Thursday, August 15, 2019

Bankrupt(cy) Logic: TERI got paid for providing a private student loan guaranty, ergo TERI "funded" the loan program

Question Raised: Which Way Did the Money Flow?

IN RE GREER-ALLEN, Bankr. Court, D. Massachusetts July 29, 2019

The Education Resources Institute, Inc. (TERI) took fees for providing guaranties for private student loans originated by The First Marblehead Corporation (not First Marblehead Bank) under a "rent-a-charter" scheme involving numerous national banks. Late in the game, the FMC even bought a financial institution outright (UNION FEDERAL SAVINGS BANK, now defunct) to have even greater control over the make-money-quick scheme, and to get to mix its own harvest of high-interest subprime lemons into the securitization pool in 2007. That was just before the financial crash that brought on TERI's bankruptcy because the venerable nonprofit did not have sufficient reserves to cover the mounting defaults. It also ended Wall Street's appetite for Marblehead SLABS (Student Loan Asset Backed Securities).  

More than a decade down the road, a bankruptcy court in Massachusetts has now ruled that TERI "funded" the program under which the loans were originated. -- Duh! 

That (mis)characterization of TERI's role in the First Marblehead's National Collegiate Student Loan Scheme does serve a solid purpose, though: It makes the private non-federal student loans nondischargeable for former students in bankruptcy except under the "undue hardship" test. 

As for TERI's guaranty obligation to purchase defaulted loans for full on-the-books value, and thus hold bond investors harmless, TERI itself restructured in bankruptcy court, and shed its obligations under the guaranty agreements. 

The student loan debtors whose loans were guaranteed by TERI are not so lucky. 

At least TERI was good for Wall Street. 


Also see earlier post: Did TERI guaranty make NCSLT-securitized student loans nondischargeable under the Bankruptcy Code?
 In re Page, 592 B.R. 334 (8th Cir. BAP 2018) (dischargeability of TERI-guarnateed loan)
 In re Page, 592 B.R. 334 (8th Cir. BAP 2018).
A MORE TRADITIONAL VIEW OF "FUNDED" 

Comment on In re Page v. NCSLT 2006-1, No. 18-6011 (8th Cir. Nov. 20, 2018) (reversing summary judgment for Trust and remanding for fact determination regarding TERI's guaranty of private student loans securitized through National Collegiate Student Loan Trusts and its significance to the loan's dischargeability). 

C. TERI is a Nonprofit Institution, and it Funded the Education One Program by Guaranteeing All Loans Issued Under the Program

The third requirement is satisfied because the Education One Undergraduate Loan Program was funded in part by TERI, a nonprofit institution. This determination requires the Court to answer two questions affirmatively. First, was TERI a nonprofit institution? And second, did TERI fund, at least in part, the Education One Undergraduate Loan Program? The defendants have satisfied their burden of production on both questions; and Greer-Allen has not submitted evidence, beyond mere speculation, refuting TERI's nonprofit status or TERI's funding of the program.

1. TERI was a Nonprofit Institution

Ample evidence in the record shows that TERI was a nonprofit entity. All three loan agreements reference TERI's status as a nonprofit institution. All three trust agreements submitted by the defendants define TERI as "a private non-profit corporation organized under Chapter 180 of the Massachusetts General Laws." Def.'s Mot Summ. J. Ex. F, G, H. Further, the Guaranty Agreement, submitted under seal, between TERI and Bank One, N.A. also describes TERI as "a private non-profit corporation organized under Chapter 180 of the Massachusetts General Laws."

At oral argument, Greer-Allen's counsel insinuated that TERI may not have been operating as a nonprofit institution when these loans originated. However, Greer-Allen has not produced any evidence in furtherance of that claim. Summary judgment is appropriate where there is no genuine issue of material fact. Here, Greer-Allen has not put forth sufficient evidence to generate a genuine issue of material fact regarding TERI's nonprofit status.

Greer-Allen's counsel also argues that Congress understood "nonprofit institution," as the phrase is used in § 523(a)(8)(A)(i), to mean only nonprofit educational institutions. In other words, Greer-Allen contends that only educational loans made under a program funded by a nonprofit college should be excepted from discharge. Whether or not Congress intended such a meaning, this Court must give effect to the plain language Congress used. Section 523(a)(8)(A)(i) excepts loans made under programs funded by "nonprofit institutions" from discharge. The plain text is unambiguous and offers no reason to suggest that only certain nonprofit institutions satisfy the exception. Accordingly, the Court declines to adopt Greer-Allen's reading of § 523(a)(8)(A)(i).

2. TERI Funded the Education One Program by Guaranteeing All Education One Loans

The final issue the Court must decide is whether TERI funded the Education One Undergraduate Loan Program. The defendants put forth evidence suggesting that TERI did fund the program. Greer-Allen argues that the evidence the defendants produced cannot satisfy their burden of production. The Court finds that the defendants have satisfied their initial burden of production. On the other hand, Greer-Allen has provided no evidentiary basis for her assertion that TERI did not fund the program. Greer-Allen has not shown a genuine issue of material fact relating to the issue.

The defendants produced the loan documents for each of the three loans. The first loan states:
I acknowledge that the requested loan is subject to the limitations on dischargeability in bankruptcy contained in Section 523(a)(8) of the United States Bankruptcy Code. Specifically, I understand that [Bank One, N.A.] purchased a guaranty of this loan, and that this loan is guaranteed by The Education Resources Institute, Inc., a nonprofit institution.
The second loan contains identical language, and the third loan contains substantially similar language. The language in the loan documents provide some evidence that the program was funded by TERI because they indicate that Bank One and JPMorgan Chase purchased guarantees from TERI. A guaranty helps fund a program because it encourages a lender to extend credit that may not otherwise be available. However, the language in the loan documents is not, standing alone, sufficient to prove the existence of the guarantees. Another court in this circuit has denied summary judgment when a creditor sought to prove the existence of a guaranty based only upon similar language in a promissory note. See In re Wiley, 579 B.R. at 7. Here, the defendants have produced substantially more evidence, including the relevant guaranty and the defendants' trust agreements.

The summary judgment record also contains the trust agreement of each defendant. These agreements provide further evidence of the existence of the TERI guaranty agreement and TERI's funding of the Education One Program. The agreements define "TERI Guaranty Agreements" as the "Guaranty Agreements entered into between each of the Loan Originators and TERI as set forth on Schedule D attached hereto." The trust agreements define "TERI Guaranteed Loans" as "Student Loans originated under the Student Loan Programs owned by the Trust and guaranteed by TERI pursuant to the Guaranty Agreements." Schedule D of each trust agreement lists a Guaranty Agreement between TERI and Bank One, N.A. "for loans that were originated under Bank One's . . . Education One Loan Program." (ECF #29 Ex. F, G, H).

The trust agreements and their attached schedules indicate that the Education One Loan Program was funded by TERI. Each agreement lists the Program as one guaranteed by TERI. Each defines loans made under the Program as TERI Guaranteed Loans. The trust agreements bolster the notion that TERI played a part in funding the Program by guaranteeing loans issued under the Program.

Most notably, the defendants produced a guaranty agreement, executed on April 18, 2002, between Bank One and TERI. Under the agreement, TERI promised to guaranty all loans made under the Education One Undergraduate Loan Program. Section 2.1 of the guaranty states that "TERI hereby guarantees to Bank One, unconditionally. . . the payment of 100% of the principal of and accrued interest on every Loan as to which a Guaranty Event has occurred." Loans are defined as disbursements of funds made by Bank One under the Program. Guaranty Events are triggered by the failure of a borrower to make timely monthly payments. Thus, the agreement makes clear that TERI guaranteed all loans made under the Program, and that TERI was obligated to pay Bank One in the event of any default by a student loan borrower. The sweeping breadth of the guaranty makes clear that TERI helped fund the Program. Bank One and JPMorgan Chase Bank, its successor in interest, knew that all loans issued under the Program would be guaranteed by TERI in the event of default.

Considering the guaranty between Bank One and TERI, along with the aforementioned evidence, the defendants have met their initial burden of production. While the record lacks direct evidence of payments from TERI to the program, TERI's guaranty of all loans made under the Program conclusively establishes that the Program was funded in part by TERI. The blanket guaranty allowed Bank One, and its successor JPMorgan Chase, to offer student loans to borrowers like Greer-Allen.

VI. CONCLUSION

The evidence presented shows that there are no genuine issues of material fact in this adversary proceeding. The defendants demonstrated that Greer-Allen's loans are educational loans made under the Education One Loan Program. Further, they showed that the Education One Loan Program was funded by TERI, and that TERI was a nonprofit institution. Greer-Allen has failed to produce evidence that would create a genuine issue as to any one of these facts. At the summary judgment stage, the Court must make reasonable inferences in the nonmoving party's favor. Here, however, Greer-Allen has not produced evidence that would allow a reasonable factfinder to return a verdict in her favor. Accordingly, the three student loans at issue are non-dischargeable under 11 U.S.C. § 523(a)(8)(A)(i). For the aforementioned reasons, the defendants' motion for summary judgment is GRANTED and Greer-Allen's motion for summary judgment is DENIED. Judgment shall enter accordingly.

[1] Greer-Allen does not contend that her debts fall within the undue hardship exception. 




DEFINED TERMS FROM THE INDENTURE (NCSLT 2006-3)



TERI” means The Education Resources Institute, Inc., a Massachusetts non-profit corporation, or its successors and assigns.


TERI Deposit and Security Agreement” means the Deposit and Security Agreement dated as of September 28, 2006, by and among the Issuer, TERI and the Administrator with respect to the issuance of the Notes hereunder.


TERI Guaranty Agreement” means, with a respect to a Student Loan Program, a guaranty agreement between a Seller and TERI, together with the acknowledgment by TERI relating thereto. On the Issue Date, the TERI Guarantee Agreements shall be as listed on Schedule B to the Indenture.


TERI Guaranty Amount” means, pursuant to the TERI Guaranty Agreements, Financed Student Loans are guaranteed 100% as to payment of principal and interest.

