### TEXA S C OU R T OF A PPEAL S, THIR D DIST R ICT , AT AU STIN

NO. 03-05-00173- CV

App e lla nt , W or ld A c c e ss T e le c om m unic at ion s G r oup, Inc .// Cr os s- App e lla nt s, St at e wide Ca lli ng, Inc . d/ b/a Co m m unity Se r vic e s; St at e wide LJR ; S ta te wide Bulv e r de ; S ta te wide M c Al le n; and M ike F ine

v. App e lle e s, St at e wide Ca lli ng, Inc . d/ b/a Co m m unit y Se r vic e s; St at e wide LJR ; S ta te wide Bulv e r de ; S ta te wide M c Al le n; and M ike F ine //C r os s- App e lle e , W or ld A c c e ss

Telecom m uni cations Gr oup, I nc.

F ROM THE DISTRICT CO URT OF COM AL COUNTY , 274TH JUDICIAL DISTRICT NO. C2002- 729- C, HO NORAB LE CHARLES R. RAMSAY , JUDGE PRESIDI NG

M E M O R

A N D U M O P I N I O N W orld Acc ess Tele communications Group, Inc. (World Acc ess) sued Statew ide Calling, Inc. d/b/a Community Service s; St atewide L J R; Statewide Bulve rde; Statewide McA llen; and Mike F ine (c ollectively , Statewide) f or bre ach of contra ct base d on Statewide’s f ailure to pa

y for longdistance te lephone se rvice s. I n d ef en s e, S tatewide a sserted that its failure to pay for the telephone se rvice s was excused by World Acce ss’s prior mater ial brea ch of the ir ag ree ment. The jury found that Statewide brea ched its a g ree ment with World Acc ess but a lso found that Statewide’s brea ch wa s excused due to World Acce ss’s prior mater ial brea ch. In additi o n, the jury found that Statewide did not incur a

ny damag es as a

result of World Acc ess’s mater ial brea ch. Statewide f iled a mot io n to e n te r ju d g me n t o n th e ju r y ’ s v e r d ic t. Wo r ld A c c e s s f il e d a mo ti o n f

or judg ment notwithstanding the verdic t (JNOV) reque sting the district c ourt to disreg ard the jury ’s finding that2

Statewide’s br eac h was e x cused a nd enter judgme nt on the jury ’s rema ining finding s. Tex. R. C iv. P. 301

. I f the dis tr ic t c ourt g ra nte d Wo rl d A c c e ss’ s mo tio n f or JNOV , St a te wi de re qu e ste d th a t it g rant its motion for JNOV a nd disreg ard the jury ’s findingthat it suffere d no damag es as a result of Wor ld A c c e ss’ s a lle g e d mate ri a l br e a c h. State wi de ins ist e d that any awa rd to Wo rl d A c c e ss m

us t be offse t by the damag es Statewide suffe red when World Acc ess terminate d Statewide’s tele phone service s befor e the end of the contract. The dist rict court impliedly denied W orld Acc ess’s motion for JNOV when it re ndere d a take -nothing judgme nt on the jury ’s ver dict.

On appe al, World Acce ss contends that the district c o u r t e rre d in refusingto disreg ard the jury ’s finding that Statewide’s fa ilure to pay for tele phone ser

vices it rec eived in 2001 wa s excused by World Ac cess’ s prior materia l br eac h. Statewide bring s a conti n gen t cr oss-appe al reque sting that if we re v erse the district court’s take-nothingjudgme nt, we re view the de nial of Statewide’s motion for J NOV, disreg ard the jury ’s findi ng that Statewide suffere d no damag es, and of fs e t it s d ama g e s a g a ins t Wor ld A c c e ss’ s a wa rd . B e c a us e we find th at the dis tr ic t c ourt e rr e d in impliedly denying World Ac cess’ s motion for JNOV, we will rever se the district cour t’s judgme nt and re nder judg ment in favor of World Acce ss. I n addition, we hold that Statewide is not entitled to any damag es under

its ag ree ment with World Access that would off set World Acce ss’s awa

rd.

