An insurer that became ensnared in its own corporate practices has lost an appeal to the Fort Worth Court of Appeals as a result.
United Healthcare of Texas, Inc. et al. v. Low-T Physicians Services, P.L.L.C., Low-T Physicians Professional Association, and Low-T Physicians Group, P.L.L.C. (No. 02-22-00170-CV; delivered January 5, 2023) commenced with a United Healthcare audit of payments to Low-T. The audit determined that United had overpaid Low-T to the tune of $2 million. After some back and forth and efforts to settle, Low-T mailed a check to United as a “full” settlement. United’s lockbox, administered by Wells Fargo, immediately scanned and cashed the check. United then issued a refund Low-T for that amount and continued to seek the $2 million. Low-T sued for a declaratory judgment confirming that the check was an accord and satisfaction under § 3.311, Business & Commerce Code (Uniform Commercial Code). The trial court agreed and dismissed the case. United appealed.
The court of appeals affirmed. United argued on appeal that the great weight and preponderance of the evidence established the applicability of two statutory exceptions to the accord and satisfaction rule and that the evidence was so weak that it would be “manifestly unjust” to apply the “due diligence statute that overrides the statutory” rule. Since it determined that the due diligence issue would dispose of the case, the court did not reach the application of the exceptions. § 3.311 holds that “a claim to a bona fide dispute is extinguished by an accord and satisfaction if the person against whom the claim is asserted tenders a check to the claimant, the tendered check is in full satisfaction of the claim, the check (or accompanying correspondence) bears a conspicuous statement to that effect, the tender is in good faith, and the claimant cashes the check.” Though § 3.311 contains two exceptions, those exceptions may be overridden if “within a reasonable time before collection of the instrument was initiated, the claimant . . . knew that the instrument was tendered in full satisfaction of the claim.” Under the general definitions in § 1.202, B&CC, “for an organization, ‘knowledge . . . is effective . . . from the time it would have been brought to the . . . attention [of the individual conducting the transaction] if the organization exercised due diligence.” Courts have construed the test as when the organization “knew or should have known” of the tender.
This is where United’s internal corporate practices came back to haunt them. Having received the audit letter, Low-T contacted the company to initiate discussions. Low-T’s general counsel ended up talking to two people, an assistant general counsel whose address was in Minnesota and in investigator whose mailing address was in Atlanta (though Low-T did not know she was likewise located in Minnesota). Low-T initiated an appeal procedure, and after a back-and-forth the investigator reduced the overpayment from $2.4 to about $2 million and demanded payment payable to a lockbox address in Hapesville, Georgia. A lengthy email exchange between Low-T and the investigator raised a number of questions and legal issues. United’s assistant general counsel responded to the legal questions on letterhead listing the Minnesota address. That letter instructed Low-T to communicate with the investigator about the settlement. Both the assistant GC and the investigator participated in a subsequent teleconference to discuss settlement. Ultimately, Low-T offered to settle for about $24,000 and sent by certified mail seven copies of the settlement proposal to the seven different United addresses it had on hand, including Minnesota and Atlanta. Each letter contained a copy of the settlement check, which Low-T mailed to the lockbox address it had been given. The check stated on the notation line “[f]ull and final payment [claim number] and was issued by Low-T Shared Services, LLC.” The settlement letters were mailed on August 31, and United admitted it received at least two copies, one sent to Atlanta and one to Salt Lake City, on September 5. On September 11, the lockbox received the check, where it was immediately deposited and scanned (along with the settlement agreement) into United’s document-tracking system. On the morning of the next day, the lockbox staff notified United representatives of the check and the letter. When the investigator got notice, she emailed Low-T rejecting the settlement. Low-T brought suit seeking a declaratory judgment that the settlement check was an accord and satisfaction. United counterclaimed, asserting breach of contract. After a bench trial on the accord and satisfaction issue, the trial court ruled in favor of Low-T.
We apologize for the lengthy recitation of a lot of boring facts, but they are crucial to an understanding of the court’s decision to affirm the trial court’s decision. Neither side argued that the two United employees involved in the dispute had “subjective awareness” of the settlement proposal before the check was cashed. The question then became whether “they should have known, i.e., whether the settlement offer ‘would have [already] been brought to [their] attention if the organization had exercised due diligence.” Under the Texas UCC, due diligence can be shown if the organization “maintains reasonable routines for communicating significant information to the person conducting the transaction and there is reasonable compliance with the routines. (citation omitted). However, due diligence does not ‘require an individual acting for the organization to communicate information unless the communication is part of the individual’s regular duties or the individual has reason to know of the transaction and that the transaction would be materially affected by the information’” (citation omitted).
United argued that there was no evidence adduced at trial regarding the company’s “routines” or compliance or non-compliance with them with respect to routing information received at a non-lockbox mailing address. (As noted above, correspondence addressed to the investigator went to an Atlanta address but had to be forwarded to the investigator in Minnesota). The court responded that such evidence was not required because the United assistant general counsel’s involvement in the settlement negotiations should have known about the settlement letter and check because it had been sent directly to him in Minnesota. In his deposition, the GC testified that he found the letter in his files but didn’t know how it got there and that he didn’t see it until after the check had been cashed. The court of appeals declined to substitute its judgment about the credibility of this testimony for the trial court’s. It also noted that the evidence did indicate that the GC received a copy of the letter as much as six days before the check was cashed in Georgia. Courts have held that even three days’ notice may be a reasonable time under the accord and satisfaction rule, so six days’ notice easily met the standard. With respect to the GC, the court held that he should have known about the settlement within a reasonable time before the check was cashed.
Even though this would have disposed of the matter, the court went on to say that the due diligence override would have applied to the investigator as well. The fact that she and the GC insisted that Low-T send correspondence through the Atlanta office despite their physical location in Minnesota did not make the court any more disposed to accept their argument that they could not have received timely communication of the settlement. The undisputed facts showed that the Atlanta office received the settlement on September 5, that it was addressed to the investigator, and that when the check was cashed on September 11 the Atlanta office had not yet forwarded the letter to the investigator in Minnesota. The court contrasted this unfortunate fact with the promptitude with which United cashed checks sent to its lockbox address and reported their receipt up the food chain.
This case illustrates what can happen when a multi-state business’s right hand does not know what the left is doing. It also hints at the frustration Low-T must have experienced in trying to figure out where to send correspondence to the two United employees handling the settlement when they had been given at least three different addresses for three different purposes, only to find out that the employees had been in the same office all along. From the language of the opinion and its complimentary comments on the thoroughness of the trial court that tried the case, it seems likely that both courts viewed the confusion engendered by the company’s lack of direct transparency and clear lines of communication as entirely avoidable, giving them no reason to let the company have another bite at the apple. That confusion, probably due in large part to “the way things work” in the company, may have cost it $2 million.