TERI Guaranty Event” means a claim for payment on a Financed Student Loan made under any of the TERI Guaranty Agreements if: (i)(a) the Obligor has failed to make monthly principal and/or interest payments on such loan when due, provided such failure continues for a period of 150 consecutive days, (b) the Obligor has filed a Chapter 13 petition in a bankruptcy or, in a Chapter 7 proceeding has filed an adversary proceeding pursuant to 11 U.S.C. § 523(a)(8), or (c) the Obligor has died and (ii) the conditions set forth in such TERI Guaranty Agreement giving rise to an obligation on the part of TERI to make payment on such claim have otherwise been satisfied.
TERI Pledge Fund” means the fund by the name created in the TERI Deposit and Security Agreement whereby TERI will pledge a portion of its guaranty fees to the Trust, by deposit into a special trust account with the Indenture Trustee. 
  
BACK IN 2006 WHEN SLABS WERE THE RAGE 
NCSLT 2006-3 SECURITIZATION 

[FIRST MARBLEHEAD(TM) LOGO]
[CREATING SOLUTIONS FOR EDUCATION FINANCE.]

FOR IMMEDIATE RELEASE

                FIRST MARBLEHEAD ANNOUNCES PLANNED $1.56 BILLION
                     SECURITIZATION OF PRIVATE STUDENT LOANS

BOSTON, MA, SEPTEMBER 8, 2006 - The First Marblehead Corporation (NYSE: FMD)
today announced the scheduled closing of a securitization enabling the purchase
of private student loans by The National Collegiate Student Loan Trust 2006-3
(the Trust) and the related issuance of Student Loan Asset Backed Notes by the
Trust. The National Collegiate Funding LLC, as sponsor and depositor of the
securitization, has filed with the Securities and Exchange Commission a Free
Writing Prospectus regarding this transaction. The Company expects the
transaction to close on or about September 28, 2006.

The loans were originated by several different banks under various loan programs
that were structured with the assistance of First Marblehead. The Trust expects
to raise approximately $1.56 billion from the sale of asset-backed securities,
and plans to acquire private student loans with a principal and accrued interest
balance of approximately $1.18 billion in the transaction. The Trust expects
that approximately 70% of the loans to be purchased at closing will be "Direct
to Consumer" loans, and that the remaining 30% of the loans to be purchased at
closing will be "School Channel" loans.

The loans are guaranteed by The Education Resources Institute, Inc. (TERI), the
nation's oldest and largest guarantor of private student loans.

ABOUT FIRST MARBLEHEAD

First Marblehead, a leader in creating solutions for education finance, provides
outsourcing services for private, non-governmental, education lending in the
United States. The Company helps meet the growing demand for private education
loans by providing national and regional financial institutions and educational
institutions, as well as businesses and other enterprises, with an integrated
suite of design, implementation and securitization services for student loan
programs tailored to meet the needs of their respective customers, students,
employees and members.

THE AFTERMATH IN 2019 

In re SHARLENE GREER-ALLEN, Chapter 7, Debtor.
SHARLENE GREER-ALLEN, Plaintiff,
v.
NATIONAL COLLEGIATE STUDENT LOAN TRUST 2005-1, NATIONAL COLLEGIATE STUDENT LOAN TRUST 2005-3, and NATIONAL COLLEGIATE STUDENT LOAN TRUST 2006-3, Defendants.

Case No. 17-12935-FJB, Adversary Proceeding No. 17-1129.
United States Bankruptcy Court, D. Massachusetts, Eastern Division.

July 29, 2019.
Sharlene Greer-Allen, Plaintiff, represented by Richard N. Gottlieb, Law Offices of Richard N. Gottlieb.
National Collegiate Student Loan Trust 2005-1, National Collegiate Student Loan Trust 2005-3, National Collegiate Student Loan Trust 2006-1 & National Collegiate Student Loan Trust 2006-3, Defendants, represented by Morgan Ian Marcus, Sessions, Fishman, Nathan & Israel, LLC, Jennifer L. Markowski & Catherine Scott, Peabody & Arnold LLP.

MEMORANDUM OF DECISION

FRANK J. BAILEY, Bankruptcy Judge.

I. INTRODUCTION

Sharlene Greer-Allen ("Greer-Allen") entered into three loan agreements, subsequently assigned to the defendants, to help finance her education at Northeastern University. After receiving a discharge under Chapter 7 of the Bankruptcy Code ("the Code"), Greer-Allen commenced the present adversary proceeding, in which she seeks a determination that her discharge extinguished the aforementioned obligations. The defendants contend that 11 U.S.C. § 523(a)(8) excepts these loans from discharge. The parties have now filed competing motions for summary judgment. Because these student loans originated under a program funded by a nonprofit institution, § 523(a)(8)(A)(i) excepts these loans from a Chapter 7 discharge. Accordingly, the defendants are entitled to summary judgment, and the Court will allow their motion and enter judgment accordingly.

II. JURISDICTION

This proceeding is one to determine the dischargeability, under § 523(a)(8) of the Bankruptcy Code, of Greer-Allen's student loan obligations. It arises under the Bankruptcy Code and in a bankruptcy case and therefore falls within the jurisdiction given the district court in 28 U.S.C. § 1334(b). By standing order of reference, the District Court has referred the matter to the bankruptcy court pursuant to 28 U.S.C. § 157(a). It is a core proceeding within the meaning of 28 U.S.C. § 157(b)(1) and (b)(2)(I) (core proceedings include determinations of the dischargeability of particular debts). The bankruptcy court accordingly has authority to enter final judgment on the complaint. 28 U.S.C. § 157(b)(1) (authorizing bankruptcy judge to enter appropriate orders and judgment as to core proceedings).

III. LEGAL STANDARDS

Summary judgment is warranted when "there is no genuine dispute as to any material fact" and "the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "Creating a genuine issue of material fact requires hard proof rather than spongy rhetoric." Cowell v. Hale (In re Hale), 289 B.R. 788, 791 (1st Cir. BAP 2003) (citing Mesnick v. Gen. Elec. Co., 950 F.2d 816, 822 (1st Cir. 1991)). A court "must view the record in the light most favorable to the party opposing the motion, and must indulge all inferences favorable to that party." Daury v. Smith, 842 F.2d 9, 11 (1st Cir. 1988). To defeat a motion for summary judgment, the evidence presented must be sufficient to allow a reasonable factfinder to resolve an issue in favor of the nonmoving party. See Hale, 289 B.R. at 792.

In an action to determine the dischargeability of student loans, the lender bears the initial burden of showing "that the debt is of the type excepted from discharge under section 523(a)(8)." Bronsdon v. Educ. Credit Mgmt. Corp. (In re Bronsdon), 435 B.R. 791, 796 (1st Cir. BAP 2010). Upon such a showing, the burden of production shifts to the debtor. The lender bears the ultimate burden of proof by a preponderance of the evidence. See Grogan v. Garner, 498 U.S. 279, 286 (1991). Although Congress plainly intended to except certain debts from discharge, the § 523(a) exceptions should be construed narrowly. See In re Hyman, 502 F.3d 61, 66 (2d Cir. 2007).

IV. FACTUAL AND PROCEDURAL HISTORY

Beginning in 2004, Greer-Allen attended Northeastern University. Although she received financial aid in the form of both loans and grants, Greer-Allen sought out private loans in order to fully finance her education. Using a web portal maintained by First Marblehead Bank, Greer-Allen applied for and received three separate student loans. The first loan originated with Bank One, N.A. Bank One then merged with JPMorgan Chase Bank, N.A. Thus, the second and third loans originated with JP Morgan Chase, despite Greer-Allen applying for all three loans in the same manner. Each loan stated that it was made as part of the Education One Undergraduate Loan Program. Further, each loan agreement stated that "this loan is guaranteed by The Education Resources Institute, Inc. ("TERI"), a nonprofit institution."

The first loan agreement originated in 2004. Bank One loaned Greer-Allen $30,000 to help finance her attendance at Northeastern during the 2004-2005 school year. In 2004, the cost of attendance at Northeastern was $16,113. The first loan supplemented $8,034 in other forms of aid that Greer-Allen received for that academic year. Assuming that the $8,034 loan went towards educational expenses, the proceeds of the Bank One loan exceeded the cost of attendance by $21,921. Bank One subsequently assigned the first loan to defendant National Collegiate Student Loan Trust 2005-1.

Before the 2005-2006 academic year, Greer-Allen entered into a second loan agreement, this time with JPMorgan Chase Bank. While the second loan originated with JPMorgan Chase Bank, not with Bank One, the loan agreement contained identical terms. Greer-Allen received $30,000 in proceeds from the second loan, on the same terms as the first loan. That year, Greer-Allen again received $8,034 in other forms of aid, however, the cost of attendance at Northeastern had risen to $20,744. As a result, she received $17,290 in excess of the cost of attendance from the second loan proceeds. JPMorgan Chase Bank subsequently assigned the second loan to defendant National Collegiate Student Loan Trust 2005-3.

Greer-Allen received $33,792 for the 2006-2007 academic year as proceeds from the third loan. Once again, Greer-Allen received $8,034 in other aid. Although Greer-Allen increased the principal of her third loan, the cost of attendance for 2006-2007 fell to $15,259. Thus, her loan proceeds exceeded the cost of attendance by $26,567. JPMorgan Chase Bank subsequently assigned the third loan to defendant National Collegiate Student Loan Trust 2006-3.

In 2017, Greer-Allen filed her petition for relief under Chapter 7 of the Bankruptcy Code. She scheduled the amounts owed under the loan agreements as follows: $62,022.66 owed to NCSLT 2005-1 for the first loan, $55,730.50 owed to NCSLT 2005-3 for the second, and $71,803.75 owed to NCSLT 2006-3 for the third. On November 7, 2017, this Court entered an order discharging all of Greer-Allen's properly scheduled debts, excluding those excepted from discharge under 11 U.S.C. § 523(a).

V. DISCUSSION

The issue before the Court is whether the November 7, 2017 discharge order extinguished Greer-Allen's obligation to repay the debts owed to NCSLTs 2005-1, 2005-3, and 2006-3. The answer depends on whether the three loans at issue fall within the categories of student debt that, in 11 U.S.C. § 523(a)(8), Congress excepted from discharge. Because the loans were made under a program funded in part by a nonprofit institution, § 523(a)(8)(A)(i) excepts the loans from discharge. Accordingly, the defendants are entitled to summary judgment.