BACK GR OUND Statewide and T elcom Productions, Inc. (Te lcom), ar e telema rketingcompanies that conduct f undraisingcampa igns on be half of l aw en fo rce ment org anizations. I n September 1998 Br uce Y ablonsky , a re g ional manag er for Telcom, enter ed into a written contra ct to purcha se longAt that time World Access wa s known as Comm/Net Services Corp. 1 3 distance te lephone se rvice from World Acc ess at a whole sale rate of 4.5 c ents per minute f or one 1 y ear . The portions of

the World Acce ss/Telcom ag ree ment that are rele vant to this appeal provide :

2. This Ag ree ment shall be ex tended, on the sa me terms and c onditions, for an a dd iti on a l pe ri od

of on e (1 ) ye ar u

nle ss e ith e r p art

y no tif ie s the oth e r p art

y in writing not less than s ix ty (60) day s prior to the termination date of its desire to t e rm inate thi s A g re e me nt. 4. [W orld Acc ess] shall give [Telcom] at least five (05) day s’ notification in the e ve nt a ny se rv ic e rate c ha

ng e s. 5. [Te lc om] h e re by

a c kn ow le dg e s that [ Wor ld A c c e ss’ s] c ha rg e s f or its pr ov isi on of its te le c omm

un ic a tio n ser

vic e s will be bil le d on a

monthl y ba sis and that pay

ment for suc h service s is due and pay able ten (10) day s from the invoice date

. 6. Sho uld

[Te lc om] d isp ute any

of the c ha rg e s o n it s w e e kly

inv oic e , it sh a ll n o t i f y [ W o r l d A c c e s s ] o f

t h e d i s p u t e d

c h a r g e s n o tl a t e r

t h ant e n( 1 0 ) d ays fr om the d a t e o f

i n v o i c e . S a i d

d i s p u t e s h a l l s e tf

o rt hi nw r i t i n g a l l d e t a i ls c on c e r n i n g t h e d i s p u t e d c h ar g e s . I n t h e e v e n t o f a d i s p u t e , [T e l c om] s ha ll pa y the un di sp ute d amou

nt i n a c c or da

nc e wi th t he pa y me nt t e rm s se t f

or th he re in.

. . . [Wor ld Ac c e ss] re se rv e s the ri g ht to te rm inate se rv ic e if [Te lc om] become s (3) da

y s past due. 9. Neither

[W orld Acc ess] nor [ Telcom] shall be liable to the other for a ny co n s eq u en t i al , i n d i re ct , s p ec i al o r i n ci d en t al d am age s wh at s o ev er , i n cl u d i n g, without lim itation, any

loss of reve nue, goodwill, or prof its or claims by

third parties or otherwise in c onnection wit h or re lated to any of the ser

vices pr ov ide d p ur su ant t o th is A g re e me nt. 15. Should it be nec essar y for e ither par

ty to this Ag ree ment to retain the se rvice s of an atto rn e y

to e nf or c e its ri g ht und e r thi s Ag re e me nt, and sh ou ld a ny su it be nec essar

y to enforc e said rig hts, then the preva iling par ty shall be entitled to rec eive r easona

ble attorne y ’s fe es fr om the other pa rty
.4 Mike Fine , the pre siden t of Statewide, ha d previously worke d for Te lcom and wa s a fr ie n d o f Y a b lo n s ky . I nla

te 1 9 9 8 o r

e ar ly 1 9 9 9 , F in e c a ll e d

Ja me s Q u a il , a

s a le s r e p r e s e n tative fo r World Acces s. F ine tol d Q ua il that he wa s a lso a te le mark e te r, that he ha d s po ke n w ith Ya blo ns ky , a nd tha t Y a blo ns ky ha d to ld h im that he ha d “ sig ne d a c on tr a c t f or fo ur -a nd -a -h a lf c e nts ” a minute. Fine then aske d Quail if Sta t ew i d e could have “the same dea l” as Te lcom. Quail, on behalf of World Acce ss, orally

ag ree d to Fine’ s reque st; however, the parties n ev er enter ed into a

wr itt e n a g re e me nt. State wi de c on tin ue d to us e lon g dis tanc e te le ph on e se rv ic e fr om Wo rl d A c c e ss until May 2001 under the belief that it was purcha sing se rvi ce pur suant to the oral a g ree ment that ref lected the same ter m s as the World Acc ess/Telcom a g ree ment. At some point before J anuar y 2001, World Acce ss lowere d Statewide’s r ate to 3.25 ce nts per minute.

I n J anuar y 2001, World Acce ss moved its bil ling ope rations to California a nd cre ated

a ne w c us tom e r f

ile fo r S tate wi de

. Duri ng thi s pro c e ss, State wi de wa s le ft of f t he lis t of wh ole sa le customers a

nd was misidentified as a reta il c ustomer with a billing rate of a pproxi mately

8 cents pe r

m i nu t e . T o a d d

t o t h e c o n f

u s i o n , W o r l d

A c c e s s f a i l e d t o s e n d S t a t e w i d e i n v o i c e s i nJ anu ar y, Fe bruar y , and Mar ch of 2001, so the chang ed rate went unde tected. Statew ide did not file a wr itten

c ompl ain t con c e rn ingthe mis sin g inv oic e s, but it c on tin ue d to make c a lls duri ngthe se months

. Although the rec ord includes invoice s fo r Ap ri l and May 2001, Fine te stified that these we re not

rec eived until afte r this suit was filed.

