Xenon Health, L.L.C. v. Mirza Baig
662 F. App'x 270
| 5th Cir. | 2016Background
- Xenon Health (Calif.) and its CEO Dr. Haroon Chaudhry sought to provide anesthesia services in Texas though a Texas entity, Xenon Anesthesia of Texas (Xenon Texas), managed by Texas-licensed Dr. Mutjaba Ali Khan.
- In July 2011 Chaudhry and Khan executed three contemporaneous agreements: (1) an Exclusive Management Services Agreement (EMS) giving Xenon (and Chaudhry) substantial operational control of Xenon Texas; (2) a Purchase and Sale Agreement (PSA) requiring Khan to sell his interest to Chaudhry within seven days after Chaudhry obtained a Texas medical license; and (3) an Equity Assignment Agreement tied to the PSA.
- Chaudhry was not Texas-licensed at the time; Xenon performed services and Chaudhry exercised de facto control through the EMS while seeking a Texas license.
- Xenon and Chaudhry sued Baig and others for tortious interference, alleging defendants caused termination of the agreements before Chaudhry obtained his Texas license (which he later obtained on Oct. 1, 2012).
- The district court granted summary judgment for defendant Baig, holding all three contracts void under the Texas Medical Practice Act because they enabled unlicensed practice of medicine; thus tortious-interference claims failed.
- The Fifth Circuit majority affirmed, concluding the three contracts were interrelated and designed to let Chaudhry illegally direct medical practice in Texas; a concurrence/dissent argued the PSA and Equity Agreement might be severable and thus triable issues remained.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the three agreements are illegal under the Texas Medical Practice Act | Contracts are lawful or, at least, PSA/Equity do not themselves authorize unlicensed medical practice | Agreements (taken together) enabled Chaudhry to practice/control medicine in Texas without a license and are void | Held illegal and void: EMS clearly violated Act; PSA and Equity were inextricably intertwined and invalid |
| Whether tortious-interference claim can proceed when underlying contracts are void | Tort claim is valid; PSA/Equity enforceable or severable so interference occurred | Void contracts cannot support a tortious-interference claim | Held: No claim—void contracts preclude tortious-interference recovery |
| Whether PSA and Equity Agreement are severable from the unlawful EMS | PSA/Equity are separate, contain severability clause, and condition transfer on licensing; factual disputes preclude summary judgment | PSA/Equity were integral to scheme to control practice and protect unlawful benefits, so not severable | Held: Majority rejected severability on summary judgment; concurrence would remand to try severability issue |
| Preclusive effect of Texas state-court judgment ordering transfer of Khan’s interest | State judgment binds federal case (res judicata) | State decision not binding here on tort claim | Held: District court correctly explained state judgment does not bind this tortious-interference suit; Fifth Circuit did not rely on it to uphold summary judgment |
Key Cases Cited
- Johnston & Johnston v. Conseco Life Ins. Co., 732 F.3d 555 (5th Cir. 2013) (standard for reviewing summary judgment)
- Crawford v. Formosa Plastics Corp., 234 F.3d 899 (5th Cir. 2000) (summary judgment evidence view and inferences)
- In re Poly-Am., L.P., 262 S.W.3d 337 (Tex. 2008) (severability: illegal provision may be excised if not essential)
- Rogers v. Wolfson, 763 S.W.2d 922 (Tex. App. 1989) (invalid provisions may be severed when original consideration is legal)
- John R. Ray & Sons, Inc. v. Stroman, 923 S.W.2d 80 (Tex. App. 1996) (severability clause purpose and effect)