A Chapter 7 discharge removes a debtor's obligation to repay a wide array of prepetition debts. 11 U.S.C. § 727(b). Despite the general breadth of a Chapter 7 discharge, Congress set out certain categories of non-dischargeable debts. See generally 11 U.S.C. § 523(a). Among the debts excepted from Chapter 7 discharge are four categories of student loan obligations. 11 U.S.C. § 523(a)(8). Subject to an undue hardship exception not applicable here, the obligation to repay a debt falling within § 523(a)(8) survives the entry of a Chapter 7 discharge.

Section 523(a)(8) excepts four types of debt from discharge: first, educational loans (or benefit overpayments) made, insured, or guaranteed by a governmental unit, § 523(a)(8)(A)(i); second, educational loans (or benefit overpayments) "made under any program funded in whole or in part by a governmental unit or nonprofit institution," id; third, obligations "to repay funds received as an educational benefit, scholarship, or stipend," § 523(a)(8)(A)(ii); and fourth, qualified educational loans incurred by an individual, § 523(a)(8)(B). A loan falling within any of the four categories is non-dischargeable unless excepting it from discharge would impose an undue hardship on the debtor and the debtor's dependents.[1]

Greer-Allen contends that her student loans fall outside the scope of all four categories. Conversely, the defendants argue that the loans are excepted from discharge under the second, third, and fourth categories. The defendants acknowledge that the loans were not made, insured, or guaranteed by a governmental unit and therefore do not fall within the first category.

Section 523(a)(8) is written disjunctively, meaning that a loan must fall within just one of the four categories in order to be non-dischargeable. If, taking all reasonable inferences in Greer-Allen's favor, the defendants show that each loan falls within one of the non-dischargeable categories, then the defendants are entitled to summary judgment. On the other hand, Greer-Allen is entitled to summary judgment only if each loan falls outside the scope of all categories, despite taking all reasonable inferences in the defendants' favor. While the parties put forth numerous theories regarding the applicability of each of the three contested categories, the record and this Court's own docket show that all three loans fall within the second category. Each of the three educational loans was made under a program funded in part by a nonprofit institution. For that reason, the defendants are entitled to summary judgment. Because the determination that these loans are non-dischargeable under § 523(a)(8)(A)(i) is dispositive, the Court declines to reach the parties' arguments relating to the third and fourth categories (subsections 523(a)(8)(A)(ii) and 523(a)(8)(B), respectively).

In order for a debt to fall within the second category, three requirements must be satisfied. 11 U.S.C. § 523(a)(8)(A)(i); Wiley v. Wells Fargo Bank, N.A. (In re Wiley), 579 B.R. 1, 6 (Bankr. D. Me. 2017). First, the debt must be for either an educational loan or an educational benefit overpayment. 11 U.S.C. § 523(a)(8)(A)(i). Courts look to the purpose of the loan in order to determine whether it is an educational loan. In re Page,592 B.R. 334, 336 (8th Cir. BAP 2018) (citing In re Murphy, 282 F.3d 868 (5th Cir. 2002)). Second, the loans must have been made under a program.[2] Wiley, 579 B.R. at 6. Third, the program must have been funded, at least in part, by a governmental unit or a nonprofit institution. Id.

Importantly, it is the program, not the individual loan, that must have been funded by a governmental unit or nonprofit institution. In re O'Brien, 419 F.3d 104, 106 (2d Cir. 2005)("While it may be true that TERI merely guaranteed, without funding, [debtor's] particular loan, it is an entirely different question whether TERI funded the loan program under which [debtor's] loan was made."); Educ. Res. Inst., Inc. v. Taratuska (In re Taratuska),No. 07-11938-RCL, 2008 WL 4826279, at *3 (D. Mass. Aug. 25, 2008). "Congress intended to include within [section] 523(a)(8) all loans made under a program in which a nonprofit institution plays any meaningful part in providing funds." Educ. Res. Inst., Inc. v. Hammarstrom (In re Hammarstrom), 95 B.R. 160, 165 (Bankr. N.D. Cal. 1989). A nonprofit institution's guarantee of a loan made under a program serves as evidence that the program was funded by that nonprofit institution. See Taratuska, 2008 WL 4826279, at *6. This is because the existence of a guarantee plays a meaningful part in a program's ability to extend credit to student borrowers. See id.

A. These are Educational Loans Because Greer-Allen Entered Them to Fund Her Studies at Northeastern University

Greer-Allen's loans satisfy all three requirements of the second prong of § 523(a)(8)(A)(i). The three loans are educational loans because Greer-Allen entered into them to finance her studies at Northeastern University. Greer-Allen admits that she sought out the loans for this educational purpose.[3] The loan agreements and Greer-Allen's admissions show that she entered these loans to help fund her education. For this reason, these loans qualify as educational loans under § 523(a)(8)(A)(i), notwithstanding that Greer-Allen spent some of their proceeds for non-educational purposes.

B. Bank One and JPMorgan Chase Bank Issued the Loans as Part of the Education One Undergraduate Loan Program.

All three loans were made under the Education One Undergraduate Loan Program. Greer-Allen applied for each loan through a website maintained by First Marblehead Bank. While Bank One originated the first loan and JPMorgan Chase Bank originated both subsequent loans, all three loan agreements conspicuously state that they were made under the Education One Undergraduate Loan Program. Further, the defendants submitted the affidavit of Bradley Luke, an employee of Transworld Systems, Inc. ("TSI"). Def.'s Mot. Summ. J. Ex. C. TSI is responsible for subservicing student loans held by the defendants. Luke testified that all three loans were made under a loan program. Luke Aff. ¶ 16, 23, 31. Greer-Allen has submitted no evidence calling into question the existence of the loan program. Thus, even taking all reasonable inferences in Greer-Allen's favor, the defendants have shown that these loans were made under a program.

C. TERI is a Nonprofit Institution, and it Funded the Education One Program by Guaranteeing All Loans Issued Under the Program

The third requirement is satisfied because the Education One Undergraduate Loan Program was funded in part by TERI, a nonprofit institution. This determination requires the Court to answer two questions affirmatively. First, was TERI a nonprofit institution? And second, did TERI fund, at least in part, the Education One Undergraduate Loan Program? The defendants have satisfied their burden of production on both questions; and Greer-Allen has not submitted evidence, beyond mere speculation, refuting TERI's nonprofit status or TERI's funding of the program.

1. TERI was a Nonprofit Institution

Ample evidence in the record shows that TERI was a nonprofit entity. All three loan agreements reference TERI's status as a nonprofit institution. All three trust agreements submitted by the defendants define TERI as "a private non-profit corporation organized under Chapter 180 of the Massachusetts General Laws." Def.'s Mot Summ. J. Ex. F, G, H. Further, the Guaranty Agreement, submitted under seal, between TERI and Bank One, N.A. also describes TERI as "a private non-profit corporation organized under Chapter 180 of the Massachusetts General Laws."

At oral argument, Greer-Allen's counsel insinuated that TERI may not have been operating as a nonprofit institution when these loans originated. However, Greer-Allen has not produced any evidence in furtherance of that claim. Summary judgment is appropriate where there is no genuine issue of material fact. Here, Greer-Allen has not put forth sufficient evidence to generate a genuine issue of material fact regarding TERI's nonprofit status.

Greer-Allen's counsel also argues that Congress understood "nonprofit institution," as the phrase is used in § 523(a)(8)(A)(i), to mean only nonprofit educational institutions. In other words, Greer-Allen contends that only educational loans made under a program funded by a nonprofit college should be excepted from discharge. Whether or not Congress intended such a meaning, this Court must give effect to the plain language Congress used. Section 523(a)(8)(A)(i) excepts loans made under programs funded by "nonprofit institutions" from discharge. The plain text is unambiguous and offers no reason to suggest that only certain nonprofit institutions satisfy the exception. Accordingly, the Court declines to adopt Greer-Allen's reading of § 523(a)(8)(A)(i).

2. TERI Funded the Education One Program by Guaranteeing All Education One Loans

The final issue the Court must decide is whether TERI funded the Education One Undergraduate Loan Program. The defendants put forth evidence suggesting that TERI did fund the program. Greer-Allen argues that the evidence the defendants produced cannot satisfy their burden of production. The Court finds that the defendants have satisfied their initial burden of production. On the other hand, Greer-Allen has provided no evidentiary basis for her assertion that TERI did not fund the program. Greer-Allen has not shown a genuine issue of material fact relating to the issue.

The defendants produced the loan documents for each of the three loans. The first loan states:
I acknowledge that the requested loan is subject to the limitations on dischargeability in bankruptcy contained in Section 523(a)(8) of the United States Bankruptcy Code. Specifically, I understand that [Bank One, N.A.] purchased a guaranty of this loan, and that this loan is guaranteed by The Education Resources Institute, Inc., a nonprofit institution.
The second loan contains identical language, and the third loan contains substantially similar language. The language in the loan documents provide some evidence that the program was funded by TERI because they indicate that Bank One and JPMorgan Chase purchased guarantees from TERI. A guaranty helps fund a program because it encourages a lender to extend credit that may not otherwise be available. However, the language in the loan documents is not, standing alone, sufficient to prove the existence of the guarantees. Another court in this circuit has denied summary judgment when a creditor sought to prove the existence of a guaranty based only upon similar language in a promissory note. See In re Wiley, 579 B.R. at 7. Here, the defendants have produced substantially more evidence, including the relevant guaranty and the defendants' trust agreements.

The summary judgment record also contains the trust agreement of each defendant. These agreements provide further evidence of the existence of the TERI guaranty agreement and TERI's funding of the Education One Program. The agreements define "TERI Guaranty Agreements" as the "Guaranty Agreements entered into between each of the Loan Originators and TERI as set forth on Schedule D attached hereto." The trust agreements define "TERI Guaranteed Loans" as "Student Loans originated under the Student Loan Programs owned by the Trust and guaranteed by TERI pursuant to the Guaranty Agreements." Schedule D of each trust agreement lists a Guaranty Agreement between TERI and Bank One, N.A. "for loans that were originated under Bank One's . . . Education One Loan Program." (ECF #29 Ex. F, G, H).

