Court Opinion

ID: 820925
Source: CourtListenerOpinion
Date Created: 2013-02-20 18:21:51.962407+00
Date Added: 2024-06-11T15:21:17.234406
License: Public Domain

Case: 11-11012       Document: 00512148472         Page: 1     Date Filed: 02/20/2013

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                    Fifth Circuit

                                                                            FILED
                                                                         February 20, 2013
                                       No. 11-11012
                                                                           Lyle W. Cayce
                                                                                Clerk

LIBERTY MUTUAL INSURANCE COMPANY,

                                           Plaintiff-Appellant
                                           Cross-Appellee.

versus

HISAW & ASSOCIATES GENERAL CONTRACTORS, INCORPORATED,

                                           Defendant-Appellee,

RICHARD L. HISAW; KATHRYN REHM-HISAW,

                                           Defendants-Appellees
                                           Cross-Appellants.

                   Appeals from the United States District Court
                        for the Northern District of Texas
                                   (09-CV-867)

Before HIGGINBOTHAM, SMITH, and ELROD, Circuit Judges.
JERRY E. SMITH, Circuit Judge:*

       *
        Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
                                                                                (continued...)
     Case: 11-11012       Document: 00512148472   Page: 2   Date Filed: 02/20/2013

                                   No. 11-11012

       Richard and Kathryn Hisaw own Hisaw & Associates General Contractors,
Incorporated (“HAGC”). The Hisaws and HAGC entered into a surety agreement
with Liberty Mutual Insurance Company (“Liberty Mutual”) under which they
indemnified Liberty Mutual and agreed not to make certain types of transfers
of assets. After HAGC defaulted on its contracts, Liberty Mutual had to pay the
bondholders and sought recovery from HAGC and the Hisaws, challenging sev-
eral transfers and payments made by HAGC as invalid under the agreement.
The district court granted summary judgment partially in favor of Liberty
Mutual and partially in favor of the Hisaws and awarded attorney’s fees to Lib-
erty Mutual. We affirm in part, reverse in part, and vacate the fee award.

                                         I.
       As part of the surety agreement, HAGC and the Hisaws indemnified Lib-
erty Mutual for payment of bonds: HAGC and the Hisaws would be jointly and
severally liable for “losses, fees, costs and expenses” incurred by Liberty Mutual
as a result of the enforcement of a payment and performance bond. The agree-
ment provided that
       [i]n the event of any payment by the Surety, the Principals and
       Indemnitors further agree that in any accounting between the Sur-
       ety and [HAGC], or between the Surety and the [Hisaws], or either
       or both of them, the Surety shall be entitled to charge for any and
       all disbursements made by it in good faith in and about the matters
       herein contemplated by this Agreement.

       The parties amended the agreement to protect Liberty Mutual further in
case of enforcement of the bonds and to limit the Hisaws’ individual exposure.
The amendment stated that

       *
         (...continued)
R. 47.5.4.

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      [t]he joint and several liability of the [Hisaws] to the Surety under
      the General Agreement of Indemnity, shall be specifically limited to
      the full extent of any funds or assets of [HAGC] received by the
      [Hisaws] as a result of distributions, payments or dividends or bon-
      uses, redemption of stock, loans, or sale of assets which reduce the
      TANGIBLE NET WORTH of [HAGC] below Three Million Dollars
      ($3,000,000); or which occur while [HAGC’s] Tangible Net Worth is
      below Three Million Dollars ($3,000,000).

The corollary provision forbade HAGC from making distributions, payments,
and the like when its assets fall below $3 million or when doing so would cause
its assets to follow below that threshold.
      After execution of the agreement and amendment, owners of bonds
enforced their rights against Liberty Mutual, which claimed losses of
$16,278,896. The Hisaws and HAGC then took several actions that Liberty
Mutual argues violated the amendment.
      First, HAGC repaid a $585,000 loan that the Hisaws had given to HAGC.
Second, HAGC paid down a $501,222.22 line of credit for which Richard Hisaw
was a personal guarantor. Third, HAGC paid $131,214 in rent to its landlord,
Two Chilies Holding (“Two Chilies”), a corporation owned by the Hisaws. Fourth,
HAGC paid $10,675 to wind up a 401(k) retirement account. Fifth, HAGC paid
a retainer of $321,865.80 to counsel who subsequently represented HAGC and
the Hisaws in this matter. Sixth, the Hisaws paid $532,134 to HAGC for operat-
ing expenses. Seventh, HAGC paid $18,519 in operating expenses. Finally,
HAGC paid $152,300 to ADP Payroll to pay employee salaries, including $45,000
to the Hisaws. Liberty Mutual contended that these payments occurred after
HAGC’s assets were under the $3 million threshold and were therefore prohib-
ited under the amended agreement.
      In the district court, Liberty Mutual argued that each of the payments was
either a distribution, payment, or the “result of” a loan and was “received by” the
Hisaws, and therefore, under the amendment, the Hisaws were liable for the