I n April 2001, World Acce ss was for ced into bankr uptcy and wa s compelled to shut down seve ral of its telephone circ uits. W orld Acc ess reque sted that these circ uits be turned off on May 14 , b ut t e le ph on e se rv ic e te rm inate d e arl ie r o n M ay 8. Wor ld A c c e ss d id n ot n oti fy any of itsAn e F ax is a

n inte rn e t se rv ic e that a llo ws us e rs to s e nd and re c e ive faxes a s e -m a il 2 a tta c hme nts
. 5 c us tom e rs , in c lud ingState wi de , th a t th e ir se rv ic e wo uld

be te rm inate d. Ac c or ding to Wor ld Acc ess’s re cords, Statewide had limited or no service betwee n May 8 and May 10. Fine te stified that Statewide’s r ecor ds showed that its telephone se rvice s were shut down between May 8 and May

22. At the end of

May , Statewide tra

nsfer red a ll of its telephone servic es to a ne w provider

. I n J une 2001, Katherine J ohnson L eVe sque wa s place d in char g e of c ollections on

a c c o u n t s r e c e i v a

b l e f o r W o r l d A c c e s s . L e V e s qu e t e s t i f i e d t h a t , i n l a t e Ap r i l an d

a g a i ni ne ar l y M ay, World Acce ss g ener ated invoices for tele phone ser vices provide d to Statewide betwe en January and May 2001. She testified furthe r that it was World Acc ess’s routine pr actice to send out the invoices at or ne ar the time that they wer e cr eate d. She also noted that there was no re cord that either the Ap ri l or May inv oic e s h a d b e e n r e tur

ne d o r t hat State wi de dis pute d th e c ha rg e s. On J une 6, L eVe sque per sonally sent invoices t o Statewide re flec ting the c harg es incurre d from January

throug h May

2001. Aga i n , S t at ew i de did not respond. In J uly , L eVe sque called Statew ide and a sked to speak to the pa rty in char g e of a ccounts pa y able. Mike L opez inf or me d h e r t hat sh e ne e de d to sp e ak to Mik e F ine and in dicate d th a t F ine wo uld re tur n h e r c a ll. Ac c or din g to L e Ve sq

ue , F ine re tur

ne d h e r c a ll a

nd a sk e d h e r t o s e nd

the inv oic e s to S tate wi de ’s po st office b o x; L e V e s qu e te s ti f ie d th a t s h e e xp r e s s - ma il e d th e inv o ic e s to th e p o s t o f f ic e b ox . The invoices we re ne ver pic ked up and w ere returne d unopened two w eeks later. L eVe sque testified that

s h e c a l l e d F i n e an d t h a tt h i s t i m e h e t o l d

h e r t o e F a x t h e i n v o i c e s t o h i m . S h e s t a t e d t h a ts h e did 2 so but did not hear fr om Fine or anyone else at Statewide. She attempted to c all Fine afte r this but6

was una ble to contac t him. Fine contr adicted L eVe sque’s story , testifying that he neve r spoke to her be fo re the pr e tr ial de po sit ion s. F ine state d f ur the r t hat he be lie ve d th a t L e Ve sq ue sp ok e on ly

to M ik e L o p e z. I n Aug ust 2002, World Acc ess sued Statewide for br eac h of contra ct stemming f rom Statewide’s f

ailure to pay

for the 2001 te lephone se rvice s. World Access c laimed that Statewide ha d an outstanding balanc e of $198,182.09. L eVe sque t estified that World Acc ess bec ame a war e of potential billing irre g ularities duringthe discover y period. Spec ifically , Statewide cla imed that the alleg edly unpaid invoices, which we re the basis of World Acce ss’s suit, established that Statewide was double- billed for ca lls made in Dec ember 2 0 0 0 an d t hat World Acce ss had incorr ectly billed State wi de ’s c a lls at 8 cents pe r m inute . A ft e r v e ri fy ingthe se c la ims , Wo rl d A c c e ss r e mov e d a ll double-billing; re calc ulated the a pplicable ch ar ges at the cor rec t rate, 3.25 c ents per minute; and lowere d its demand to $64,462.76.