The trust agreements and their attached schedules indicate that the Education One Loan Program was funded by TERI. Each agreement lists the Program as one guaranteed by TERI. Each defines loans made under the Program as TERI Guaranteed Loans. The trust agreements bolster the notion that TERI played a part in funding the Program by guaranteeing loans issued under the Program.

Most notably, the defendants produced a guaranty agreement, executed on April 18, 2002, between Bank One and TERI. Under the agreement, TERI promised to guaranty all loans made under the Education One Undergraduate Loan Program. Section 2.1 of the guaranty states that "TERI hereby guarantees to Bank One, unconditionally. . . the payment of 100% of the principal of and accrued interest on every Loan as to which a Guaranty Event has occurred." Loans are defined as disbursements of funds made by Bank One under the Program. Guaranty Events are triggered by the failure of a borrower to make timely monthly payments. Thus, the agreement makes clear that TERI guaranteed all loans made under the Program, and that TERI was obligated to pay Bank One in the event of any default by a student loan borrower. The sweeping breadth of the guaranty makes clear that TERI helped fund the Program. Bank One and JPMorgan Chase Bank, its successor in interest, knew that all loans issued under the Program would be guaranteed by TERI in the event of default.

Considering the guaranty between Bank One and TERI, along with the aforementioned evidence, the defendants have met their initial burden of production. While the record lacks direct evidence of payments from TERI to the program, TERI's guaranty of all loans made under the Program conclusively establishes that the Program was funded in part by TERI. The blanket guaranty allowed Bank One, and its successor JPMorgan Chase, to offer student loans to borrowers like Greer-Allen.

VI. CONCLUSION

The evidence presented shows that there are no genuine issues of material fact in this adversary proceeding. The defendants demonstrated that Greer-Allen's loans are educational loans made under the Education One Loan Program. Further, they showed that the Education One Loan Program was funded by TERI, and that TERI was a nonprofit institution. Greer-Allen has failed to produce evidence that would create a genuine issue as to any one of these facts. At the summary judgment stage, the Court must make reasonable inferences in the nonmoving party's favor. Here, however, Greer-Allen has not produced evidence that would allow a reasonable factfinder to return a verdict in her favor. Accordingly, the three student loans at issue are non-dischargeable under 11 U.S.C. § 523(a)(8)(A)(i). For the aforementioned reasons, the defendants' motion for summary judgment is GRANTED and Greer-Allen's motion for summary judgment is DENIED. Judgment shall enter accordingly.


[1] Greer-Allen does not contend that her debts fall within the undue hardship exception.

[2] The term "program" is not defined by the Code. While scores of published opinions discuss 523(a)(8) dischargeability, the Court is unaware of any case defining the parameters of a "program."

[3] Despite seeking the loans for an educational purpose, the parties suggest that Greer-Allen used some portion of the loan proceeds to purchase a home. At oral argument, Greer-Allen's counsel suggested that the use of loan proceeds for non-educational purchases forecloses their consideration as educational loans. However, "courts routinely look to the purpose of a loan to determine whether it is `educational.'" In re Page, 592 B.R. at 336. This Court finds the reasoning of In re Page persuasive and looks to the purpose for which the loans were entered in order to determine whether the loans are educational in nature.




Saturday, May 25, 2019

Special Interest Jurisprudence: How Intermediate Courts of Appeals Have Lowered Substantive Proof Requirements in Consumer Debt Cases in Texas

Proof of contract not necessarily required to prove breach-of-contract claim: There is another way  

A high number of consumer debt collection cases result in default judgments. Under Texas pleading rules, the contract does not have to be attached to a creditor’s petition, and when no answer is filed, the allegations in the petition are admitted except for unliquidated damages. The latter are typically “proven up” with an affidavit and at least one account statements attached to the creditor’s motion for default judgment.



That may not be so remarkable. What is more remarkable is that creditors routinely obtain judgments without proving the underlying contract even in contested cases because one intermediate court held in 2008 that proof of the contract is not required if the creditor proceeds on the alternative common-law theory of account stated. See Dulong v. Citibank (South Dakota), N.A., 261 S.W.3d 890, 893 (Tex. App.-Dallas 2008, no pet.) (Opinion by Justice Richter). 
In Dulong, the Dallas Court of Appeals fundamentally changed the common-law theory of account stated while purporting to rely on existing authority, and blessed its use for credit card debt collection. It cited a case in which the Fourteenth Court of Appeals in Houston held that an invoice for medical services provided to a patient was not enough to prove the reasonableness of charges in the absence of the patient’s agreement to the amount. See Neil v. Agris, 693 S.W.2d 604, 605 (Tex. App.-Houston [14th Dist.] 1985, no writ).
His sole attempt to prove an account stated was through his bookkeeper, who testified that she mailed appellant a bill which was never paid. There is no evidence in the record to show at the time the services were rendered or even subsequently that appellant agreed to pay $1700 to appellee for the professional services rendered. In the absence of an agreement fixing the price for the services, appellee was required to prove that the price charged for his services was usual, customary and reasonable; this he failed to do. We therefore sustain appellant's second point of error.
Several Texas courts of appeals have jumped on the bandwagon and have approved credit card debt collection without proof of the contract, blessing grant of judgments based on copies of credit card statements only. They cite Dulong, but don’t reexamine Dulong’s mistaken reliance on Neil v. Agris.
The only hold-out is the Second Court of Appeals in Fort Worth. See Morrison v. Citibank (South Dakota) N.A., 02-07-00130-CV, 2008 WL 553284 (Tex.App.-Fort Worth Feb. 28, 2008, no pet.) (mem. op.) (per curiam), an opinion with which the Dallas COA has expressly taken issue. See Compton v. Citibank (S.D.), N.A., 364 S.W.3d 415, 417-18 (Tex. App.-Dallas 2012, no pet.)(declining to follow the Fort Worth Court of Appeals' opinion in Morrison in favor of its own holding in Dulong and its reliance on that case in subsequent credit card cases).
Although there is a conflict among the appellate court, the Texas Supreme Court declined the invitation to review a credit card judgment based on account stated when a petition in such a case was filed in 2015. See Core v. Citibank, NA, No. 13-12-00648-CV, 2015 WL 1631680 (Tex. App.-Corpus Christi Apr. 9, 2015, pet. denied) (mem. op.). 
Proof of contract-formation not required to prove breach-of-contract claim: Exemptions available
Even when a creditor proceeds on a breach-of-contract theory, Texas appeals courts have gone out of their way to relax the substantive proof requirements.
Credit card agreements are typically not signed. In litigation, the legal theory of contract-formation is acceptance of credit terms by card use (or other form of credit utilization involving the account).
Although the matter is technically governed by the choice-of-law jurisdiction (Delaware for Discover Bank and FIA/BANA, Utah for American Express, South Dakota for Wells Fargo and Citibank, Virginia for Capital One), Texas common-law is typically applied because a motion for judicial notice of the other state’s law is rarely filed in collection suits.

Contractual choice of law comes up occasionally in American Express cases because of the distinct nature of the Utah statute of frauds and its statutory exceptions for credit cards, which do not fall under the statute of frauds in Texas even if the loan amount were to exceed $50,000. See TEX. BUS. & COMM. CODE ANN. § 26.02 (West, Westlaw through 2017 1st C.S.) (requiring a loan agreement exceeding $50,000 to be in writing, thus, creating a statute of frauds for certain loan agreements, but excepting (A) a credit card or charge card, and (B)  an open-end account, as that term is defined by Section 301.002, Finance Code, intended or used primarily for personal, family, or household use.).
Proof of a Meeting of the Minds on Contract Terms no longer necessary: Here is a consumer contract, you are a consumer, therefore you have agreed to it
Texas courts look to evidence of card use as shown by line items for charges on the credit card statement as proof that a contract was formed, but they do not require creditors to prove that a generic cardmember agreement attached to an affidavit is the one that was offered to and accepted by the cardholder.

In Wakefield v. Wells Fargo Bank, N.A., for example, the court of appeals found it sufficient that the defendant had the status of cardholder and that the generic agreement stated that it applied to cardholder even though the date on the agreement attached to the bank's summary judgment affidavit did not match the date attested to by the Bank’s affiant as the date of contract-formation, which was years earlier. Wakefield v. Wells Fargo Bank, N.A., No. 14-12-00686-CV, 2013 WL 6047031 (Tex. App.-Houston [14th Dist.] Nov. 14, 2013, no pet.) (mem op. by Justice Tracy Christopher).
Creditor’s affidavit testimony accepted as competent, Debtor’s dismissed as conclusory or immaterial
The matter of whether contractual rights predicated upon an unsigned contract (or terms-and-conditions document) are enforceable depends not only on the nature and quality of the proof of credit formation/acceptance, but whether the evidence is admissible.
In credit card cases, Texas courts of appeals find it sufficient when an affiant for a creditor testifies that an attached boilerplate agreement is the agreement governing the account without details regarding contract-formation, but reject or discount affidavit testimony by defendants disputing the creditor’s contentions as conclusory. See, e.g. Hay v. Citibank (S.D.) N.A., No. 14-04-01131-CV, 2006 WL 2620089, at *2 (Tex. App.-Houston [14th Dist.] Sept. 14, 2006, no pet.) (holding affidavit statement that customer "did not agree to the terms of any credit card" did not defeat summary judgment in creditor’s favor); also see Houle v. Capital One Bank (USA), N.A., No. 08-16-00234-CV, 2018 WL 6629698, at *5 (Tex.App.-El Paso Dec. 19, 2018, pet. filed) (opinion by Chief Justice Ann Crawford McClure) (concluding that defendant’s counter-affidavit disputing the bank’s claims and evidence did not raise a genuine issue of material fact).
In one recent summary judgment appeal, a Houston Court of Appeals found the creditor’s evidence “free from any contradictions or inconsistencies” even though there were only two credit card statements in the record and they had different account numbers on them. The court went so far as to cite a criminal case from a federal district court in a different state to support the factual proposition that two different account numbers can pertain to the same account to neutralize the discrepancy in the summary judgment record before it. See Germany v. Wells Fargo Bank, N.A., No. 14-17-00916-CV (Tex.App. – Houston [14th Dist.], Feb. 7, 2019, pet. filed)(memorandum opinion by Justice Christopher). 

