disgraced) erred in bench trial of commercial contract dispute. Justice Hanks writes opinion reversing Block and rendering take-nothing judgment.

HP/Management Services, Inc. v. Guaranteed Nursing Staff, L.L.C, No. (Tex.App.- Houston [1st Dist.] Nov. 15, 2007) (Opinion by Justice Hanks) (no authority, no agency, no contract, no breach, no recovery - judgment reversed)
Appeal from County Civil Court at Law No 2 of Harris County
Trial court judge: Hon. Gary Michael Block
Appellant's attorney: Maurice E. Klein
Appellee's attorneys: Sean A. Roberts, Wendell Maurice Champion

MEMORANDUM OPINION

After a bench trial, Guaranteed Nursing Staff, L.L.C. (“GNS”), appellee, prevailed on its breach of contract claim against HP/Management Services, Inc. (“HP”), appellant. In eight issues, HP contends that the trial court erred in rendering judgment for GNS because GNS did not file any pleadings against HP and the evidence is legally and factually insufficient to establish that (1) a contract existed between GNS and HP, (2) HP was responsible for any contractual obligation incurred by Hermann Park Manor relating to GNS, and (3) Michael Mileski was acting for or on behalf of HP when he signed the agreement. HP also appeals the award of attorney’s fees. We reverse and render judgment in favor of HP.

Background

Hermann Park Manor, a healthcare facility, entered into a contract with GNS for GNS to provide temporary personnel staffing for the facility. The contract, entitled “Supplemental Staffing Agreement,” was signed by Michael Mileski, as the administrator of Hermann Park Manor, and Helen Royston, as the marketing director of GNS. GNS was not fully compensated for the services it provided under the contract, and it sued the following parties for, among other things, breach of contract: HCCI-Houston, Inc. d/b/a Hermann Park Manor, the owner of Hermann Park Manor; HP, the management company for Hermann Park Manor; and Mileski, the administrator of Hermann Park Manor. GNS proceeded to trial against Mileski and HP.
[The record does not reflect how the claims against defendant, HCCI-Houston, Inc. d/b/a Hermann Park Manor, were resolved.]

At trial, Cynthia Champion, the owner of GNS, gave undisputed testimony that, while she believed that Mileski had signed the Supplemental Staffing Agreement on behalf of Hermann Park Manor, she learned, after this suit had been filed, that Mileski, in addition to being Hermann Park Manor’s administrator, was also HP’s employee at the time that he signed this contract. During Champion’s testimony, the parties stipulated that GNS was owed $16,853.98 in compensation for services that it provided under the contract.

The court also heard testimony from H.P.’s president Douglas Mittleider. Mittleider testified that HCCI owns Hermann Park Manor. He also testified that, pursuant to the Long Term Care Facility Management Agreement between HP and HCCI, HP is responsible for running the day-to-day operations of Hermann Park Manor on behalf of HCCI and for appointing an administrator to serve as the onsite manager of Hermann Park Manor. This agreement nevertheless specifies that HCCI retains ownership and control over the management duties and obligations of Hermann Park Manor.

HP appointed Mileski as the administrator of Hermann Park Manor. Mittleider testified that, although Mileski was an employee of HP, Mileski did not sign the Supplemental Staffing Agreement with GNS on behalf of HP. Mittleider testified that Mileski signed the Agreement on behalf of the facility and its sole owner: Hermann Park Manor and HCCI, respectively. Mittleider further testified that HP (1) did not enter into the Supplemental Staffing Agreement with GNS, (2) did not make any payments to GNS under this Agreement, and (3) did not enter into any vendor contracts while it managed Hermann Park Manor. Mittleider testified that Mileski, as the administrator of Hermann Park Manor, decided which invoices under the Agreement with GNS were to be paid, and that HCCI, not HP would make these payments. No evidence controverted Mittleider’s testimony that Hermann Park Manor was owned by and doing business as HCCI or that the Long Term Care Facility Management Agreement defined the relationship between Mileski, HP, HCCI, and Hermann Park Manor.

The Long Term Care Facility Management Agreement between HCCI and HP was entered into evidence. Under the terms of this Agreement, HP was required to get permission, in writing, from HCCI to contract with any third party on behalf of HCCI involving a value in excess of $10,000. The Agreement also provided that HP would indemnify HCCI if HP breached the Agreement. The Agreement provides in pertinent part that:

1.03 Management of Facility. During the term of this Agreement, [HP] shall on behalf of [HCCI] manage all aspects of the operation of [Hermann Park Manor], including, but not limited to, staffing, accounting, billing, collections, setting of rates and charges and general administration. In connection therewith, [HP] (either directly or through supervision of employees of [Hermann Park Manor]) shall:
. . .