At trial, World Acce ss argued that Statewide’ s failure to pay for s er v ices it had

rec eiv ed co n stitut ed a br eac h of contra ct. Statewide c ountere d that World Acce ss itself had

mate ri a lly

br e a c he d th e c on tr a c t by

fa ili ngto ( 1) c ha

rg e the a g re e d up on ra

te fo r t e le ph on e se rv ic e s, (2) provide service throug h September 2001 (the term of their c ontrac t), (3) pr ovide notice be fore terminating telephone se rvice in May 2001, (4) pr ovide m onthly invoices, and (5) provide notice of rate incre ases. Statewide insisted that its obligation to pay for the te lephone se rvice s it had previously

rec eived wa s excused by World Acce ss’s prior mater ial brea ches. In the alternative, Statewide ar g ued that any money found to be owe d to World Access should be of fset by Statewide’s7

lost profits and cons eq u en t i al damag es re sulting fr om the improper ter mination of its telephone service s in May

2001. The jury found that Statewide f

ailed to comply

with it s o ra l agr eeme nt to pay for telephone se rvice s provided and that it owed World Acce ss $64,4 6 2

. 7 6

. T he jury also found that $15,000 w o u ld

r e a s o n a b ly c o mp e n s a te Wo r ld

A c c e s s f o r it s a tt o r n e y ’ s f e e s . H o w e v e r , th e jury

a dd iti on a lly

fo un d th a t State wi de ’s fa ilure to p a y wa s e xcu se d b e c a

us e “ Wor ld A c c e ss f

ailed to comply with a mater ial obligation of the Ag ree ment first.” F inally , whe n as k ed, “What sum of

mon e y , if any , if pa id n owin c a sh , w ou ld f a ir ly and re a so nab ly

c omp e ns a te State wi de

. . . f or its damag es, if any , that resulted f rom [W orld Acc ess’s] failure to c omply ,” the jury answe red “ $0.00.” World Acce ss f

i l ed a m o t i on for JNOV. SeeTex. R. C iv. P. 301. I n the motion, World Acce ss aver

red that there w as no leg ally or factually sufficie nt evidence to support the jury ’s finding that Statewide’s failure to pay was ex cused due to World Access’ s prior bre ach of a mater ial ob lig a tio n o f t

he a g re e me nt. Con se qu e ntl y , Wo rl d A c c e ss c la ime d th a t th e dis tr ic t c ourt sh ou ld disreg ard that finding , enter judgme nt in its favor on the remaining findings, and awa rd it $64,462.76 plus $15,000 for its attorney ’s fe es. Statewide f iled a motion asking the di strict court to ente r a takenothing judg ment on World Acc ess’s cla ims based on the jury ’s ver dict. Alterna tively , if the district court ref used to e nter a take- nothing judgme nt, Statew ide moved for JNOV as to the jury ’s finding that Statewide incurred “$0.00” in damag es. Statewide arg ued that it conclusively established that it i nc ur re d d ama g e s to ta lin g a t lea st $61 ,5 15 a s a re su lt of Wor ld Ac c e ss’ s mate ri a l br e a c he s o f t he ir ag ree ment. Acc ording ly , Statewide sug g ested that the district court disreg ard the jury ’s finding that it suffere d no damag es and of fset any awa rd to World Acce ss by

$61,515.8 Ultimately , the district court im pliedly overr uled World Acce ss’s motion for JNOV, enter ed a take-nothingjudgme nt in accor dance with the jury ’s ver dict, and orde red “ that all costs of

cour t e xp e n d e d

o r in c u r r e d in th is c a u s e b e p a id

b y th e p arty in c u r r in g s u c hc o s t. ” T h is a

p peal followed.

STA ND AR D O F RE VI EW A m oti on fo r JN OVsh ou ld b e g ra

nte d w he n th e e vid e nc e is c on c lus ive and on e pa rt y is entitled to recove r as a

matter of law or when a le g al principle pr eclude s rec overy . Mancorp, I nc. v. Culpepper , 802 S.W .2d 226, 227 (Tex. 1990). A t rial cour t may disreg ard a

jury ’s ver dict and rende r judg ment notwithstanding the verdict if no e vidence supports the jury ’s finding s or if a direc ted verdic t w ould ha ve been proper . Se e Till e r v . M c Lur e , 121 S.W .3d 709, 713 (Tex. 2003); Brown v. Bank of Galve

ston , 9 6 3 S

. W

. 2 d

5 1 1 , 5 1 3 ( T e x. 1 9 9 8 ); W i l liams v. Briscoe , 137 S.W .3d 120, 124 (Tex. App.—Houston [1s t Dist.] 2004, no pet.). To deter mine whether the t rial cour t erre d in r e nd e ri ngjud g me nt n otwi th st andingthe ve rd ic t, w e c on sid e r o nly the e vid e nc e and

re a so na ble infere nces f

rom that evidenc e that tend to support the jury ’s answe rs. See Tiller , 121 S.W .3d at 713; W illiams , 1 37 S.W. 3d

