Court Opinion

ID: 6342882
Source: CourtListenerOpinion
Date Created: 2022-05-23 07:12:12.151123+00
Date Added: 2024-06-11T12:44:41.451372
License: Public Domain

Supreme Court of Texas
                           ══════════
                            No. 21-0036
                           ══════════

                     Thomas Brandon Perthuis,
                              Petitioner,

                                   v.

            Baylor Miraca Genetics Laboratories, LLC,
                              Respondent

   ═══════════════════════════════════════
              On Petition for Review from the
       Court of Appeals for the First District of Texas
   ═══════════════════════════════════════

      JUSTICE HUDDLE, joined by Justice Boyd, dissenting.

      Parties frequently agree to written contracts that are incomplete,
unclear, or both. When disputes over such contracts arise, Texas courts
have long applied a settled methodology for discerning what the parties’
agreement actually was. If a written contract is susceptible to two or
more reasonable interpretations, it is deemed ambiguous, and the
parties may introduce extrinsic evidence to shed light on its meaning.
Following this methodology allows courts to enforce the contract upon
which the parties actually agreed, even if they were less than perfect
scriveners. This, in turn, allows courts to hew as closely as possible to
our ideal of freedom of contract: the notion that parties are allowed to
make—and a Texas court should enforce—any legal contract to which
the parties saw fit to agree.
      Today the Court replaces this well-settled methodology with a
default rule—the procuring-cause doctrine—which our Court has barely
mentioned in a century. The majority dusts it off, imports it from the
broker context, and, for the first time, applies it in the at-will-
employment context. The Court’s adoption of this default rule threatens
the expectations of at-will employers and employees who have agreed to
a commission structure but, for whatever reason, failed to reduce it to
writing with perfect clarity. They will be surprised to learn that, under
the default rule the Court adopts today, an at-will salesperson is entitled
to commissions for any sale—here, perhaps hundreds or thousands of
sales—a jury determines the salesperson “set in motion.” And they will
be stunned to learn that, under the default rule, the entitlement to
commissions may extend years after their employment relationship
ended.
      Today’s decision is at odds with our precedents for resolving
contractual disputes and with the common understanding of the nature
of at-will relationships. And it is far-reaching: while reported decisions
on commission disputes are relatively few, the Texas Workforce
Commission adjudicates as many as 20,000 wage claims, including
claims for unpaid commission, each year. I would not be so quick to
expand the procuring-cause doctrine to the at-will-employment context.
I would instead remand to the trial court for a new trial in which a jury
would determine the meaning of the parties’ agreement that Perthuis’s
commission “will be 3.5% of [his] net sales” based on the parties’

                                    2
extrinsic evidence regarding their own contract negotiations, the
employer’s policies and practices, and common industry practice.
Because the Court does otherwise, I respectfully dissent.
                                        I
       Time and again, this Court has reiterated its commitment to
protecting freedom of contract. 1 As stewards of this “paramount public
policy,” Energy Transfer Partners, L.P. v. Enter. Prods. Partners, L.P.,
593 S.W.3d 732, 738 (Tex. 2020) (quoting Wood Motor Co. v. Nebel, 238
S.W.2d 181, 185 (Tex. 1951)), we have made clear that “courts will not
rewrite agreements to insert provisions parties could have included or
to imply restraints for which they have not bargained.” In re Marriage
of I.C. & Q.C., 551 S.W.3d 119, 124 (Tex. 2018) (quoting Tenneco Inc. v.
Enter. Prods. Co., 925 S.W.2d 640, 646 (Tex. 1996)).
       Our primary goal in interpreting any contract is, of course, to give
effect to the parties’ intent as expressed in the contract itself. Monroe