(j) Negotiate and enter into in the name of and on behalf of [HCCI] such agreements, contracts and orders as it may deem necessary or advisable, for the furnishing of services, concessions and supplies for the operation and maintenance of [Hermann Park Manor]; provided, however, that [HCCI] must approve, in writing, any agreement, contract or order, which has a term greater than one (1) year or which requires annual payments of more than $10,000.
. . .
5.09 Costs and Expenses: Indemnity
. . .

(b) [HP] agrees to indemnify and hold [HCCI] and its officers, directors, agents and employees harmless from and against all losses, claims, damages or other liabilities, including without limit, reasonable attorneys fees and the costs and expenses incurred in connection therewith, arising out of or relating to the willful misconduct, breach of contract or gross negligence of [HP], in performing its duties under this Agreement.
Mittleider testified that he did not believe HP had received written approval from HCCI to bind HCCI to the agreement with GNS, which was valued in excess of $10,000.

After the close of evidence, the trial court made the following findings of fact and conclusions of law:

Findings of Fact

1. On December 26, 2001, Defendant, Michael Mileski, an employee of HP Management Services and Administrator of Hermann Park Manor, executed a written contract with Plaintiff Guaranteed Nursing Staff to provide temporary personnel staffing for their local facility. Prior to executing the agreement, Defendants failed to properly disclose that the company could not or would not willingly pay for the services rendered under the contract, within the terms of the agreement. Specifically, prior to entering into the agreement, Defendants concealed the material fact that their business was operating under budget constraints and that they would not make timely payments pursuant to their contractual obligations.

2. From December 26, 2001 until on or about April 22, 2002, Plaintiff provided supplemental staffing services to the Defendant under the executed agreement which provided for payment within 30 days after receipt of the invoice. Clause 5(c), Compensation and Payment, provides “All amounts due to the Agency are due within (30) days from receipt of invoice. Facility will send all payments to the address printed on the Agency invoice.” Defendants requested and accepted the temporary personnel services of the Plaintiff for their healthcare facility and became bound to pay Plaintiff its designated charges, which were reasonable and customary for such services.

3. The account accurately sets forth the services, the dates of services, the hours and prices for the services that the Plaintiff provided Defendant. The account represents the record of the transactions that Plaintiff systematically keeps in the ordinary course of business. Defendants have refused to make full payment for services rendered and the principal balance due Plaintiff on the account is $16,853.98 after allowing for all just and lawful offsets, payments and credits.

4. Subsequent to the execution of the contract, Defendants have failed to perform the terms of the contract without legitimate legal excuse. Defendants have failed to pay Plaintiff for services rendered.

5. As a result of the Defendants’ conduct, Plaintiff found it necessary to employ attorneys. Plaintiff also properly presented its breach of contract claim such that attorneys’ fees are recoverable. Thus, in addition to the damages suffered by Plaintiff, Guaranteed Nursing Staff, L.L.C. has a right to be reimbursed reasonable attorneys’ fees as permitted by law. Although the Court heard no evidence of the reasonableness or amount of attorneys’ fees incurred by Plaintiff, the Court takes judicial notice that Plaintiff’s attorneys have expended time and effort prosecuting this case and that a reasonable fee for the services is $5,000.00.
Conclusions of Law

1. The Court finds Plaintiff has non-suited all claims asserted against HP/Hermann Park., Inc. and are hereby dismissed with prejudice to re-riling. [sic]
2. The Court finds that Plaintiff take nothing by its suit against Defendant Michael Mileski and that Michael Mileski recover his court costs from Plaintiff.
3. The Court finds that Plaintiff recover judgment from Defendant HP Management Service, Inc., on its cause of action for breach of contract only and shall recover the sum of $16,853.98, together with post-judgment interest at the annual rate of 6% until paid.
4. Plaintiff recover prejudgment interest on the judgment at thed [sic] annual rate of 6% from May 2, 2002 to the date of judgment in the sum of $3,167.57.
5. The Court finds Plaintiff recover its attorney fees from HP Management Service, Inc., in the amount of $5,000.
6. The Court finds that all of Plaintiffs court costs be taxed against Defendant HP Management Service, Inc.
7. The Court finds its judgment is final and disposes of all claims and all parties and that relief not expressly given is denied and that the parties are allowed such writs and processes as may be necessary in the collection or enforcement of this judgment.