a t 12 4. I n o the r w or ds , w e vie w the e vid e nc e in t he lig ht m os t f

avo ra ble to the verdict under the well-settled standa rds that g overn “ no evidenc e,” i.e. , leg al-suff iciency revie w. See W al-Mart Stores, Inc. v . Miller , 102 S.W. 3d 70 6, 70 9 (T e x. 19 92 ); W illiams , 137 S.W .3d at 124. I n revie wing the l eg al s ufficie ncy of t he evidence, we view the evidence in the l ight favora ble to the verdic t, cre diting fa

vorable evidenc e if rea sonable jurors could, and disreg arding contra ry evidenc e unless rea sonable juror s could not. City of Keller v. W ilson , 168 S.W .3d 802, 807 (Tex. 2005).9 A no-e vidence challeng e is pr oper when the rules of law or evidenc e pre clude g iving weig ht to the only

evidenc e off

ere d to pr ove a vital f

act. See M

errell Dow Pharms., Inc . v. Hav ner , 953 S.W .2d 706, 711 (Tex. 1997). I f the c ontrolling law p er m i t s t h e vital fac t and if more tha n a scintil la o f c o mp e te n t e v id e n c e s u

p p o rts th e ju

r y ’ s f in d in g s , th is Co u rt w il l r e v e r s e th e ju d g ment notwithstandin g t h e v erdict. See M iller , 1 02 S.W. 3d

a t 70 9; W

illiams , 137 S.W .3d at 124. More than a sc intill a ar ises when the e vidence supportin g t h e fi n d i n g, as a whole, rises to a le vel that

w o u ld e n a b le r e a s o n a

b le an d f a ir

- mi n d e d

p e o p le to d if

f e r in th e ir c o n c lu s io n s. S

ee W illiams , 137 S

. W

. 3 d at 1 2 4 (c i t i n g Burroughs W ellcomeCo. v. Crye , 9 0 7 S

. W

. 2 d497, 499 (Tex. 1995)). Evidence that g ives rise only to me re surmise or suspicion of the exist ence of a vital, mate rial fa ctual element is not more than a scintilla and, t h er ef

o re , is no evidence of the vital, mater ial fac tual element to be inf

err ed. See F

ord Motor Co. v. Ridgway , 135 S.W .3d 598, 600 (Tex. 2004).

DI SCU SSIO N Wo r ld A c c e ss’ s m ot ion for JN OV

World Acce ss insist s that the district court improper ly denied its motion for JNOV reque sting the district c ourt to disre g ard the jury ’s finding that World Ac cess’ s earl i er m at eria l brea ch of the contra ct excused Statewide’s failure to pa y for tele phone ser

vices it rec eived in 2001. Wor ld A c c e ss c la ims tha t th e dis tr ic t c ourt

sh ou ld h ave dis re g ard e d th is fin din g be c a us e (1 ) i t is ba se d o n St a te wi de ’s a lle g a tio n th a t Wor ld Ac c e ss br e a c he d co ntr a c t pro vis ion s found in t he Wor ld Acc ess/Telcom ag ree ment, rathe r than these pa rties’ ora l ag ree ment; (2) prior material bre ach is not

a de fe ns e to e ve ry

br e a c h o f c on tr a c t c la im; (3 ) t he c on tr a c t te rm s a lle g e dly br e a c hed by

Wor ld10

Acc ess wer e not mutually depende nt on Statewide’s oblig ation to pay for se rvice s alrea dy

used; and (4) its alleg ed bre ache s were not material. Agreement

between World Access and Statewide At tr ia l, Wo rl d Ac c e ss ar g ue d that the on ly a g re e me nt i t ha d w ithState wi de wa s to provide Statewide long distanc e telephone service s at a rate of 4.5 c ents per minu t e. Statewide maintained, to the contrary , that its oral ag ree ment with World Access incor porate d the provisions found in the World Acce ss/Telcom written agree ment. The jury did not make an e x plicit finding that the terms of the World