       1  The examples are recent and abundant. E.g., Waste Mgmt. of Tex.,
Inc. v. Stevenson, 622 S.W.3d 273, 286 (Tex. 2021) (“‘Texas strongly favors
parties’ freedom of contract,’ under which parties may ‘bargain for mutually
agreeable terms and allocate risks as they see fit.’” (quoting Gym-N-I
Playgrounds, Inc. v. Snider, 220 S.W.3d 905, 912 (Tex. 2007))); Bombardier
Aerospace Corp. v. SPEP Aircraft Holdings, LLC, 572 S.W.3d 213, 230 (Tex.
2019) (“We have long recognized the strongly embedded public policy favoring
freedom of contract. And, absent a compelling reason, courts must respect and
enforce the terms of a contract that the parties have freely and voluntarily
made.” (citations omitted)); Endeavor Energy Res., L.P. v. Discovery Operating,
Inc., 554 S.W.3d 586, 595 (Tex. 2018) (“[T]he law’s ‘strong public policy favoring
freedom of contract’ compels courts to ‘respect and enforce’ the terms on which
the parties have agreed.” (quoting Phila. Indem. Ins. Co. v. White, 490 S.W.3d
468, 471 (Tex. 2016))).

                                        3
Guar. Ins. Co. v. BITCO Gen. Ins. Corp., 640 S.W.3d 195, 198–99 (Tex.
2022). To do so, we look first to the contract’s text. See U.S. Metals, Inc.
v. Liberty Mut. Grp., Inc., 490 S.W.3d 20, 23 (Tex. 2015). We consider
the writing in its entirety, harmonizing and giving effect to all its
provisions so that none will be rendered meaningless. Italian Cowboy
Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 333 (Tex.
2011). And we interpret each provision with reference to the entire
agreement, as opposed to giving one provision controlling effect.
Moayedi v. Interstate 35/Chisam Rd., L.P., 438 S.W.3d 1, 7 (Tex. 2014).
      When parties disagree about the meaning of their written
contract (as they often do), we apply a well-settled methodology to
resolve the dispute. The first step is to determine whether the contract
is ambiguous. See Cook Composites, Inc. v. Westlake Styrene Corp., 15
S.W.3d 124, 131 (Tex. App.—Houston [14th Dist.] 2000, pet. dism’d by
agr.) (“There are two steps to an ambiguity analysis. First, we apply the
applicable rules of construction and decide if the contract is ambiguous.”
(citing Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983))). Whether a
contract is ambiguous is a question of law, Nettye Engler Energy, LP v.
BlueStone Nat. Res. II, LLC, 639 S.W.3d 682, 690 (Tex. 2022), and the
parties need not plead ambiguity for the court to determine that a
contract is ambiguous. See Progressive Cnty. Mut. Ins. Co. v. Kelley, 284
S.W.3d 805, 808 (Tex. 2009) (holding a contract ambiguous despite
neither party arguing ambiguity).
      The majority recognizes that a contract is unambiguous if its
language can be “given a certain or definite legal meaning or
interpretation.” Ante at 9 (quoting El Paso Field Servs., L.P. v. MasTec

                                     4
N. Am., Inc., 389 S.W.3d 802, 806 (Tex. 2012)).            But our law also
recognizes that, alas, some contracts are ambiguous. See, e.g., J.M.
Davidson, Inc. v. Webster, 128 S.W.3d 223, 232 (Tex. 2003) (“[W]e
conclude that the arbitration agreement is ambiguous.”). An ambiguity
exists when a contract is subject to two or more reasonable
interpretations after applying the pertinent rules of construction. Id. at
229. If a contract is ambiguous, our precedents make clear that the
parties may introduce extrinsic evidence to shed light on its meaning,
which becomes a fact issue for the jury. Barrow-Shaver Res. Co. v.
Carrizo Oil & Gas, Inc., 590 S.W.3d 471, 480 (Tex. 2019).
                                      II
       The majority offers various rationales for applying the procuring-
cause doctrine rather than considering extrinsic evidence.            First, it
concludes the agreement is not ambiguous but merely silent about which
sales constitute Perthuis’s “net sales.” Ante at 18. Next, it deems the
procuring-cause doctrine itself to be a principle of contract construction
that “reduce[s] the range of interpretations that qualify as ‘reasonable.’”
Id. Finally, it asserts that even if the agreement were ambiguous, there
would be no need for extrinsic evidence because it should be construed
against its drafter. 2 Id. at 20. The upshot, under any of these theories,

