Opinion ID: 2739932
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: Trip Mate began doing business in the travel insurance industry in 1989. Trip Mate acts as the agent for insurance companies, and it markets, administers, and sells to travel organizers1 the right to sell travel insurance policies. The contract between Trip Mate and a travel organizer is known as a Travel Organization Agreement (TOA). The TOA authorizes the travel organizer to offer travelers the option of buying travel insurance issued by the insurers Trip Mate represents. From 1989 to 2009, Trip Mate served as the agent for various entities from a family of insurance companies known as the AEGON group. Stonebridge was the 1 Travel organizers are businesses that combine various aspects of travel packages (transportation, lodging, etc.) for sale to the general public. -2- last such insurer, and for purposes of clarity we collectively refer to the members of the AEGON Group as Stonebridge. In 1997, Stonebridge purchased Trip Mate. At that point, Bradley Finkle, Trip Mate's prior owner, continued to manage the company. As part of the purchase transaction, Finkle and his wife were given the option to re-purchase the company via a stock buy-out option. They exercised this option in 2004 and entered into a Stock Purchase Agreement (SPA) with Stonebridge. The parties simultaneously executed a Managing General Agent Agreement (MGAA), which remained in effect until Stonebridge and Trip Mate terminated their relationship in 2009. The MGAA authorized Trip Mate to market, underwrite, and service the travel insurance policies on Stonebridge's behalf. The MGAA also authorized Trip Mate to issue insurance policies and required it to place policy premiums in a Premium Trust Account that Trip Mate held in trust for Stonebridge. Article C of the MGAA described the parties' rights and obligations with respect to funds in the Premium Trust Account. On a monthly basis, Trip Mate was required to remit all funds in the Premium Trust Account to Stonebridge. However, Trip Mate was authorized to use funds from this account to pay a number of Stonebridge's obligations, including (1) making refund[s] of premiums to persons entitled to them, and (2) paying Trip Mate's compensation for services performed under the terms of the MGAA. The MGAA did not define the term premium or identify which persons or entities might be entitled to a refund of premiums. Article F of the MGAA contained part of the parties' compensation agreement. However, rather than explaining the details of Trip Mate's compensation, Article F merely stated that Stonebridge agree[d] to pay [Trip Mate] an amount of compensation to be agreed upon in writing by the parties. Article F further provided that any costs Trip Mate incurred related to marketing, selling, and administering -3- insurance policies, along with any commissions due to its marketing representatives, were to be paid out of Trip Mate's own compensation. Sometime before 1997, Trip Mate began including profit sharing provisions in its TOAs with some of its larger clients. Under these agreements, if claims by the travel organizer's customers fell below a certain percentage of the net premium for the Premium Year, the travel organizer received a share of that difference. Trip Mate continued its profit sharing practice during the time when Stonebridge owned the company. In addition, although the MGAA did not explicitly authorize profit sharing, Trip Mate continued the practice after the Finkles re-purchased the company and until the parties terminated their relationship in 2009. Trip Mate used funds from the Premium Trust Account to pay profit sharing and disclosed these deductions to Stonebridge in various reports and audits. In November 2009, Stonebridge and Trip Mate terminated their relationship via a written Termination Agreement. The Termination Agreement was intended to resolve all outstanding issues and matters between the parties, including Stonebridge's release of a potential $16 million claim it had against Trip Mate. However, section 6 of the Termination Agreement provided that several provisions of the MGAA, including Article C, would remain in effect for a period of time sufficient to resolve any liabilities from run-off claims. Section 6 further stated that the MGAA and the amendments to it were attached as exhibits. Finally, section 14.1 of the Termination Agreement contained an integration clause that superseded any prior oral or written arrangements or understandings between the parties. In July 2010, Trip Mate calculated profit sharing due under its TOAs with two travel organizers–Avanti Destinations (Avanti) and Unique Vacations (Unique). Trip Mate concluded Avanti was owed approximately $146,000 and Unique was owed $324,827.30. There were insufficient funds in the Premium Trust Account to pay these obligations, so Trip Mate paid Avanti $100,000 out of its own funds. Trip Mate -4- then notified Stonebridge that it was liable for the profit sharing owed to Unique and requested reimbursement for Trip Mate's $100,000 payment to Avanti. Stonebridge refused to pay these amounts and instead claimed that Trip Mate was liable for the profit sharing obligations. Trip Mate chose not to pay Unique, and Unique subsequently sued both Trip Mate and Stonebridge for breach of contract. Trip Mate and Stonebridge filed crossclaims alleging the other was liable for the amounts owed to Unique. Trip Mate filed a separate suit against Stonebridge seeking reimbursement for its $100,000 payment to Avanti. The district court consolidated the two lawsuits. Stonebridge and Trip Mate filed numerous pleadings that asserted several legal theories for why the other was liable for the profit sharing. Trip Mate