A c c ess/Telcom a g ree ment wer e incor porate d into the oral ag ree ment betwee n World Ac cess and Statewide. The jury did f ind that Statew ide’s failure to c omply with its agr eeme nt wi th Wo rl d A c c e ss w a s e xcu se d due to Wor ld A c c e ss’ s p ri or mate ri a l br e a c h o f t

he ir a g re e me nt. An d a ll o f S tate wi de ’s mate ri a l bre a c h all e g a tio ns we re pr e dic a te d o n p ro vis ion s f ound in t he Wor ld A c c e s s /T e lc o m a g r e e me n t. T h u s , w e mu s t a s s u me th a t th e ju r y im p li e d ly f o u n d th a t th e te rms of the written a g ree ment wer e incor porate d into the o ra l agre ement betwe en World Acc ess and Statewide. See Cit

y of Keller , 168 S.W .3d at 819 (statingthat when pa rties to oral c ontrac t testify to c on fl ic tin g te rm s, vie wi nge vid e nc e in li ght f avo ra ble to v e rd ic t r e qu ir e s r e vie wi ngc ourt to presume te rms wer e those a sserted by preva iling par

ty). On a pp e a l, Wo rl d Ac c e ss c on te nd s th a t th e re is n o e vid e nc e fr om whic h a re a so na ble juror could ha

ve dete rmi n ed t h at the provisions of the World Acc ess/Telcom a g ree ment wer e incorpora ted into its ora l agr ee ment with Statewide. Acc ording ly , World Acce ss insist s that the provisions of its written agr eeme nt with Telcom ca nnot serve a s the basis for the jury ’s finding that Statewide’s f

ailure to pa

y for its telephone service s was excused.11 We h old tha t the re c or d c on ta ins mor e tha n a sc int ill a of e vid e nc e ind ic a tin g that bo th World Acc ess and Statewide operated as if the t erms of the World Access/Te lcom ag ree ment had been in c o r

p o r a te d into th e ir a g r e e me n t. L e V e s qu e te s ti f ie d th a t s h e b e li e v e d th a t St a te w id e was entitled to notice bef

ore a termination or a rate chang e. These notice pr ovisions were f ound in the World Acce ss/Telcom ag ree ment. L ikewise, Bobby Vanoy , World Acce ss’s Vice Pre sident of Op e ratio ns , s tate d in

an inte rn a l e -m a il, “ We c ann ot s hut these comm e rc ia l c us tom e rs do wn un til they have pr oper notice of disconnec t for non-pa y ment or simply

notice o f n o longe r providing service s.” In addition, the jury hear d Fine’ s testimony

th at h e asked Q uail, World Acce ss’s sales repr es en t at i ve, if Statewide could have “the same dea l” as Te lcom and that Qua il responded

“ [d]e fi nit e ly .” Vi e wi ngthi s e vid e nc e in t he lig ht f avo ra ble to t he ve rd ic t, c re dit inga ll f avo ra ble evidenc e that re asonable jurors could be lieve and disre g arding al l contrary evidenc e except that which they

could not ignor e, we hold that leg ally sufficie nt evi d en ce s u p p o rts the jury ’s implied fi n ding that the terms of the World Acc ess/Telcom a g ree ment wer e incor porate d into the oral ag ree ment betwee n World Acce ss and Statewide. Se e id . T he re fo re , th e no tic e pr ov isi on s f ound in the World Acce ss/Telcom ag ree ment could have been brea ched by World Ac cess, and this could be the br e a c h th a t th e jur

y fo un d e xcu se d St a te wi de ’s ob lig a tio n to pa y fo r t he te le ph on e se rv ic e s it

rec eived.

Prior m aterial breach Ev e n if the te rm s of Wor ld Ac c e ss/ Te lc om ag re e me nt ap ply to the se pa rt ie s, Wor ld Acc ess cl a im s th a t t

h e r e is n o e v id e n c e to s u p p o rt t h e ju r y ’ s f in d in g o f a p r io r mate r ia l br eac h

su ff ic ien t to e xcu se State wi de ’s ob lig a tio n to pa y fo r s e rv ic e s it

ha d a lr e a dy

re c e ive d. “ I t is a12

fundame ntal principle of contrac t law that whe n one par ty to a contra ct commits a materia l brea ch of th a t c o n tr a c t, th e o th e r p arty is d is c h ar g e d o r e xc u s e d f r o m f u rth e r p e r f

o r ma n c e.” Mustang Pipeline Co. v. Drive r Pipeline Co. , 134 S.W .3d 195, 196 (Tex. 2004) (per curi am ). The nonbrea chingparty

must elec t betwee n two course s of ac tion, either continuing perf ormanc e or c easing perf ormanc e. Gupta v. Eastern Idaho Tumor I nst., Inc. , 140 S.W .3d 747, 756 (Tex. App.—Houston [14t h Dist.] 2004, pet. denied) . I f the non-br eac hing pa rty elec ts to treat the contr act a s continuing

and ins ist s th e pa

rt y in de fa ult c on tin ue its pe rf or manc e , the pr e vio us br e a c h c on sti tut e s n o e xcu se for nonperf

ormanc e on the part of the party not in defa ult, a nd the contra ct continues in for ce f or the benef it of both parties. Hanks v . GAB Bus. Serv s., Inc. , 6 44 S.W. 2d

70 7, 70 8 ( Te x. 19 82 ); Gu pta , 140 S.W .3d at 756.