By contrast, when the issue is whether a valid agreement to arbitrate exists in the employment context (which is also a matter of ordinary state contract law), much closer attention is given to the elements of contract-formation. See, e.g., Kmart Stores of Texas, L.L.C. v. Ramirez, 510 S.W.3d 559, 568-71 (Tex. App.-El Paso 2016, pet. denied)(finding fact issue regarding existence of arbitration agreement where employee testified unequivocally that she did not log in through Kmart's online portal to view an arbitration agreement, did not click on a screen acknowledging receipt of the policy, and had never been presented with an arbitration agreement at any time during her employment.); Red Bluff , LLC v Tarpley, No. 14-17-00505-CV (Tex.App. – Houston [14th Dist.] Dec. 21 , 2018, no pet.) (mem. op by Justice Brett Busby) (arbitration agreement not formed because proper procedure not followed).
Imputation of consent upon the consumer by the Court of Appeals in the absence of evidence 
Another approach taken by at least one Texas Court of Appeals to dispose of the issue of consumer consent is to simply impute consent on the consumer without the requisite evidence in the record that the consumer consented in the manner specified by the standard terms on the loan origination documents. See Foster v. National Collegiate Student Loan Trust 2007-4, No. 01-17-00253-CV, 2018 WL 1095760 (Tex. App.-Houston [1st Dist.] 2018, no pet.) (mem. op. by Chief Justice Radack)(invoking theory of joint construction of multiple contract documents and concluding that student-applicant consented to loan terms by signing application even though the loan terms were not yet known when she signed the application), contra Mock v. Nat'l Collegiate Student Loan Tr. 2007-4, No. 01-17-00216-CV, 2018 WL 3352913, at *6-7 (Tex. App.-Houston [1st Dist.] July 10, 2018, no pet. h.) (mem. op. by Justice Harvey Brown) (“The cancelled disbursement check is evidence that the Mocks agreed to the terms of the loan as set forth in the Credit Agreement and Disclosure Statement by endorsing and depositing the check that disbursed the loan proceeds.”).
In Foster, unlike in Mock, the Trust had not produced the disbursement check as proof of acceptance of the loan itself and the terms under which the loan was being offered (which were printed on the disclosure statement that post-dated the application), so the appellate court filled the evidentiary void with an ad-hoc legal theory that flies in the face of a fundamental tenant of contract-formation: the requirement of a meeting of the minds on essential terms. 
Additionally, in Foster, the loan history exhibit did not reflect that any payments were ever made. So it could not have be argued that the evidence of installment payments was a sufficient proxy for proof of acceptance in the absence of the disbursement check as proof that the loan was made in the amount claimed by the trust, and that it was accepted on the terms stated in the TIL Disclosure Statement.  See Benser v. Citibank (South Dakota), N.A., No. 08-99-00242-CV, 2000 WL 1231386, at *5 (Tex. App.-El Paso Aug. 31, 2000, no pet.) (concluding that defendant’s use of credit card and payments to account showed he understood obligation to bank and that contract had been formed). 
Also see Research Paper on Retroactive Judicial Imputation of Consent to (Arguably) Predatory Loan Terms into a Student's Loan Application: A Critique of Foster v. NCSLT 2007-4, No. 01-17-00253-CV, 2018 WL 1095760 (Tex. App. – Houston [1st Dist.] March 1, 2018, no. pet. h.). (June 13, 2018). Available at SSRN: 


Wednesday, May 22, 2019

Texas Contract Law: Was there a "Meeting of the Minds" on a Fixed Amount?

McAllen Hospitals, L.P. v. Lopez, No. 17-0733 (Tex. May 17, 2019) (judgment for plaintiffs on jury verdict reversed)

EMPLOYMENT LAW AND CREDITOR-CONSUMER LAW: ARE THEY ALIGNED?  

It will come as no surprise to Texas attorneys that the all-Republican Texas Supreme Court ruled for the hospital when the hospital sough supreme court help after its bid to obtain reversal of a jury trial verdict favoring nurses in an employment/pay dispute failed in the court of appeals. See McAllen Hospitals, L.P. v. Lopez, No. 17-0733 (Tex. May 17, 2019).

No contract despite two signatures on a job performance evaluation 
Employer's disclaimer: Performance Appraisal not a Contract 
In the trial court, the nurses were successful on their claim that they had been promised a fixed amount of annual salary as opposed to being compensated at an hourly rate for the number of hours worked. The Thirteenth Court of Appeals affirmed the trial court’s judgment entered on the jury’s verdict for the plaintiffs, but the Supreme Court reversed, finding that the evidence was not sufficient to support a meeting of the minds of the parties on the matter of the annual salary, and ordered that the nurses take nothing.
  
The bottom line: The jury got it wrong. The Court of Appeals got it wrong. There was no implied contract for an annual salary.
   
NAME THE PLACE WHERE CLAIMS OF EMPLOYEES, CONSUMERS, AND PERSONAL INJURY PLAINTIFFS GO TO DIE -- OR ARE TAKEN TO BE SNUFFED  

This is another case of employees coming to grief in the Texas Supreme Court. Nothing unusual or unexpected. But the dispositive legal issues in the case may have ramifications that go beyond the employment context because they involve matters of common-law contract law; specifically, the element of a meeting of the minds in the absence of a formal written contract executed by both parties.

The absence of a signed contract also describes other legal relationships such as that between a bank and a customer with respect to a credit card account. Most credit card agreements are not signed by the consumer, and many take the form of a generic boilerplate agreement that does not have the name of the customer or the number of the account printed on it so as to link it to a specific customer and account. (American Express is a notable exception in that regard, as is, to some extent, Bank of America f/k/a FIA Card Services, N.A.).

Alas, in credit card collection cases, Texas courts do not consistently hold creditors to the requirement that they prove a meeting of the minds on the terms by which credit was extended and indebtedness incurred. The caselaw on this issue is rather checkered as shown by the selection of the groups of cases below:  

Requirement to prove agreement on credit terms enforced:
  • Hooper v. Generations Cmty. Fed. Credit Union, No. 04-12-00080-CV, 2013 WL 2645111 (Tex. App.-San Antonio June 12, 2013, no pet.) (bench trial judgment reversed on insufficiency-of-evidence grounds and take-nothing judgment rendered on appeal)
  • Uribe v. Pharia, LLC, No. 13-13-00551-CV, 2014 WL 3555529 (Tex. App.-Corpus Christi July 17, 2014) (mem. op.) (judgment for alleged assignee of credit card debt reversed and take-nothing judgment rendered)
  • Williams v. Unifund CCR Partners Assignee of Citibank, 264 S.W.3d 231 (Tex. App.-Houston [1st Dist.] 2008, no pet.)(summary judgment for debt buyer reversed based on insufficiency of the evidence under the summary judgment standard) 
  • Tully v. Citibank (South Dakota), N.A., 173 S.W.3d 212 (Tex.App.-Texarkana 2005, no pet.) (summary judgment for Citibank on multiple theories of recovery reversed, including breach of contract, where agreement on interest rate applied on billing statements had not been proven).
Requirement to prove agreement on credit terms not enforced: 
  • Devine v. Am. Express Centurion Bank, No. 09-10-00166-CV, 2011 WL 2732583 (Tex.App.-Beaumont 2011, no pet.) (mem. op.) (summary judgment affirmed even though defendant filed controverting affidavit denying receipt of credit card agreement offered as summary judgment proof and denying agreement on interest rates).
  • Wakefield v. Wells Fargo Bank, N.A., No. 14-12-00686-CV, 2013 WL 6047031, at *4 (Tex. App.-Houston [14th Dist.] Nov. 14, 2013, no pet.) (mem. op.) (summary judgment for bank affirmed even tough year printed on generic cardmember agreement did not match year of contract-formation attested to by the bank's affiant, and despite absence of proof establishing contractual basis for interest rates).
CONTRACT-PROOF AVOIDANCE BY RESORT TO ALTERNATIVE LEGAL THEORIES

Additionally, several Texas courts of appeal have signed on to the proposition that a credit card plaintiff need not prove the terms of the underlying contract if it chooses to pursue its claim under a different theory of recovery, the most popular one (with the Creditors' Bar) being "Account Stated." 


The Texas Supreme Court has not weighed in the matter.

BELOW: SCOTX AND COURT OF APPEALS OPINIONS IN
 MCALLEN HOSPITALS LP VS. NURSE YOLANDA LOPEZ ET AL 

McAllen Hospitals, L.P. v. Lopez, No. 17-0733 (Tex. May 17, 2019)
McAllen Hospitals, L.P. v. Lopez, No. 17-0733 in SCOTX 

McALLEN HOSPITALS, L.P. D/B/A McALLEN MEDICAL CENTER AND SOUTH TEXAS HEALTH SYSTEMS, Petitioners,
v.
YOLANDA LOPEZ, SHERYL HAMER, ELMER DEGUZMAN AND RICHARD WECKER, Respondents.

No. 17-0733.
Supreme Court of Texas.
Argued March 12, 2019.
Opinion delivered: May 17, 2019.
   
Miguel A. `Michael' Pruneda, Jr., Rolando Quintana, for Elmer DeGuzman, Yolanda Lopez, Richard Wecker and Sheryl Hamer, Respondents.
Alfred John Harper, III, Arrissa K. Meyer, for South Texas Health Systems and McAllen Hospitals, L.P. d/b/a McAllen Medical Center, Petitioners.

On Petition for Review from the Court of Appeals for the Thirteenth District of Texas.

JUSTICE BUSBY delivered the opinion of the Court.

J. BRETT BUSBY, Justice.

In this breach-of-contract case, we consider whether there is legally sufficient evidence that an employer impliedly agreed to change the compensation of four employees from payment based on hours worked to fixed annual salaries. We hold there is no evidence that would have allowed reasonable, fair-minded people to find that the employer and its employees had a meeting of the minds on a fixed amount of pay. We therefore reverse and render judgment that the employees take nothing.