The trial court awarded GNS $16,853.98 in addition to interest and attorney’s fees.
HP as a Named Defendant

In issue one, HP contends that the trial court erred in rendering judgment for GNS because GNS did not file any pleadings against HP. Specifically, HP alleges that “there were no pleadings on file with the trial court wherein GNS named [HP] as a Defendant or asserted any claim against [HP].” HP further argues that “there were no pleadings in the trial court wherein GNS asserted a breach of contract claim against [HP].” We disagree.

The appellate record includes a copy of GNS’s third amended petition in which it names HP as a defendant. Within the petition, GNS alleges that it suffered damages when the defendants breached the contract by failing to perform the terms of the contract and failing to pay GNS for services rendered. HP did not specially except to the third amended petition. In addition, the record contains a Rule 11 Agreement from HP’s attorney wherein he agreed to accept service on behalf of HP. We overrule issue one.

Breach of Contract

In issues two through six, HP asserts that the evidence is legally and factually insufficient to establish that (1) a contract existed between GNS and HP, (2) HP was responsible for any contractual obligation incurred by Hermann Park Manor relating to GNS, and (3) Mileski was acting for or on behalf of HP when he signed the agreement. In issues seven and eight, HP asserts that there is no evidence to support an award of damages in this case for breach of contract. The crux of HP’s argument is that the evidence is legally and factually insufficient to show that Mileski was acting as an agent of HP and had the authority to bind HP to vendor contracts when he signed the Supplemental Staffing Agreement. Accordingly, HP argues that the trial court erred in finding HP liable for breaching the agreement and for the payment of damages under the court’s conclusions of law three and four. We agree.

Standard of Review

We review de novo a trial court’s conclusions of law and uphold them on appeal if the judgment can be sustained on any legal theory supported by the evidence. BMC Software Belgium v. Marchand N.V., 83 S.W.3d 789, 794 (Tex. 2002); In re Moers, 104 S.W.3d 609, 611 (Tex. App.—Houston [1st Dist.] 2003, no pet.). An appellant may not challenge a trial court’s conclusions of law for lack of factual sufficiency, but we review the legal conclusions drawn from the facts to determine their correctness. BMC, 83 S.W.3d at 794. If the reviewing court finds that a conclusion of law is erroneous but that the trial court rendered the proper judgment, the erroneous conclusion of law does not require reversal. Id. When performing a de novo review, we exercise our own judgment and redetermine each legal issue. Quick v. City of Austin, 7 S.W.3d 109, 116 (Tex. 1998).

In this case, the undisputed facts establish that Mileski did not have actual authority to bind HP to the Supplemental Staffing Agreement as HP’s agent, nor did HP ratify such conduct on its behalf by Mileski. As reflected on the signature blocks provided on the Agreement, Mileski signed the Agreement as the “administrator of Herman Park Manor,” not on behalf of HP. Accordingly, the trial court erred in its legal conclusions that HP was liable for breach of the contract and for the payment of damages to GNS.

Agency Relationship

It is undisputed that GNS did not learn that Mileski was an HP employee until shortly after this suit was filed.

An undisclosed principal is liable for the contracts of its agent only if the agent acted with the principal’s actual authority in making the contract for the principal or the principal ratified the contract. See Latch v. Gratty, Inc. 107 S.W.3d 543, 546 (Tex. 2003)

[In its briefing, GNS does not argue that HP ratified the Supplemental Staffing Agreement onits behalf nor have we found any evidence in the record to support this conclusion. There isno evidence that HP ever acknowledged the Supplemental Staffing Agreement as anagreement between HP and GNS nor was there any evidence that HP has ever asserted anyrights against GNS based on this Agreement. ]

Assuming, without deciding, that Mileski was HP’s agent by virtue of his status as an HP employee, the evidence is legally insufficient to conclude that Mileski had actual authority from HP to bind it to the Supplemental Staffing Agreement.

“Actual authority” is based on manifestations of consent by the alleged principal to the alleged agent, and such authority can be conferred either expressly or by implication. See Intermedics, Inc. v. Grady, 683 S.W.2d 842, 847 (Tex. App.—Houston [1st Dist.] 1984, writ ref’d n.r.e.).

Express authority exists where the principal has made it clear to the agent that he wants the act under scrutiny to be done. City of San Antonio v. Aguilar, 670 S.W.2d 681, 683 (Tex. App.—San Antonio 1984, writ dism’d).