claimed it was acting as Stonebridge's duly authorized agent when it signed the TOAs with Unique and Avanti and was thus not personally liable under the contracts. Trip Mate further alleged that profit sharing was a premium refund for purposes of Article C that could be paid with funds from the Premium Trust Account. Finally, Trip Mate argued that Stonebridge was unjustly enriched by Trip Mate's profit sharing payment to Avanti since Stonebridge was liable for the amount paid. Stonebridge countered that Trip Mate was not authorized to engage in profit sharing and thus was not acting as Stonebridge's agent when it agreed to the profit sharing provisions in Avanti's and Unique's TOAs. Stonebridge further claimed that Trip Mate's profit sharing obligations were commissions, and that the MGAA thus required Trip Mate to pay these obligations out of its own compensation. The district court conducted a two-day trial. Trip Mate presented its case the first day, and all of its evidence was directed to the issues contained in its pleadings. At the end of the first day's proceedings, the district court made the following statement to the parties: -5- Obviously, one of the issues here is, irrespective of what the [MGAA] says, was there a course of dealing which effectively modified the terms of the [MGAA]. I don't know whether you want to deal with that in your presentations tomorrow or whether you want to deal with it posttrial by way of additional briefing, but I'll tell you that that is an issue that I see, and I would like some help in trying to make my way through it. Okay. And then the followup to that seems to me is that if the [MGAA] was modified through a course of conduct, then what effect does the termination agreement have? Does it terminate the agreement as modified, does it terminate the original agreement? Those are legal issues that I think need to be addressed at some stage. Stonebridge presented its defense on the second day of trial, and neither party expressly offered any evidence on the issues raised by the district court the previous day regarding the course of dealings amendment theory. At the close of proceedings, one of the attorneys noted that he got the impression that the court might be asking [the parties] for some additional briefing. The district court replied that it just wanted a brief from each of the parties addressing the issues they thought were important. The parties' post-trial briefs focused exclusively on the claims, counterclaims, and defenses contained in their pleadings. Trip Mate reiterated its argument that the MGAA authorized it to bind Stonebridge to profit sharing contracts and to use Premium Trust Account funds to pay these profit sharing premium refunds. Trip Mate further argued that the parties had engaged in a twenty year course of conduct whereby Trip Mate administered profit sharing payments on behalf of Stonebridge. Stonebridge contended that Trip Mate was not authorized to bind Stonebridge to profit sharing contracts and that Trip Mate's profit sharing obligations were commissions it had to pay out of its compensation. Stonebridge also noted that the parties' course of dealings supported its interpretation of the term compensation for -6- purposes of the MGAA. Stonebridge did not, however, address whether the parties amended the MGAA by their course of dealings. The district court rejected all of Trip Mate's theories of relief. It first concluded that neither the MGAA nor Stonebridge's conduct provided Trip Mate with actual or apparent authority to bind Stonebridge to profit sharing contracts. The district court thus held that Trip Mate, and not Stonebridge, was directly liable for the profit sharing contained in its TOAs with Avanti and Unique. It further determined that travelers, not travel organizers, paid premiums and that profit sharing therefore did not fit within the customary and ordinary concept of refund of premiums. The district court thus concluded the express terms of the MGAA did not authorize Trip Mate to pay profit sharing with funds from the Premium Trust Account. With little explanation, the district court also rejected Stonebridge's argument that profit sharing was a commission that Trip Mate was required to pay out of its compensation. The district court instead held in favor of Trip Mate based on a theory the parties neither pled nor argued–that their course of dealings amended Article C of the MGAA by creating an additional circumstance under which payments from the Premium Trust Account were permitted. Specifically, the district court concluded that Stonebridge's knowing acquiescence in Trip Mate's use of Premium Trust Account funds to pay profit sharing indicated that Stonebridge effectively agreed profit sharing was a debt it would pay out of its share of the premiums. The district court further determined this amendment to Article C survived the parties' 2009 Termination Agreement. The district court thus held that Stonebridge was obligated to reimburse Trip Mate for the $100,000 it paid to Avanti and the $324,827.30 it owed to Unique. The district court did not, however, formally amend the pleadings to include the implied amendment theory or discuss whether the parties consented to trying this new theory. -7- Stonebridge appeals, claiming the district court erred by (1) finding in favor of Trip Mate on the grounds of an implied amendment to the MGAA because this legal theory was outside the scope of the pleadings; (2) holding profit sharing payments were not commissions that Trip Mate was required to pay out of its own compensation; (3) holding the alleged implied amendment survived the parties' 2009 Termination Agreement; and (4) finding Trip Mate sufficiently proved any profit sharing was owed.