Compass Bank v. MFP Financial Services Inc.

Although the trial court could have, within the exercise of its discretion, decided that the issue of the appellant's election-of-remedies affirmative defense was tried by implied consent, the record does not compel such a conclusion. Thus that the trial court's decision to the contrary does not constitute an abuse of discretion.

X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Click here for the full text of this decision FACTS:MFP Financial Services leases computer equipment to companies across the country. MFP hired Webb Cooley Co. to perform tax services. Webb Cooley would file a rendition of property values of the equipment with the various taxing authorities. After the tax assessor reviewed the rendition and assessed the value, Webb Cooley could appeal the assessment. After any appeals, the assessor would send Webb Cooley the tax bill, and Webb Cooley would then pass it on to the customers. The customers would pay into a lockbox account, from which Webb Cooley would pay the tax bill and retain its fee. The fee was based on the tax savings, if any, realized from appeals. MFP originally paid Webb Cooley a flat fee, but in 1995 it changed to a fee-for-savings program. The customers could now refuse to pay Web Cooley’s fee, and Webb Cooley would agree to waive fees for customers who opted out of the fee-for-savings program. Webb Cooley was to indemnify MFP for all tax liabilities. Three years later, the parties orally agreed that MFP would pay the taxes and bill the customers for their share of the tax liability and for Webb Cooley’s fee. Webb Cooley would prepare billing files and deliver them to MFP, while MFP would send tax customers their tax invoices. MFP would also bill the customers for Webb Cooley’s fees. Webb Cooley fell behind in providing the billing files, and the company was not paying the taxes on a timely basis. MFP sued Webb Cooley in 1999, and the parties settled in January 2000. Under the settlement agreement, Webb Cooley was to provide MFP the tax information for customers in three states, as well as the billing files. MFP would pay Webb Cooley’s fees associated with each billing file, as calculated under the 1995 agreement. In July 2000, Webb Cooley sent MFP the billing files and an invoice for more than $760,000 for its services. Because the files were incorrect, MFP had to re-do them and re-bill its customers. MFP billed its customers for Webb Cooley’s fees. MFP collected most of those fees, deducted amounts for certain opt-outs and errors, and paid Webb Cooley $163,000. Compass Bank acquired Webb Cooley’s accounts receivables in a foreclosure sale. Compass sued MFP for breach of the settlement agreement based on its failure to pay the face value of Webb Cooley’s July 2000 invoice, minus MFP’s payment. MFP asserted various affirmative defenses and requested a declaratory judgment that Webb Cooley failed to properly perform the tax services, breaching the settlement agreement. Alternatively, MFP argued that it was entitled to certain offsets based on Webb Cooley’s errors in the billing files. The trial court entered a take-nothing judgment for MFP on Aug. 30, 2002. It entered findings and fact and conclusions of law and a motion to modify, correct and reform the judgment. Compass filed a motion for new trial on Oct. 30. The trial court denied it in December. Compass appeals. It argues that the trial court should have granted the motion for new trial, because the language in “Stipulation No. 32″ established MFP’s liability. Compass also attacks the trial court’s findings of fact and conclusions of law. The trial court stated that Webb Cooley’s prior material breach excused MFP from further liability under the settlement. The court also stated that Compass was precluded from asserting that MFP had elected to treat the settlement as continuing in force, thus waiving any breach by Webb Cooley. HOLDING:Affirmed. The court first finds that, under Texas Rule of Civil Procedure 329b(a), a motion for new trial was required to be filed within 30 days after the judgment was signed, and Compass did not file its motion until 61 days later. The court then reviews the law surrounding material breach and election of remedies. It next considers the trial court’s finding that Compass was precluded from asserting the affirmative defense of election of remedies. Compass argues that Texas Rule of Civil Procedure 94 does not require a party to plead a matter in avoidance of another matter of avoidance or affirmative defense. The court disagrees, finding that Rule 94 required Compass to notify MFP of its assertion that it was contesting MFP’s affirmative defense on the ground of election of remedies. The court also disagrees with Webb Cooley’s argument that MFP’s pleadings did not affirmatively assert that Webb Cooley’s prior breach excused MFP from performing, thus relieving Webb Cooley’s duty to plead election of remedies in response. The court finds MFP’s pleadings did not use “boilerplate language” on this matter, as Webb Cooley alleges but were instead sufficiently clear and direct to put Webb Cooley on notice. The court next addresses Webb Cooley’s argument that, even if it was required to plead its affirmative defense to MFP’s affirmative defense, the issue was tried by implied consent. The court agrees that the issue was not tried by express consent but goes on to consider whether the issue was tried by implied consent. The court adds that, in determining whether an unpleaded issue was tried by consent, a court examines the record not for evidence of the issue, but rather for evidence of trial of the issue. Compass points to its brief, where it discussed cases dealing with a nonbreaching party’s choice between continuing or ceasing performance under a contract after a material breach by the other party. It also refers to opening statements and closing arguments, as well as the trial court’s post-trial questioning on “continuation of the contract.” Compass further points to two instances where MFP elicited testimony from witnesses on election of remedies. “[A] lthough the trial court could have, within the exercise of its discretion, decided that the issue was tried by consent, the record does not compel such a conclusion, and thus that the trial court’s decision to the contrary does not constitute an abuse of discretion. The parties’ briefing and arguments show that the parties and the trial court were aware of the issue of election of remedies. However, they do not compel the conclusion that the issue was tried. Moreover, MFP objected in its post-trial brief that Compass Bank failed to plead election of remedies.” The court considers the sufficiency of the evidence, not because it needs to in light of its above two rulings, but “in the interest of justice and judicial efficiency.” The court finds some evidence supporting the trial court’s finding that MFP did not insist on further performance by Webb Cooley, for instance. Nor did it continue to operate under the settlement agreement after Webb Cooley’s material breach of sending shoddy files. There is also some evidence supporting the trial court’s finding that MFP did not treat the settlement agreement as continuing after Webb Cooley’s breach, and there is some evidence that MFP did not elect between the two inconsistent remedies of continuing or ceasing performance, so as to constitute manifest injustice. Additionally, there was some evidence that MFP did not receive or retain any benefit from Webb Cooley under the settlement agreement. OPINION:Jim Moseley, J.; Moseley, Richter and Francis, JJ.

Want to continue reading?
Become a Free ALM Digital Reader.

Benefits of a Digital Membership:

  • Free access to 3 articles* every 30 days
  • Access to the entire ALM network of websites
  • Unlimited access to the ALM suite of newsletters
  • Build custom alerts on any search topic of your choosing
  • Search by a wide range of topics

*May exclude premium content
Already have an account?

Trending Stories

 

Featured Product

Global Briefing

A weekly, curated selection of our international content from around the globe, across the business of law, in-house, regulatory, technology and more, with expert insights from our senior editors.

Learn More

More from ALM

 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Privacy Policy

About Us / Contact Us / Site Map / Advertise With Us/ Customer Service / Terms of Service/ FAQ / Privacy Policy

Publications

Law Topics

Rankings

More

Law.com

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.