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                                   No. 11-11012

amount of those transfers. Based on the plain meaning of “loan” and the text of
the indemnity agreement taken as a whole, the court concluded that “loans”
meant loans from HAGC to the Hisaws. The court therefore held that the repay-
ment by HAGC of the loan from the Hisaws was not a distribution as a result of
a loan as contemplated by the indemnity agreement. It denied Liberty Mutual’s
motion for summary judgment and granted the Hisaws’ motion for summary
judgment as to the loan repayment.
      The court also determined that payments under the indemnity agreement
and amendment did not include transfers to third parties from which the Hisaws
or HAGC “merely derive[d] [indirect] personal benefit.” The court concluded that
the repayment of the line of credit, the rental payments, the 401(k) payments,
and the payments to attorneys were not “received by” the Hisaws. The court
therefore denied Liberty Mutual’s motion for summary judgment and granted
the Hisaws’ motion on these claims as well. The court similarly denied Liberty
Mutual’s motion for summary judgment and granted the Hisaws’ as to the oper-
ating expense payments and salaries, except that it held that the salary paid by
HAGC to the Hisaws was a distribution, and so it granted summary judgment
in that amount to Liberty Mutual. A subset of these summary-judgment rulings
forms the basis of this appeal.1
      Finally, the court awarded Liberty Mutual attorney’s fees of $354,349 to
be paid by HAGC and the Hisaws. The Hisaws objected to that award as unrea-
sonable; because Liberty Mutual had recovered only $45,000, a fraction of what
it sought, such high fees were excessive. The court agreed that the fee was
unreasonable and reduced it by 50%.

                                        II.

      1
        The court also granted summary judgment against HAGC for losses sustained by
Liberty Mutual and dismissed a number of contract claims. None of those is appealed.

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                                  No. 11-11012

      Summary judgments are reviewed de novo. See Meditrust Fin. Servs.
Corp. v. Sterling Chems., Inc., 168 F.3d 211, 213 (5th Cir. 1999). Summary judg-
ment is appropriate where, taking the evidence in the light most favorable to the
nonmoving party, there is no genuine issue of material fact and the moving party
is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317,
322 (1986). See also FED. R. CIV. P. 56(a). We apply Texas law to interpret the
disputed contract. Amerisure Ins. Co. v. Navigators Ins. Co., 611 F.3d 299,
309–310 (5th Cir. 2010).
      Awards of attorney’s fees are reviewed for abuse of discretion. Mathis v.
Exxon Corp., 302 F.3d 448, 461 (5th Cir. 2002). A court “‘abuses its discretion
when its ruling is based on an erroneous view of the law or a clearly erroneous
assessment of the evidence.’” United States v. Ebron, 683 F.3d 105, 125 (5th Cir.
2012) (quoting United States v. Yanez Sosa, 513 F.3d 194, 200 (5th Cir. 2008).
“State law controls both the award of and the reasonableness of fees awarded
where state law supplies the rule of decision.” Mathis, 302 F.3d at 461.

                                        III.
      Under Texas law, we “must give [a contract’s] words their plain meaning,
without inserting additional provisions into the contract.” Nat’l Union Fire Ins.
Co. of Pittsburgh, Pa. v. Crocker, 246 S.W.3d 603, 606 (Tex. 2008) (citations omit-
ted). We must also strive to “ascertain and give effect to the intent of the parties
as that intent is expressed in the contract.” Seagull Energy E&P, Inc. v. Eland
Energy, Inc., 207 S.W.3d 342, 345 (Tex. 2006) (citations omitted). The intent
inquiry, however, is an objective one, and it is subject to the plain meaning of the
words in the contract. “In the usual case, the instrument alone will be deemed
to express the intention of the parties for it is objective, not subjective, intent