Statewide first alleg ed that World Acce ss materially brea ched by

failing to char g e the

a g re e d u po n r a te fo r t e le ph on e se rv ic e s p ro vid e d an d by fa ili ngto p ro vid e no tic e of the a lle g e d r a te inc re a se . It is un dis pute d th a t w he n Wo rl d A c c e ss m ov ed it s billin g op e ratio ns to C a lif or nia in J anuar y 2001, it de signated Statewide as a reta il rather tha n a wholesa le customer a

nd assig ned it the incorre ct bi lling rate of approximately 8 cents per m inute. World Acc ess admit ted that when it filed suit it was u n aw ar e o f th is b il li n g e r r o r . O n c e it w a s n o ti f

ie d o f th is e r

r o r an d o th e r

billing irregularities, World Acce ss rec alculate d Statewide’s bills at the wholesa l e ra t e o f 3.25 cents per min ute and low e re d it s d e mand

to $ 64 ,4 62 .7 6. Th e re is no ev ide nc e in the re c or d that World Ac c e ss intentionally

raised Statew ide’s rates in J anuar y 2001. There fore , we hold that ther e is no evidenc e from which a

rational jury

could conc lude that World Ac cess mate rially brea ched the ag ree ment by13

fa ili ngto c ha

rg e State wi de the a g re e d u po n rate or by fa ili ng to pr ov ide State wi de no tic e of a rate incre ase. Statewide also a lleg ed t h at World Acce ss materially brea ched the ir ag ree ment by failing to provide monthly invoices af

ter January

2001. I t is uncontested that Statewide c ontinued to u se the te lep ho ne ser vice s p ro vid e d b y Wor ld A c c e ss d e sp ite the a bs e nc e of monthl y inv oic e s. There fo re, even if World Acc ess’s fa ilure to send monthly invoices did constitute a bre ach of the ag ree ment, it cannot s er v e as t he basis for the jury ’s finding that Statewide’s f ailure to pa

y for service s it continued to use was e x cused. Gu pta , 140 S.W .3d at 756 (statingthat if non-bre aching party elec ts to treat contra ct as c ontinuing, pre vious breac h constitu te s n o e xc u s e for nonpe rfor mance by non-bre achingparty

). Next S tatewide alleg ed that World Acc ess mater ially brea ched the ir ag ree ment by failing to provide service through September 2001. Under the terms of the World Acce ss/Telcom

a g re e me nt, wh ic h th e jur

y imp lie dly fo un d w a s in c or

po ra te d into t he pa rt ie s’ or a l ag re e me nt, Wor ld Acc es s w a s r e q

uired to provide te lephone se rvice throug h September 2001. The rec ord conf irms that World Acce ss did not provide Statewide any telephone se rvice s afte r May 2001. Even a ssuming that World Acce ss materially

brea ched the ag ree ment by failing to provide service through September 2001, Statewide would still be oblig ated to pay for se rvice s it acce pted bef ore the brea ch. Mustang Pipeline Co. , 134 S.W .3d at 196. The f act that World Acc ess may h av e mater ially brea ched the

a g re e me nt b y

fa ili ngto p ro vid e te le ph on e se rv ic e s a ft e r M ay 31 , 2 001, c on sti tut e s n o e vid e nc e to support the jury ’s finding excusing Statewide ’s contra ctual duty to pay for c harg es incurr ed bef

ore May 31.14 Finally , Statewide alleg ed that W orld Acc ess mater ially brea ched the ir ag ree ment by failing to provide the require d notice of e arly termination. World Acce ss temporarily disconnec ted Statewide’s se rvice on May 8, 2001; service was re connec ted shortly there afte r, and Statew ide was able to re sume i t s telemar keting operations. W orld Acc ess per manently terminated Statew ide’s service on May

31. World Acc ess does not dispute that it failed to g ive Statewide sixt y day s’ notice be fo re te rm inatin g se rv ic e in M ay 20 01 a s r equ ir ed by

the inc or

po rate d te rm s o f t

he Wor ld Acc ess/Telcom a g ree ment. Assuming that World Acc ess’s ter mination of Statewide’s ser vices wi tho ut p ro pe r n oti c e c on sti tut e d a mate ri a l br e a c h o f t

he ir a g re e me nt, State wi de ’s ob lig atio n to perf orm in the future would be discha rg ed. Id . Howeve r, Statewide’ s contrac tual obligations arising in the past would not be excused. Id