Implied authority exists when appearances justify a finding that the principal authorized the agent’s act; in other words, there is circumstantial evidence of actual authority. Id. at 683–84. Implied actual authority exists only as an adjunct to express actual authority, because implied authority is that which is proper, usual, and necessary to the exercise of the authority that the principal expressly delegates. Behring Int’l, Inc. v. Greater Houston Bank, 662 S.W.2d 642, 649 (Tex. App.—Houston [1st Dist.] 1983, writ dism’d by agr.); Employers Cas. Co. v. Winslow, 356 S.W.2d 160, 168 (Tex. Civ. App.—El Paso 1962, writ ref’d n.r.e.).

In this case, there is no evidence of express or implied actual authority for Mileski to sign the Supplemental Staffing Agreement on behalf of HP and bind HP to the terms of this contract. Mittleider, the president of HP, testified that Mileski executed the Supplemental Staffing Agreement on behalf of HCCI, the owner of the facility, not HP. Furthermore, it is undisputed that HCCI is doing business as Herman Park Manor and the Agreement expressly bears Mileski’s signature in his capacity as the administrator of Hermann Park Manor, not as an employee of HP. There is also no evidence of what authority Mileski had to bind HP to any contracts with vendors who did business with Hermann Park Manor, which was owned by HCCI. It is undisputed that Mileski never entered into any vendor contracts on behalf of HP while HP managed Hermann Park Manor, and HP never paid any of the invoices from GNS under the Supplemental Staffing Agreement: only Hermann Park Manor’s owner, HCCI, paid them.

Nevertheless, GNS argues that because (1) Mileski was an HP employee at the time he signed the Supplemental Staffing Agreement; (2) GNS was directed to make its billing inquiries through HP, as administrator of the facility; (3) Mileski made the decision as to which bills to submit to HCCI, as owner, for payment, and HP forwarded payments for GNS’s invoices from HCCI to GNS; and (4) HP and HCCI are located in the same city in Georgia, there is sufficient evidence of actual authority to bind HP to the Supplemental Staffing Agreement.

We disagree.

These facts establish Mileski’s and HP’s status as agents for HCCI under the Long Term Care Facility Management Agreement. They do not, however, establish that Mileski signed the Agreement on behalf of HP or that he had authority to bind HP to the terms of the Agreement, particularly where the Agreement expressly states that he did so on behalf of Hermann Park Manor, a facility owned by HCCI.

Next, GNS argues that Mileski’s apparent breach of the Long Term Care Facility Agreement by entering into the Supplemental Staffing Agreement, without HCCI’s permission, for an amount in excess of $10,000 is sufficient evidence to show implied actual authority to enter into the agreement on behalf of HP. We disagree. Absent evidence of Mileski’s authority to contract on behalf of HP, or of whether Mileski ever had express authority or exercised any authority to bind HP, this evidence cannot establish implied actual authority. See Behring Int’l, Inc., 662 S.W.2d at 649; Employers Cas., 356 S.W.2d at 168 (holding that, for implied authority to exist, there must be some evidence concerning what authority had been given to agent).

Finally, HP argues that, because Mileski never disclosed to GNS that he was an employee of HP or that Hermann Park Manor was owned by HCCI, under “an undisclosed principal theory,” HP is liable for payment due under the Supplemental Staffing Agreement. GNS’s reliance on the holdings in Posey v. Broughton Farm Co., 997 S.W.2d 829, 832 (Tex. App.—Eastland 1999, pet. denied) and Hideca Petroleum Corp. v. Tampimex Oil International, Ltd., 740 S.W.2d 838, 841 (Tex. App.—Houston [1st Dist.] 2003, no pet.), for this argument is misplaced.

These cases stand for the proposition that, if an agent fails to disclose its principal, the agent is liable for the contract it enters into with third parties. As noted above, an undisclosed principal is only liable for the contracts entered into by its agents with the actual authority of the undisclosed principal or if the undisclosed principal subsequently ratifies the contract. See Latch, 107 S.W.3d at 546.

Here, this was not the case.Assuming, without deciding, that Mileski was an agent of HP by virtue of his employment with HP, the evidence is legally insufficient to establish that he had actual authority to sign the Agreement on behalf of HP or bind HP to the terms of the Agreement, where he did so expressly on behalf of Hermann Park Manor, owned by HCCI, but not HP.

Accordingly, the evidence is legally insufficient to establish that (1) a contract existed between GNS and HP, (2) HP was responsible for any contractual obligation incurred by Hermann Park Manor relating to GNS, and (3) Mileski acted for or on behalf of HP when he signed the agreement of the facility.

The trial court thus erred in concluding that HP was liable for breach of the contract to GNS, and we sustain issues two through six. Because we hold that there is insufficient evidence of liability for breach of contract, we do not need to reach points of error seven and eight regarding the trial court’s damage award.

Conclusion

We reverse and render judgment that GNS take nothing from HP.