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that controls.”2
       Liberty Mutual appeals the holdings regarding the rent payment, the
repayment of the line of credit, the law-firm retainer payment, and the loan
repayment. The Hisaws appeal the holding that their salary constituted a “dis-
tribution” and the attorney’s fees.
       Liberty Mutual argues that the rent payment made by HAGC to Two Chil-
ies was a fund or asset of HAGC “received by” the Hisaws as a result of a pay-
ment in direct contravention of the amended indemnity agreement. The Hisaws
respond that they did not “receive” the payment; it was instead received by Two
Chilies. The district court concluded that a payment to a third party was not an
asset or fund “received by” the Hisaws.
       The plain language of the contract prohibits the Hisaws from receiving
funds or assets from HAGC as a result of payments or distributions. The Hisaws
did not receive any funds from HAGC; instead, Two Chilies, a corporate entity
distinct from the Hisaws, received them.
       Liberty Mutual urges us to give the contract a “common sense” meaning
to include transfers to third parties that might benefit the Hisaws. It argues
that a transfer to a corporate entity owned by the Hisaws is the same as a
transfer to them. Finding otherwise, Liberty Mutual asserts, would lead to
“absurd” results. We reject this argument.
       Liberty Mutual does not argue that the rental payment was a sham trans-
action or that the Hisaws in any way undermined the separate corporate iden-
tity of HAGC or Two Chilies. Though Liberty Mutual is correct that we avoid
absurd results, this outcome is not that. If Liberty Mutual wanted to prevent
transfers to third parties, owned by the Hisaws or not, it could have written such

       2
         Matagorda Cnty. Hosp. Dist. v. Burwell, 189 S.W.3d 738, 740 (Tex. 2006) (“The Courts
will give effect to the intention of the parties as expressed or as is apparent in the writing.”
(citation omitted)).

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a provision into the contract. Under Texas law, “[a]n unambiguous contract will
be enforced as written.” David J. Sacks, P.C. v. Haden, 266 S.W.3d 447, 450
(Tex. 2008) (citation omitted). We may not write new restrictions into contracts.
Because the rent payment was not “received by” the Hisaws but rather by Two
Chilies, it does not violate the amended indemnity agreement.
       Similar reasoning applies to the repayment by HAGC of a line of credit for
which Richard Hisaw was a personal guarantor. Liberty Mutual argues that
Richard Hisaw benefited from HAGC’s repayment of the line of credit as if he
had been given the money directly. This indirect benefit, discharge of potential
liability, Liberty Mutual reasons, constitutes an asset effectively “received by”
the Hisaws. Liberty Mutual once again asks us impermissibly to insert a provi-
sion into the contract. The money used to repay the line of credit did not go to
the Hisaws but to HAGC’s creditors. The fact that Richard Hisaw was a guaran-
tor is immaterial; he received no funds or assets from HAGC as required under
the agreement.3 This transfer thus did not violate the contract.
       We again apply the same understanding of funds or assets “received by”
the Hisaws to HAGC’s payment of a retainer to a law firm to represent it and the
Hisaws. Liberty Mutual contends that the retainer was essentially the Hisaws’
using HAGC’s funds to purchase services for themselves, such that they were
“receiving” those funds. We disagree.
       The retainer was a legitimate transfer by HAGC to a law firm. Though
the Hisaws undoubtedly benefited from the firm’s dual representation of them
and HAGC, they did not “receive” funds or assets from HAGC via a “payment”
or “distribution.” The plain meaning of receiving funds or assets does not
include receiving benefits form a third party as a result of a business decision by

       3
         This conclusion is further bolstered by analogy to federal tax law. A guarantor who
is released by the principal’s repayment has not realized cancellation of debt income for tax
purposes. See Whitmer v. Comm’r, 71 T.C.M. 2213 (T.C. 1996).

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HAGC. Again, the contract could have been worded otherwise. The retainer
payment did not violate the amended indemnity agreement.
      Liberty Mutual argues that HAGC’s repayment of loans that had been
extended to it by the Hisaws were funds or assets received by the Hisaws “as a
result of . . . loans.” It suggests that this is the exact type of receipt of funds
contemplated by the agreement. It is irrelevant, it maintains, that the loan was
given to HAGC rather than to the Hisaws.
      Liberty Mutual’s understanding of “as a result of,” however, is implausible.
We “must construe contracts as a whole.” City of Keller v. Wilson, 168 S.W.3d
802, 811 (Tex. 2005) (citation omitted). The language “as a result of” precedes
a list of kinds of transfers, all of which necessarily flow to the Hisaws rather
than from them. For example, the Hisaws may not receive HAGC funds “as a
result of” stocks, bonuses, and distributions. These three types of transfers
would flow from HAGC to the Hisaws.
      The challenged loans, however, flowed from the Hisaws to HAGC, which
was not giving them loans as it would give distributions or bonuses. The loan
repayment is thus outside the scope of the other types of transfers. In the con-
text of the agreement, loans meant loan transfers to the Hisaws rather than
repayment of loans given by the Hisaws. Liberty Mutual’s overly broad interpre-
tation of “as a result of . . . loans” just does not fit.
      Moreover, Liberty Mutual all but admitted that it understood “as a result
of” loans to mean that loans could not be given by HAGC to the Hisaws. During
his deposition, the senior surety counsel at Liberty Mutual testified that he
interpreted loans under the indemnity agreement as “loans made by the prin-
cipal to the individual indemnitors.” After that statement, counsel for Liberty
Mutual asked for a break in the deposition, and, after consultation, the witness
explained that he had been confused and was “senile.” He changed his testi-
mony somewhat and said that loans could mean either loans to or from the