. Fur the rm or e , b e c a

us e State wi de c on tin

ue d to us e Wor ld Acc ess’s ser

vices a fter t h e t empora

ry interruption of ser

vices on May

8, Statewide is not excused from paying for telephone se rvice s it acce pted throug h May 31. Gu pta , 1 40 S.W. 3d

a t 75 6. Wor ld Ac c e ss o nly

su e d St a te wi de fo r se rv ic e s pro vid e d b e tw e e n Jan ua ry and May 20 01 . T he re fo re , Wo rl d Ac c e ss’ s fa ilure to pr ov ide State wi de wi th a de qu a te no tic e of te rm inatio n at th e e nd

of May is l e g a lly insufficient e vidence to s u p p o rt the jury ’s finding that Statewide’s f ailure to pa

y for se rvice s rec eived in the past was e x cused.

Be cause there is no evidenc e that World Acc ess committed a prior material bre ach that would excuse Statewide’s f ailure to pa

y for the se rvi ce s i t re ce i ved, we hold that the district court erre d by ref

using to g rant W orld Acc ess’s mot ion for J NOV. We sustain W orld Acc ess’s issue

on a pp e a l.15

Statewide’s cross-appeal

Having held that the district c ourt err ed by impliedly denying World Ac cess’ s motion for JNOV, we must now conside r Statewide’s c ross-appe al. Statewide c ontends that district court sh ou ld have dis re g ard e d the jur y ’s fi nd ing that it inc ur

re d “ $0 .0 0” in d ama g e s a s a re su lt o f Wo rl d Acc ess’s bre ach of

their ag ree ment. As we have held, the jur y impliedly

found that the provisions of the wr itten World Access/Telc om ag ree ment wer e incor porate d into the or al ag ree ment betwee n Wor ld A c c e ss a

nd State wi de . Pa

ra g ra ph9 o f t hat a g re e me nt e xplic itl y

pr ov ide s th a t ne ith e r p art y “shall be liable to the other for any conseque ntial, indirect, spec ial or inciden ta l d a mag es whatsoever, including, w ithout li mitation, any loss of reve nue, g oodwill, or profits or cla ims by

third parties or otherwise in c onnection with or re lated to any of the ser vices provide d pursuant to t his Ag ree ment.” All of Statewide’s c laims for conse quential damag es and lost profits resulting from World Acc ess’s failure to notify

them befor e ter

minating its telephone service s are barr ed by para g raph 9. Statew ide would have us ig nore pa

rag raph 9 of

the World Acce ss/Telcom ag ree ment. Howeve r, if the wr itten World Acce ss/Telcom ag ree ment was incorporated into the oral ag ree ment betwee n Statewide and World Acce ss, as S tatewide alleg ed and the j ury impliedly found, t hen that includes all of the written ag ree ment’s provisions, not just those favor able to one pa rty . Acc ording ly , the jury corr ectly found that Statewide did not incur a ny leg ally compensa

ble damag es as a

result of World Acc ess’s bre ach. We hold that the di strict court did not err by ref using to disreg ard the jury ’s findi ng that Statewide inc ur re d n o d ama g e s th a t w ou ld o ff se t it s li a bil ity to pay forthe te le ph on e se rv ic e s it pr e vio us ly

rec eived.A p e rs on may re c ov e r r e a so na

ble a tto rn e y ’s fe e s in

a su it on an oral or wri tte n c on tr a c t. 3 Te x. Civ . Pr a c . & Re m. C od e Ann. § 38 .0 01 (8 ) ( Wes t 19 97 ). Th e jur y fo un d th a t $1 5, 00 0 w ou ld rea sonably compensate W orld Acc ess for attorney ’s fees i ncurr ed while pr epar ing f or and litig ating the under ly ing c laim; St atewide does not contest this finding on a ppeal. 16 CO NC LU SION Be cause there is no evidenc e that World Acc ess committed a prior material bre ach that would excuse Statewide’s f ailure to pa

y for the te lephone se rvice s it rece ived, we hold that the district court should have grante d Wo rl d Ac ce ss’s motion for JNOV a nd disreg arde d the jury ’s finding that World Acce ss take nothin g o n its claim. Accor dingly , we r ever se the district cour t’s judgme nt, rende r judg ment based on the jury ’s re maining f indings, a nd order that World Acce ss be

awa rd e d $ 64 ,4 62 .7 6 in

dama g e s and

$1 5, 00 0 in

a tto rn e y ’s fe e s. 3

__________________________________________ Be a Ann Smith, J ustice B e fo re Justi c e s B . A . Sm ith , Patte rs on and Pur y e ar: Op ini on

by Justi c e B . A . Sm ith ConcurringOpinion by

J ustice Patterson Reverse d and Rende red Filed: Oc tober 17, 2006