I. Background

Yolanda Lopez, Sheryl Hamer, Elmer DeGuzman, and Richard Wecker (the Nurses) worked as house supervisor nurses for McAllen Hospitals, L.P. (the Hospital). As house supervisors, the Nurses served as administrative representatives and supervised other nurses at the Hospital. The Nurses were paid based on the hours they worked.

In 2011, the Nurses sued the Hospital for breach of contract, among other things. They alleged the Hospital had promised to pay them annual salaries from 2007 through 2010 and breached that agreement by failing to pay them the full annual amounts. As evidence of the implied agreement, the Nurses relied on their 2009 and 2010 performance reviews listing an "Annual Rate" of pay, payroll change forms providing the Nurses were to receive a certain amount of "salary," and Hospital policies explaining that "exempt" employees (the classification the Hospital gave the Nurses) are paid to perform a job, while "nonexempt" employees are paid by the hour. The Nurses testified they had expected to be paid the salaries listed in the performance reviews and their supervisor did not inform them they would be compensated at an hourly rate. The Hospital argued it consistently paid the Nurses based on the hours they worked and the Nurses' pay rates were calculated by dividing the annual salaries by 2080 hours (which the Hospital deemed full-time working hours). In the Hospital's view, the Nurses were only entitled to the full sum if they worked full time during a given year, which they did not.

Question one of the jury charge asked: "Did Plaintiffs and Defendant agree that Plaintiffs would receive a fixed amount of pay?" In connection with this question, the trial court instructed the jury: "In deciding whether the parties reached an agreement, you may consider what they said in light of the surrounding circumstances, including any personnel files and policies, and including course of dealing. You may not consider the parties' unexpressed thoughts or intentions."[1] The jury found that the parties agreed the Nurses would receive a fixed amount of pay and that the Hospital breached the agreement. The jury awarded total damages of $389,014.68 for the period November 23, 2007 through December 31, 2010. The trial court rendered judgment accordingly.

The Hospital appealed, arguing the evidence was legally and factually insufficient to support the jury's findings of an implied agreement and breach, and evidence of the Nurses' exempt status was inadmissible. The court of appeals affirmed, concluding the evidence admitted in the trial court "would enable reasonable and fair-minded people to find that the Hospital agreed to pay the Nurses a fixed amount." 567 S.W.3d 748, 751 (Tex. App.-Corpus Christi-Edinburg 2017). The court of appeals also held that even if the evidence challenged by the Hospital was improperly admitted, the error was harmless because other documents admitted without objection contained the same information. Id.at 752.
The Hospital filed a petition for review with this Court, raising three issues. First, the Hospital asserts the evidence is legally insufficient to support the jury's finding that the Hospital agreed to pay the Nurses fixed salaries. Second, the Hospital argues that because no contract for fixed pay existed, the evidence was legally insufficient to support the jury's finding that the Hospital breached that contract. Third, the Hospital contends the trial court erred in admitting evidence regarding "exempt" and "nonexempt" employee classifications under the Fair Labor Standards Act. We granted the Hospital's petition for review. 62 Tex. Sup. Ct. J. 308 (January 18, 2019).

II. Analysis

Because we conclude the first issue is dispositive, we begin with that issue. As we stated in City of Keller v. Wilson, "[t]he final test for legal sufficiency must always be whether the evidence at trial would enable reasonable and fair-minded people to reach the verdict under review." 168 S.W.3d 802, 827 (Tex. 2005). We "credit favorable evidence if reasonable jurors could, and disregard contrary evidence unless reasonable jurors could not." Id. "It is the province of the jury to resolve conflicts in the evidence," but the jury must do so reasonably. See id. at 820, 827. "Evidence is legally insufficient to support a jury finding when (1) the record discloses a complete absence of evidence of a vital fact; (2) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a mere scintilla; or (4) the evidence establishes conclusively the opposite of a vital fact."Crosstex N. Tex. Pipeline, L.P. v. Gardiner, 505 S.W.3d 580, 613 (Tex. 2016).

The Nurses argue that the Hospital's agreement to pay them fixed salaries was an implied contract. The difference between implied and express contracts is the "character and manner of proof required to establish them." Haws & Garrett Gen. Contractors, Inc. v. Gorbett Bros. Welding Co., 480 S.W.2d 607, 609 (Tex. 1972). Both express and implied contracts require the element of mutual agreement, "which, in the case of an implied contract, is inferred from the circumstances." Id. "The conception is that of a meeting of the minds of the parties as implied from and evidenced by their conduct and course of dealing, . . . the essence of which is consent to be bound." Id.

As the parties alleging breach of contract, the Nurses had the burden of proving the existence of a valid contract. TRO-X, L.P. v. Anadarko Petroleum Corp., 548 S.W.3d 458, 464-65 (Tex. 2018). The Nurses argue that the Hospital impliedly agreed to pay them a fixed annual salary starting in 2007 and continuing through 2010. Consistent with this timeline, the damages portion of the jury charge specified that the alleged agreement was to pay the Nurses from November 23, 2007 through December 31, 2010. The charge also instructed the jury that in deciding whether the parties reached an agreement, it could consider the parties' course of dealing and the surrounding circumstances, including personnel files and policies. We therefore focus our analysis of the evidence primarily on the parties' course of dealing and the circumstances surrounding the alleged formation of the fixed-salary contract in 2007.

As to course of dealing, the evidence not only fails to support the Nurses' position but shows that the Hospital intended to pay the Nurses based on the hours they worked. Before filing suit, each of the Nurses had worked for the Hospital for years. Lopez had been employed by the Hospital since 1975, Hamer and Wecker began working for the Hospital around 1984, and DeGuzman started in 2000. The Nurses agreed that during the time period at issue, they were paid based on the hours they worked. Despite the significant differences between the annual salaries to which they claimed to be entitled and the wages they actually received, none of the Nurses complained of the discrepancy before filing their lawsuit. At the time of trial, Hamer and DeGuzman were still employed by the Hospital and were receiving an hourly wage. Thus, the record shows the Hospital paid the Nurses based on the hours they worked, and there are no indications from the course of dealing between the parties that the Hospital ever intended to do otherwise. Reasonable and fair-minded people could not infer from the Hospital's course of dealing that it agreed to pay the Nurses a fixed annual salary. See City of Keller, 168 S.W.3d at 827.
The Nurses respond by pointing to certain surrounding circumstances: their annual performance reviews, payroll change forms, provisions of the Hospital's employee handbook, and policies circulated by the Hospital's Accounting and Human Resources Departments. We conclude that this evidence does not show a meeting of the minds between the Hospital and the Nurses on an agreement regarding fixed pay beginning in 2007. Although the Nurses' choice to continue their employment with the Hospital could indicate agreement and acceptance by performance, the Hospital must first have given the Nurses some clear indication of its intent to be bound to pay them a fixed salary. See Haws & Garrett Gen. Contractors, 480 S.W.2d at 609. As we explain, none of the circumstances cited by the Nurses indicates that the Hospital had such an intent.

A. Performance Reviews

The record includes the Hospital's annual written performance reviews of the Nurses for the years 2007 through 2010, except that Hamer's 2007 review is missing. The reviews, which were completed in June or July of each year, contain an evaluation of each nurse's performance for the prior twelve months and state what each nurse's pay would be going forward. These reviews cannot serve as evidence of the Hospital's intent to contract with the Nurses for a fixed salary for two reasons.

First, the reviews are inconsistent with the Nurses' theory of contractual formation. If the Hospital intended to be bound to pay the Nurses a fixed annual salary from 2007 through 2010, as the Nurses contend, then circumstances surrounding the formation of the alleged agreement in 2007 would indicate that intent. To the contrary, the 2007 and 2008 performance reviews state the Nurses' new base rates of pay in dollars "per hour."[2] Only in 2009 and 2010 do the reviews list an "Annual Rate."[3]
Second, the Hospital's employee handbook states: "A performance review is not a contract or a commitment to provide a salary increase, a bonus, or continued employment. It is a communication process aimed at facilitating optimum employee performance." The Nurses argue the Hospital's reliance on the disclaimer in the handbook is misplaced because the performance reviews were not offered as express contracts themselves but rather as circumstantial evidence of implied contracts. But the question before us is not whether the handbook disclaimer prevents the performance reviews from being admitted into evidence for any purpose. Instead, the question is whether those reviews can provide evidence of a commitment by the Hospital to pay a fixed salary. The handbook expressly barred the jury from giving weight to the reviews for that purpose. See Fed. Express Corp. v. Dutschmann, 846 S.W.2d 282, 283-84 (Tex. 1993) (per curiam) (recognizing use of handbook disclaimer to prevent contract formation).

The Nurses also testified at trial that they (1) were never told they were going to be paid an hourly rate during the years at issue, and (2) believed the Hospital had promised them an annual salary.[4] The Nurses were consistently paid based on the hours they worked, however, and they attributed their belief in a promised salary to their written performance reviews and to annual discussions they had with their supervisor regarding the reviews. These oral discussions, which the written reviews specifically contemplated, were part of the review "communication process" and thus covered by the handbook disclaimer.

In other portions of their testimony, the Nurses stated their belief that they were promised annual salaries without identifying a basis for that belief. As to those statements, "[i]t is well settled that the naked and unsupported opinion or conclusion of a witness does not constitute evidence of probative force and will not support a jury finding even when admitted without objection." Dall. Ry. & Terminal Co. v. Gossett, 294 S.W.2d 377, 380 (Tex. 1956). Consequently, the Nurses' testimony would not enable reasonable and fair-minded people to find the Hospital intended to enter an agreement for fixed pay.

B. Payroll Change Forms

The supervisor who reviewed each nurse also completed a payroll change form for that nurse and submitted it to the Hospital's Payroll Department, which approved the change. The record contains no forms for 2007, but it does include forms for each nurse that were effective in July of 2008, 2009, and 2010. All of the July 2008 payroll change forms include both a printed annual "salary" and what appears to be a handwritten hourly rate.[5] With one exception, the hourly rates on the 2008 payroll change forms correspond with the hourly rates stated in the Nurses' 2008 performance reviews.[6] All of the 2009 and 2010 payroll change forms list a "salary" and no hourly rate.