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Hisaws. We find the original explanation persuasive and the retraction telling.
      Finally, Liberty Mutual’s overly broad understanding of “as a result of”
would lead to absurd results. For example, if HAGC took out a loan to pay the
Hisaws’ salary, that payment would be “a result of” loans. Such an outcome is
not contemplated by the agreement’s plain meaning. We therefore reject Liberty
Mutual’s theory, and we agree with the district court that HAGC’s loan repay-
ments to the Hisaws were not prohibited by the amended agreement.
      The final challenged transfer is the $45,000 salary to the Hisaws. The
district court found that the payment constituted a “distribution” received by
them and thus violated the agreement. The Hisaws, as cross-appellants, argue
that this was not a “distribution.” They cite to the technical definition of distri-
bution as a dividend, redemption of shares or stock, or a payment as a result of
a liquidation. See TEX. BUS. ORGS. CODE § 21.002(6)(a). They also point out that,
on numerous occasions, Liberty Mutual’s counsel asserted that salaries are not
distributions and were not contemplated as such in the indemnity agreement.
      Reading the contract as a whole, we agree with the Hisaws. The word dis-
tribution is a term of art, defined as a “corporation’s direct or indirect transfer
of money or other property, or incurring of indebtedness to or for the benefit of
its shareholders, such as a dividend payment out of current or past earnings.”
BLACK’S LAW DICTIONARY 543 (9th ed. 2009). A salary, as distinguished from a
distribution, is “[a]n agreed compensation for servicesSSesp[ecially] professional
or semiprofessional servicesSSusu[ally] paid at regular intervals on a yearly
basis.” Id. at 1454. The $45,000 payment was not a transfer “to or for the bene-
fit of [ ] shareholders” but instead was made as a part of a number of salary pay-
ments to employees of HAGC by HAGC’s payroll vendor, ADP Payroll. It consti-
tuted a salary, paid to the Hisaws for their work as employees of HAGC, which
is distinct from a distribution.
      If we were to give “distribution” as broad a meaning as did the district

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court, it would include essentially any type of transfer to the Hisaws. Giving it
that broad meaning would render the rest of the amendment superfluous. “Dis-
tribution” would swallow “payments or dividends or bonuses, redemption of
stock, loans, [and] sale[s] of assets.” Under Texas law, all of a contract’s provi-
sions must be given effect “so that none are rendered meaningless.” Stine v.
Stewart, 80 S.W.3d 586, 589 (Tex. 2002) (citation omitted). We thus interpret
“distribution” narrowly in conjunction with its common legal meaning and
reverse the district court’s contrary holding.
       The court awarded attorney’s fees under Section 38.001 of the Texas Civil
Practice and Remedies Code, which provides that “[a] person may recover rea-
sonable attorney’s fees . . . if the claim is for: . . . an oral or written contract.” To
recover fees, “a party must (1) prevail on a cause of action for which attorney’s
fees are recoverable, and (2) recover damages.”4 Where zero damages are
awarded, the party is not entitled to fees. Green, 951 S.W.2d at 390. Because
we reverse on the issue of salary payments, Liberty Mutual has not prevailed on
any cause of action, so it cannot recover attorney’s fees under Texas law. We
vacate the award.
       In summary, the judgment is AFFIRMED as to the payment of rent, pay-
ment of the line of credit, payment of a retainer, and repayment of loans and is
REVERSED as to the payment of salaries; the award of attorney’s fees is
VACATED. Judgment is RENDERED accordingly.

       4
         Green Int’l, Inc. v. Solis, 951 S.W.2d 384, 390 (Tex. 1997) (citing State Farm Life Ins.
Co. v. Beaston, 907 S.W.2d 430, 437 (Tex. 1995)).

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