       2 Texas courts have noted the doctrine of contra proferentem is one of
last resort, Evergreen Nat’l Indem. Co. v. Tan It All, Inc., 111 S.W.3d 669, 676
(Tex. App.—Austin 2003, no pet.), and have applied it mostly in the insurance
context. See, e.g., Gonzalez v. Mission Am. Ins. Co., 795 S.W.2d 734, 737 (Tex.
1990). I harbor serious doubts that it would apply to resolve an ambiguity
here. See Horizon Pools & Landscapes, Inc. v. Sucarichi, No. 01-15-01079-CV,
2016 WL 7164025, at *3 (Tex. App.—Houston [1st Dist.] Dec. 8, 2016, no pet.)
(“The ostensible rule of construction that ambiguities in a contract should be

                                       5
is that we never reach the point at which the parties offer competing
evidence of what their imperfectly drafted commission agreement
actually meant, because the procuring-cause doctrine supplies the
answer.
       The majority, like Perthuis, relies on Goodwin v. Gunter 3 and
Keener v. Cleveland. 4         But those cases involved seller–broker
relationships in the nature of an independent-contractor relationship,
each formed to consummate the sale of a single piece of real property.
The procuring-cause doctrine makes sense in that context, and I do not
suggest disturbing Goodwin or Keener. But the doctrine is a misfit in
the   employment-at-will      context,     in   which   the    parties   likely
(1) understand their obligations to one another to end when their
employer–employee relationship does, absent an express agreement to
the contrary; and (2) adhere to established policies or industry practices,
or both, in determining how commissions are paid, regardless of whether
those policies or practices were reduced to writing upon hiring. Under
the majority’s approach, these considerations are meaningless if not
fully set out in the parties’ agreement. The procuring-cause doctrine

construed against its drafter plays no role ‘in making a fact finding about what
the parties intended.’” (quoting GTE Mobilnet of S. Tex. Ltd. P’ship v. Telecell
Cellular, Inc., 955 S.W.2d 286, 291 (Tex. App.—Houston [1st Dist.] 1997, writ
denied))).
       3 185 S.W. 295, 296 (Tex. 1916) (noting that for a real estate broker to
earn a commission, “a purchaser must have been produced through his efforts,
ready, able and willing to buy the property upon the contract terms”).
       4 250 S.W. 151, 152 (Tex. Comm’n App. 1923) (stating “when a real
estate broker is instrumental in bringing together the seller and a purchaser
who is acceptable to him, and they consummate a sale,” the agent is “the
procuring cause of the sale” and “is entitled to the commission agreed upon”).

                                       6
trumps them. This is, in my view, a significant and ill-advised departure
from both the at-will employment doctrine and the notion that Texas
courts should enforce and not rewrite the terms of the parties’ bargain.
       My view that the procuring-cause doctrine is a misfit in the at-
will employment context is borne out by Texas authorities in two
respects. First, there are few Texas cases applying the doctrine in the
last century, and courts that have applied it usually have done so in the
context of real-estate brokers who were engaged on a one-time basis to
sell a single piece of real property. 5 By contrast, courts adjudicating
commissions of employees do not apply the procuring-cause doctrine but
instead follow our established methodology in which the factfinder
considers extrinsic evidence to discern the meaning of ambiguous
commission agreements. 6
       Second, the Texas Workforce Commission, which adjudicates
approximately 20,000 wage claims per year, 7 does not employ the