As with the Nurses' 2007 and 2008 performance reviews, the payroll change forms do not support the Nurses' theory that the Hospital intended to pay them a fixed annual salary starting in 2007. The 2007 payroll change forms are not in the record, and the July 2008 forms state both an hourly and an annual rate of pay. Although the jury could have inferred from the 2008 forms that the Hospital intended to change the Nurses' pay from an hourly to an annual rate, the evidence is equally consistent with a simple change in the manner in which these forms were filled out by the Hospital's Human Resources Department, unconnected to any change in the form of pay from an hourly wage to an annual salary. When circumstantial evidence "is susceptible to multiple, equally probable inferences, requiring the factfinder to guess in order to reach a conclusion[,]" it is in legal effect no evidence. Suarez v. City of Tex. City, 465 S.W.3d 623, 634 (Tex. 2015). Because the 2008 payroll change forms are susceptible to equally probable inferences regarding the Hospital's intended form of pay, they are no evidence of its intent to contract with the Nurses for fixed pay beginning in 2007.

The 2009 and 2010 payroll change forms do state annual salaries, but there is no evidence linking those forms to an intent by the Hospital to pay fixed salaries beginning in 2007. Moreover, unlike the performance reviews, the payroll change forms were not signed by the Nurses and nothing in the record indicates the Nurses ever saw the forms. Thus, the Nurses could not have accepted any promise the Hospital made in those forms by performance. See generally Montgomery Cty. Hosp. Dist. v. Brown, 965 S.W.2d 501, 502 (Tex. 1998) ("A promise, acceptance of which will form a contract, `is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made.'" (quoting RESTATEMENT (SECOND) OF CONTRACTS § 2(1) (AM. LAW INST. 1981)).

C. Employee Handbook Provisions

The Nurses argue that provisions of the Hospital's employee handbook distinguishing between exempt and nonexempt employees show the Hospital treated the Nurses like salaried employees and thus provide some evidence of the Hospital's intent to contract with the Nurses for fixed pay. The Hospital does not dispute that the Nurses were classified as "exempt employees." The handbook states that "[nonexempt] employees are eligible for overtime pay for all hours worked over forty hours in a work-week," while "exempt employees are not eligible for overtime pay" and "may not be eligible for callback pay." According to the handbook, nonexempt employees are required to record their "hours worked each day," while exempt employees are required to record their "presence each day." In addition, "[e]veryone is expected to take at least thirty minutes for lunch each day," and nonexempt employees who are required to work through their lunch break will be paid for that time. The handbook does not address exempt employees who work through their lunch break.

As with the performance reviews, however, the handbook expressly bars the jury from giving contractual weight to these provisions. The handbook includes its own disclaimer, which states:
This Employee Handbook is designed to provide you with information concerning [the Hospital] and sets out informational guidelines. It is not a contract of employment. Conditions from time to time may require [the Hospital] to supplement, modify or eliminate benefits, work rules and guidelines described in this Handbook. [The Hospital] reserves the right to exercise its discretion, and unilaterally make changes, including both deletions from and additions to this Handbook. Such changes will be communicated to employees through normal channels and will become effective as indicated. If you have any questions about the content of this book, please consult your supervisor or a representative of the Human Resources Department.
(Emphasis added). As we have previously held, an employee handbook that contains such a disclaimer of contractual intent "is not a contract." In re 24R, Inc., 324 S.W.3d 564, 567 (Tex. 2010) (per curiam)see also Fed. Express Corp., 846 S.W.2d at 283Brown v. Sabre, Inc., 173 S.W.3d 581, 589 (Tex. App.-Fort Worth 2005, no pet.)(concluding a disclaimer demonstrated the employer's "clear intent not to create any binding contractual rights through its employee handbook"). Given this disclaimer, no reasonable jury could infer from the Hospital's statements in the handbook an intent to contract with the Nurses for fixed pay.

D. Hospital Policies

Finally, the Nurses point to several written policies issued by the Hospital's Human Resources Department. One policy elaborates on the overtime principles discussed in the handbook, including that exempt employees are not entitled to overtime pay. This policy further notes the Hospital "may . . . elect to pay exempt employees above their regular weekly salary in other situations." Another policy expands a bit on the handbook's provisions regarding benefit eligibility for full-time, part-time, temporary, and per diem employees, as well as for students and interns.

A third policy goes into more detail than the handbook about nonexempt employees receiving approval for overtime, when time is considered hours worked, and the procedure for dealing with unauthorized work time. The policy reiterates that nonexempt employees "are required to accurately record and report all hours worked," but it does not discuss time-keeping requirements for exempt employees. The policy also provides that "[g]enerally, under the Fair Labor Standards Act (FLSA), exempt employees are paid to perform a job and nonexempt employees are paid for hours worked."

It is unclear whether these policies were intended to stand alone or were changes or additions to the employee handbook. The policies speak to topics that are at least generally touched upon within the handbook and, for the most part, provide additional procedures or explanations regarding those topics. To the extent the policies are additions to the handbook, which the Hospital reserved the right to make, the handbook's disclaimer prevents them from serving as evidence of the Hospital's intent to contract with the Nurses.

Even if treated as separate from the handbook, however, these policies do not provide a basis for reasonable and fair-minded people to infer that the Hospital intended to provide the Nurses a fixed amount of pay. The record contains no evidence that any of the policies were in force when the alleged agreement was formed in 2007. Nor do the policies provide that exempt employees will be paid fixed salaries. The policies generally explain that exempt employees are "paid to perform a job" and not entitled to overtime pay. Even if the Nurses are correct that employees classified as "exempt" under the FLSA generally are entitled to payment on a salary or fee basis, this generalization is not evidence that the parties in this particular case agreed the Nurses would receive a fixed amount of pay. Indeed, the FLSA permits deductions from exempt employees' salaries (including for weeks they do not work), see 29 C.F.R. § 541.602, and one of the policies contemplates situations in which exempt employees will be paid more. In addition, the course-of-dealing evidence shows that the parties agreed the Nurses, although categorized as exempt employees, would be paid based on the hours they worked and not receive overtime.

"When the evidence offered to prove a vital fact is so weak as to do no more than create a mere surmise or suspicion of its existence, the evidence is no more than a scintilla and, in legal effect, is no evidence." Suarez, 465 S.W.3d at 634 (quoting Browning-Ferris, Inc. v. Reyna, 865 S.W.2d 925, 927 & n.3 (Tex.1993)). Here, the Hospital's policies create no more than a suspicion of the Hospital's intent to contract for a fixed amount of pay; therefore, they are no evidence of the Hospital's intent to do so. See id.

III. Conclusion

In summary, the evidence before the jury was insufficient to establish the Hospital's intent to be bound by an agreement to pay the Nurses fixed annual salaries. See generally Haws & Garrett Gen. Contractors, 480 S.W.2d at 609. The course of dealing among the parties demonstrates only that the Nurses were paid based on the hours they worked, the performance reviews and employee handbook are subject to explicit disclaimers of contractual intent that prevent them from serving as evidence of the Hospital's agreement to pay the Nurses fixed salaries, and the Hospital's policies are either subject to the handbook's disclaimer or constitute no more than a scintilla of evidence regarding the Hospital's contractual intent. Even viewed in the light most favorable to the verdict, the evidence is insufficient to allow reasonable, fair-minded people to conclude there was a meeting of the minds between the Hospital and the Nurses as to the issue of fixed pay. Consequently, we hold the evidence was legally insufficient to support the jury's finding that the Hospital agreed to pay the Nurses a fixed salary. Because there was no agreement over fixed pay, the evidence was likewise insufficient to support the jury's verdict that the Hospital breached that agreement.

Having concluded the Hospital is entitled to judgment in its favor, we do not reach its third issue regarding the admission of evidence of exempt and nonexempt employee status under the FLSA. We reverse the court of appeals' judgment and render judgment that the Nurses take nothing.

[1] The Nurses unsuccessfully objected to the inclusion of "course of dealing" in the instruction. They do not challenge the instruction on appeal.
[2] One page of Hamer's 2008 review does list what appears to be an annual pay rate, but elsewhere in the form it states an hourly rate.
[3] Hand-written notations were added to most of the 2010 reviews, marking out "Hourly" and writing in "Annual." "Hourly" is scratched out on Wecker's 2010 review and what appears to be an annual amount of pay is written in; however, "Annual" is not handwritten on the form as it is for the other Nurses.
[4] Not all of the Nurses consistently testified that the annual salary they were promised was a "fixed amount of pay," as the jury charge required. At certain points, DeGuzman and Wecker testified that they had to work full-time hours to be entitled to the annual salary, which they did not do.
[5] The handwritten hourly rates for Lopez and DeGuzman, when multiplied by 2080, match the printed salaries on the payroll change forms. The handwritten hourly rate listed for Wecker does not correspond with the printed salary on the form; however, the handwritten rate also does not correspond with the hourly rate listed on Wecker's 2008 performance review. The correct hourly rate from his 2008 performance review, when multiplied by 2080, does match the printed salary on his 2008 payroll change form. The handwritten hourly rate on Hamer's 2008 payroll change form does not correspond with the printed salary when multiplied by 2080, and there does not appear to be any way to make those numbers match.
[6] The handwritten hourly rate on Wecker's 2008 payroll change form does not correspond with the rate provided in his 2008 performance review.

McALLEN HOSPITALS, L.P. D/B/A McALLEN MEDICAL CENTER AND SOUTH TEXAS HEALTH SYSTEMS, Appellants,
v.
YOLANDA LOPEZ, SHERYL HAMER, ELMER DE GUZMAN AND RICHARD WECKER, Appellees.

No. 13-16-00138-CV.
Court of Appeals of Texas, Thirteenth District, Corpus Christi, Edinburg.
Delivered and filed April 27, 2017.
Steven M. Gonzalez, Gerald E. Castillo, for McAllen Hospitals, L.P. d/b/a McAllen Medical Center and South Texas Health Systems, Appellant.

On appeal from the County Court at Law No. 8, of Hidalgo County, Texas.
Before Chief Justice Valdez and Justices Rodriguez and Benavides.

MEMORANDUM OPINION

Memorandum Opinion by Chief Justice ROGELIO VALDEZ.

Appellants, McAllen Hospitals, L.P. d/b/a McAllen Medical Center and South Texas Health Systems (the "Hospital"), appeals from a verdict in favor of appellees, Yolanda Lopez, Sheryl Hamer, Elmer De Guzman, and Richard Wecker (the "Nurses"). By four issues, the Hospital contends that employee evaluations were not contracts, the evidence is legally and factually insufficient to support the jury's answers to questions one and two, and evidence of the Nurses' status as exempt employees was inadmissible. We affirm.

I. BACKGROUND

The Nurses are former and current employees of the Hospital and were classified as "exempt" employees. The Hospital's various policies explained the rights of exempt and nonexempt employees. The Nurses assert that each year they met with their supervisors to discuss a written evaluation, which also provided the amount of their yearly salaries for the previous year and for the upcoming year. It is undisputed that the Nurses were paid hourly. The Nurses argued "that in light of all the surrounding circumstances (the representations made to them orally and through the evaluation forms, their statuses as exempt employees, the handbook, the Hospital's policies, and the course of dealing between the parties) an implied contract existed, whereby the Hospital agreed to pay [the Nurses] a fixed amount of pay per year." The jury agreed with the Nurses and awarded them the difference between the amounts paid and the amounts quoted in the evaluations. This appeal followed.

II. EXPRESS CONTRACT

By its first issue, the Hospital contends that the Nurses sued for breach of an express agreement relying on the evaluations and/or the handbook and neither constitutes a contract as a matter of fact or law.[1] We disagree with the Hospital's interpretation of the Nurses' allegations. The Nurses argued at trial that there was an implicit agreement for the Hospital to pay them a fixed amount as opposed to an hourly amount of pay and relied on the evaluations and handbook to support that theory. Question one of the charge asked: "Did the [Nurses] and the [Hospital] agree that the [Nurses] would receive a fixed amount of pay?"[2] (Emphasis added). The jury answered "Yes" for each of the Nurses. The charge, however, did not mention the evaluations or the handbook. We conclude that the jury found that there was an implied promise based on the evidence presented. Therefore, because the jury did not find that the evaluations or handbook constituted a contract, we overrule the Hospital's first issue.

III. SUFFICIENCY OF THE EVIDENCE

By its second issue, the Hospital contends that the evidence is legally and factually insufficient to support the jury's finding that the Hospital agreed to pay the Nurses a fixed amount. The Hospital claims that whether an implied contract exists is a question of law reviewed de novo. However, the Hospital cites no authority, and we find none, supporting such a claim. Instead, whether an implied contract exists is a question of fact, which requires making inferences from circumstantial evidence regarding mutual assent. See Double Diamond, Inc. v. Hilco Elec. Coop., Inc., 127 S.W.3d 260, 267 (Tex. App.-Waco 2003, no pet.)see also Domingo v. Mitchell, 257 S.W.3d 34, 40 (Tex. App.-Amarillo 2008, pet. denied). Accordingly, we will not perform a de novo review.

A. Standard of Review

In a legal sufficiency review, we review the evidence in the light most favorable to the verdict, crediting any favorable evidence if a reasonable fact-finder could and disregarding any contrary evidence unless a reasonable fact-finder could not. City ofKeller v. Wilson, 168 S.W.3d 802, 821-22 (Tex. 2005). The test for legal sufficiency is "whether the evidence at trial would enable reasonable and fair-minded people to reach the verdict under review." Id. at 827. In a factual sufficiency review, we examine all of the evidence in the record and if the finding is so against the great weight of the evidence as to be clearly wrong and unjust, we will reverse. Ortiz v. Jones, 917 S.W.2d 770, 772 (Tex. 1996) (per curiam).

B. Discussion

First, it appears that the Hospital challenges the sufficiency of the evidence supporting mutual intent to contract. See Houston Med. Testing Servs., Inc. v. Mintzer, 417 S.W.3d 691, 698 (Tex. App.-Houston [14th Dist.] 2013, no pet.) ("[A]n implied-in-fact contract `arises from the acts and conduct of the parties, it being implied from the facts and circumstances that there was a mutual intention to contract.'"). The jury heard the following relevant evidence: (1) the evaluations identified the salaries as annual salaries; (2) the evaluations did not state that the Nurses needed to work a minimum number of hours to earn the stated salaries; (3) the evaluations showed that the Nurses were exempt employees; (4) the evaluations were executed by the Nurses' supervisors and the salaries were approved by the Human Resources Department; (5) the employee handbook stated that exempt employees only clocked in to "record [their] presence each day," while nonexempt (hourly) employees had to clock in and out to demonstrate the hours worked; (6) the employee handbook provided that nonexempt employees were paid extra if they worked through their meal breaks while exempt employees, were not; (7) the employee handbook provided that nonexempt employees were entitled to overtime pay while exempt employees were not; (8) the employee handbook provided that nonexempt employees were entitled to "callback pay" while exempt employees were not; (9) the Hospital's document entitled HR.1022C stated that exempt employees were paid for performance of a job, and were not paid for the hours worked while nonexempt employees were paid for the hours actually worked; (10) the Hospital's document entitled HR.2001c stated that exempt employees would receive a "regular weekly salary"; (11) each of the Nurses testified that the Hospital agreed to pay them an annual salary and they had not been informed that they would be paid hourly; and (12) none of the Nurses testified that to receive the quoted yearly salary, they were required to work forty hours.

Viewing this evidence in the light most favorable to the verdict, crediting favorable evidence if a reasonable fact-finder could and disregarding contrary evidence unless a reasonable fact-finder could not, we conclude that the evidence as set out above would enable reasonable and fair-minded people to find that the Hospital agreed to pay the Nurses a fixed amount. City of Keller, 168 S.W.3d at 821-22. The jury's finding of mutual assent may have been inferred from the circumstantial evidence, including evidence that the Nurses were classified as exempt employees that would be paid for the job performed and not paid on an hourly basis. See id.; Domingo, 257 S.W.3d at 40. And, after examining all of the evidence in the record, we cannot conclude that the jury's finding is so against the great weight of the evidence as to be clearly wrong and unjust. Ortiz, 917 S.W.2d at 772.

The Hospital also argues that it is undisputed that the Nurses were paid for the hours worked. However, the jury found that the Hospital agreed to pay each of the Nurses a fixed yearly amount regardless of the hours worked; thus, by paying the Nurses an hourly wage, the Hospital breached its agreement to pay them a fixed amount. Next, the Hospital argues that the salaries quoted in the evaluations only applied if an employee worked forty hours per week, and none of the Nurses worked forty hours per week. 

However, the jury heard this evidence and was free to disbelieve it. Golden Eagle Archery, Inc. v. Jackson, 116 S.W.3d 757, 761 (Tex. 2003) (explaining that a fact finder is the sole judge of the witnesses' credibility and may choose to believe one witness over another); Maritime Overseas Corp. v. Ellis, 971 S.W.2d 402, 411 (Tex. 1998) (providing that we may not substitute our own judgment for that of the jury, even if we would reach a different answer based on the evidence). We are not persuaded by these arguments. We overrule the Hospital's second issue.[3]

IV. ADMISSION OF EVIDENCE

By its fourth issue, the Hospital argues that the trial court erroneously admitted evidence of the Nurses' "status as `exempt' or `non-exempt' employees" "because it was misleading, not relevant, and improperly suggested to the jury that federal law supported [the Nurses'] theory that the [H]ospital promised to pay them a salary." The Hospital cites the record wherein (1) a witness read from the Hospital's forms, (2) the terms exempt and nonexempt were mentioned in passing, (3) the Nurses' trial counsel quoted from HR.1022c and asked if the witness disagreed with the form's statement that exempt employees are paid to perform a job and nonexempt employees are paid for the hours worked, and (4) the Nurses' trial counsel argued to the jury that the Hospital's documents explained the requirements of exempt and nonexempt employees.

The Hospital's HR.2001c, HR.1022 and HR.1024 forms were admitted without objection. Each form, cites federal law, and provides information that: (1) nonexempt employees must receive overtime pay; (2) exempt employees "are paid to perform a job," while nonexempt employees are paid for hours worked; (3) nonexempt employees are required to accurately record and report the hours worked; and (4) nonexempt employees who work beyond forty hours a week must receive overtime. The complained-of evidence either states the same information included on the forms or quotes those forms. Thus, even assuming error, we conclude that admission of the same or similar evidence, without objection, rendered any alleged error harmless. See Richardson v. Green, 677 S.W.2d 497, 501 (Tex. 1984) ("The general rule is that error in the admission of testimony is deemed harmless if the objecting party subsequently permits the same or similar evidence to be introduced without objection."). We overrule the Hospital's fourth issue.

V. CONCLUSION

We affirm the trial court's judgment.

[1] The Nurses agree that neither evaluations nor handbooks constitute an employment contract. Therefore, we agree with the Nurses that whether the employment contracts constituted an express contract is not an issue in this case.
[2] The charge instructed, in relevant part, that "[i]n deciding whether the parties reached an agreement, you may consider what they said in light of the surrounding circumstances, including any personnel files and policies, and including course of dealing."
[3] By its third issue, the Hospital contends that if we sustain either its first or second issues, the evidence is legally and factually insufficient to support the jury's finding that it failed to pay the Nurses a fixed amount. The Hospital states that it "understands that if the jury could consider the evaluation form as a contract of employment, and if there is legally and factually sufficient evidence that the hospital agreed to pay" a fixed amount or salary as "noted on the evaluation sheet," there is also legally and factually sufficient evidence that the hospital breached the agreement. We have overruled the Hospital's first and second issues; thus, we need not address its third issue as it is not dispositive. See TEX. R. APP. P. 41.7.


CASE CITE: McAllen Hospitals, L.P. et al. v. Yolanda Lopez et al., No. 17-0733, 2019 WL 2147252 (Tex. May 17, 2019)