       5See, e.g., Frady v. May, 23 S.W.3d 558, 565 (Tex. App.—Fort Worth
2000, pet. denied); Ramesh v. Johnson, 681 S.W.2d 256, 259 (Tex. App.—
Houston [14th Dist.] 1984, writ ref’d n.r.e.).
       6 See, e.g., Tex-Fin, Inc. v. Ducharne, 492 S.W.3d 430, 443–44 (Tex.
App.—Houston [14th Dist.] 2016, no pet.) (considering extrinsic evidence to
determine that substantial evidence supported the trial court’s reversal of
TWC’s rejection of a salesperson’s claim for post-termination compensation
under a bonus/commission agreement); Vassar Grp., Inc. v. Ko, No. 05-18-
00814-CV, 2019 WL 3759467, at *5 (Tex. App.—Dallas Aug. 9, 2019, no pet.)
(concluding an employment agreement where the parties had “differing
theories as to when a commission is ‘earned’ and payable post termination”
was “susceptible to at least two reasonable interpretations” and therefore
“ambiguous, creating a fact issue on the parties’ intent”).
       7 Igal v. Brightstar Info. Tech. Grp., Inc., 250 S.W.3d 78, 82 (Tex. 2008)
(“According to TWC, it receives approximately 20,000 wage claims per year for
initial decision . . . .”).

                                       7
procuring-cause doctrine.         Instead, TWC rules reflect that, unless
otherwise agreed, an employer must pay commissions “earned as of the
time of separation.” 8 Thus, to the extent TWC’s rules can be said to
articulate a default rule, it is not the procuring-cause doctrine. It is that
the end of the at-will relationship is the line of demarcation by which
commissions, if they will ever be owed, must be earned and identifiable.
In TWC’s view, commissions do not become payable—i.e., can no longer
be earned—after separation.
       TWC rules also contemplate that the agreement made when the
employee was first hired may not address all the particulars and that a
determination of commissions due post-termination should consider
“any special agreement” made upon separation. 9          This use of “any”
signals that TWC would consider agreements that elucidate the terms
of an earlier agreement, whether the agreement made upon separation
is express or implicit, written or oral, industry-specific or not.
                                        III
       Here, BMGL offered Perthuis a position as its Vice President of
Sales and Marketing in a two-page offer letter. As the court of appeals
noted, the terms relating to commission are “sparse.” 639 S.W.3d 108,
114 (Tex. App.—Houston [1st Dist.] 2020). The contract stated:
       Your annual base salary at the time of close will be
       $133,000. Provided the transaction has closed, your
       annual base salary will be $145,000 effective April 1, 2015.
       Your commission will be 3.5% of your net sales. You will
       also be eligible to participate in the BMGL [long-term

       8   40 TEX. ADMIN. CODE § 821.26(b).
       9   Id. § 821.26(c) (emphasis added).

                                        8
      incentive] plan effective April 1, 2015 with an LTI target of
      40% of your annual base salary with BMGL. . . . In
      addition, you will be eligible to receive a retention bonus.
      [Emphasis added.]
The offer letter did not elaborate on the commission structure beyond
the statement that Perthuis would be paid 3.5 percent of “your net
sales.” It did state that Perthuis’s employment would be “at-will” and
that he would be entitled to various employment benefits, including
medical, dental, and life insurance, as well as a sponsored 401(k) plan.
      Perthuis   contends    that   the    agreement   entitles   him   to
commissions on post-termination sales, while BMGL says it does not.
The logical starting point, then, is to ask whether the agreement
granting Perthuis a 3.5 percent commission on “your net sales”
definitively answers that question.       If its language unambiguously
shows that Perthuis is (or isn’t) entitled to commissions on sales after
his termination, then we construe the contract as a matter of law. See
El Paso Field Servs., 389 S.W.3d at 806. But if Perthuis and BMGL
have both proffered reasonable interpretations of the provision in
question, then the agreement is ambiguous and the trial court should
have tasked the jury with determining its meaning.
      Neither party in this case pleaded ambiguity.        Instead, each
argued that the agreement’s text unambiguously supported their
respective interpretations. The thrust of Perthuis’s argument was that
a commission is compensation for sales procured and thus the
employment agreement’s promise to pay him a 3.5 percent commission
on “[his] net sales” entitles him to the sales he procured under the
Natera deal and others, including those that postdate his departure.

                                    9
Perthuis also pointed out that the employment agreement did not
contain any limiting language conditioning commission payments on
continued employment with BMGL. 10
       BMGL, on the other hand, maintains the contract unambiguously
does not entitle Perthuis to commissions on post-termination sales. It
urges us to interpret the commission obligation in light of the
employment agreement in its entirety. 11            BMGL notes Perthuis
conceded at trial that the other benefits outlined in his employment
agreement, including salary, health insurance, and the 401(k)
contribution, ended the moment BMGL terminated his at-will
employment, even when the contract did not say so explicitly. The
commission provision, BMGL argues, should be interpreted the same
way: once Perthuis’s employment ended, BMGL’s obligation to pay
commissions on any sales ceased. And because Natera sales did not
occur during the term of employment, Perthuis’s termination preceded
the “commission-earning event.”        The court of appeals agreed with
BMGL’s interpretation, concluding “the plain language of the

       10 Cf. JCB, Inc. v. Horsburgh & Scott Co., No. 6:16-CV-146-RP, 2017 WL
6805045, at *3 (W.D. Tex. Oct. 25, 2017) (rejecting argument that plaintiff was
entitled to commissions on post-termination sales because the agreement
specified that commissions would be earned only “on sales from orders received
by the Company on or before the effective date of termination” (emphasis
added)), vacated in part on other grounds, 941 F.3d 144 (5th Cir. 2019).
       11 See Frost Nat’l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310, 312
(Tex. 2005) (stating we interpret contractual provisions “with reference to the
whole agreement” and “bearing in mind the particular business activity sought
to be served” (quoting Reilly v. Rangers Mgmt., Inc., 727 S.W.2d 527, 530 (Tex.
1987))).

                                      10
commission agreement indicates that it was intended as compensation
for Perthuis’s continued employment with BMGL.” 639 S.W.3d at 115.
      The trial court could have found the provision ambiguous and
submitted it to the jury even if neither party pleaded ambiguity. See
Kelley, 284 S.W.3d at 808. Both parties contemplated such a finding.
Indeed, Perthuis’s counsel discussed this possibility with the trial court
at the pretrial conference:
      If you’re arguing different meanings, then . . . the Court is
      supposed to determine, is it ambigu[ous] or not. [Emphasis
      added.]
And at the charge conference, BMGL argued the procuring-cause
doctrine should not have been submitted and alternatively asked the
trial court to submit the meaning of “Your commission will be 3.5% of
your net sales” to the jury, drawing the proposed question from Texas
PJC 101.8 on ambiguous contracts. By submitting the procuring-cause
doctrine—and decoupling at-will employment with BMGL from
Perthuis’s entitlement to commissions—the trial court leapfrogged the
central contractual dispute in the case: did the parties intend Perthuis
to earn commissions only on sales completed while he was employed
with BMGL? Or on sales to customers he procured while employed by
BMGL, for so long as they remained customers of BMGL? For a year
following his separation? Or something else? Under the procuring-
cause doctrine, it doesn’t matter. No one need bother with what the
parties intended and thought they had agreed.
      I   would    hold   that   both   parties   proffered   reasonable
interpretations of the commission provision and thus it is ambiguous
with respect to whether Perthuis is entitled to commissions on post-

                                   11
termination sales. 12 The agreement states that “Your commission will
be 3.5% of your net sales.” It provides no guidance on the meaning of
“commission” on “your net sales,” and it is not clear when a sale becomes
Perthuis’s sale such that he earns a commission. One possibility—the
theory Perthuis advances—is that “your net sales” encompasses all sales
Perthuis “set in motion” or had some hand in procuring, even if they
were not placed, invoiced, or paid for until after BMGL terminated him.
Ante at 22.    But it is also reasonable to interpret the commission
provision as entitling Perthuis to commissions only on “net sales”
finalized (i.e., sales for which an order had been placed, invoice had been
sent, or payment had been received) during the term of his employment.
       In short, both sides advance contract-interpretation arguments
that are reasonable.      I would thus hold the commission provision
ambiguous and remand for a new trial in which a jury would determine
whether, considering the extrinsic evidence, the parties intended that
BMGL would pay Perthuis commissions on post-termination sales. 13

        See Vassar Grp., Inc., 2019 WL 3759467, at *5 (finding ambiguous an
       12

employment agreement where the parties had “differing theories as to when a
commission is ‘earned’ and payable post termination”).
       13 This approach would, of course, require a jury to determine the
meaning of the ambiguous contract, but the majority’s approach yields the
same result: a jury trial in every case in which the procuring-cause doctrine
applies. Ante at 11 (noting that the procuring-cause doctrine “fully respects
the factfinder’s authority and obligation to determine whether the broker’s
action produced the purchaser, which generally is ‘purely a question of fact’”
(quoting Goodwin, 185 S.W. at 297)). Under my approach, the jury would
resolve the meaning of a contract term, a fairly discrete task. Under the
majority’s, the jury will have to determine for which individual sales—out of
potentially hundreds or thousands—a salesperson was the “procuring cause,”
a far more amorphous and potentially cumbersome task.

                                     12
See Barrow-Shaver, 590 S.W.3d at 480 (“When a court determines that
a contract is ambiguous, the meaning becomes a fact issue for the jury
and extraneous evidence may be admitted to help determine the
language’s meaning.”).
                                  *    *   *
       The parties had many drafting options at their disposal. BMGL
could have obtained its desired outcome by specifying in the agreement
that Perthuis was entitled to commissions only on sales orders received
while Perthuis was employed by BMGL. By the same token, Perthuis,
a sophisticated sales executive, could have bargained for a tail provision,
under which he would continue to be paid commissions for an agreed-
upon period of time post-termination for sales to customers he procured
during the term of his employment. 14 Skilled practitioners could no
doubt think of countless other mechanisms by which to unambiguously
specify the “sales” for which a salesperson is owed commission. And
Texas courts would enforce any such provisions to the letter, all toward
the end of effectuating precisely the deal the parties struck.
       The problem with the majority’s approach today is that it
abandons the worthy goal of effectuating parties’ intended meaning
whenever a human drafter falls short of describing the agreement with
perfect precision. In that case, says the majority, all bets are off: we
dispense with the work of ascertaining and enforcing the agreement’s

       14 See, e.g., Indus. III, Inc. v. Burns, No. 14-13-00386-CV, 2014 WL
4202495, at *12 (Tex. App.—Houston [14th Dist.] Aug. 26, 2014, pet. denied)
(rejecting plaintiff’s claim that it was entitled to a fee for introducing the
parties to a transaction because the transaction closed after the six-month tail
lapsed).

                                      13
true meaning, and instead apply the procuring-cause doctrine,
regardless of whether it has any relation to what these parties intended
their contract to mean. 15 Because I cannot bless this methodological
shortcut, I respectfully dissent.

                                           Rebeca A. Huddle
                                           Justice

OPINION DELIVERED: May 20, 2022

       15   The majority emphasizes that the procuring-cause doctrine
contributes to the “[s]tability and predictability of contract law.” Ante at 11.
While those are worthy goals, we have also recently held that predictability
through the use of mechanical default rules sometimes must yield to an intent-
focused inquiry. See Wenske v. Ealy, 521 S.W.3d 791, 792 (Tex. 2017)
(discouraging reliance on “default or arbitrary rules” and “reaffirming the
paramount importance of ascertaining and effectuating the parties’ intent”);
Hysaw v. Dawkins, 483 S.W.3d 1, 4 (Tex. 2016) (“Though we acknowledge the
call for more certain and predictable guidance, we reject bright-line rules of
interpretation that are arbitrary and, thus, inimical to an intent-focused
inquiry.”).

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