McKay Consulting Incorporated v. Rockingham Memorial Hospital , 452 F. App'x 331 ( 2011 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 10-2038
MCKAY CONSULTING INCORPORATED, a Louisiana corporation,
Plaintiff - Appellant,
v.
ROCKINGHAM MEMORIAL HOSPITAL, a Virginia corporation,
Defendant – Appellee.
Appeal from the United States District Court for the Western
District of Virginia, at Harrisonburg. Glen E. Conrad, Chief
District Judge. (5:09-cv-00054-gec-bwc)
Argued: September 20, 2011 Decided: October 28, 2011
Before TRAXLER, Chief Judge, and AGEE and DIAZ, Circuit Judges.
Affirmed by unpublished opinion. Judge Agee wrote the opinion,
in which Chief Judge Traxler and Judge Diaz joined.
ARGUED: Matthew T. Nelson, WARNER, NORCROSS & JUDD, LLP, Grand
Rapids, Michigan, for Appellant. Daniel Leroy Fitch, WHARTON
ALDHIZER & WEAVER, PLC, Harrisonburg, Virginia, for Appellee.
ON BRIEF: John J. Bursch, WARNER, NORCROSS & JUDD, LLP, Grand
Rapids, Michigan, for Appellant. Thomas E. Ullrich, Lauren R.
Darden, WHARTON ALDHIZER & WEAVER, PLC, Harrisonburg, Virginia,
for Appellee.
Unpublished opinions are not binding precedent in this circuit.
AGEE, Circuit Judge:
McKay Consulting, Inc. (“McKay”) appeals the district
court’s award of summary judgment to Rockingham Memorial
Hospital (“RMH”). In this action based on diversity
jurisdiction, McKay sought a declaratory judgment that either an
oral contract or an implied-in-fact contract had been formed
with RMH. The district court held no contract was formed under
Virginia law because no meeting of the minds occurred between
the parties and essential terms of the purported contract were
so ill-defined as to render them unenforceable. For the reasons
set forth below, we affirm the judgment of the district court.
I.
McKay is a self-described “national healthcare
reimbursement consultant” that analyzes federal healthcare laws
and provides client hospitals with information on opportunities
to increase their government reimbursement payments, primarily
from Medicare. McKay researches hospitals that could
potentially benefit from changes in government regulations, then
approaches the hospitals and attempts to have them engage its
services to implement the concept. To achieve this goal, McKay
offers to provide its services for a contingency fee, in
2
exchange for an agreement by the target hospital that it will
keep McKay’s ideas confidential and retain McKay as its agent. 1
In this case, McKay contends it discovered a concept to
significantly increase Medicare or related reimbursements for
certain hospitals, including RMH. 2 As part of McKay’s marketing
efforts, its agent, Bob Brown, contacted Susan Holsinger, RMH’s
Director of Accounting and Finance. Brown told Holsinger that
McKay had discovered a “reimbursement issue” that Brown wished
to discuss with Holsinger, but Brown declined to discuss the
specifics of the idea. In a subsequent e-mail, Brown wrote that
“[t]he issue is in excess of $500,000 per year and affects more
than one year.” J.A. 347. In fact, McKay internally estimated
that RMH stood to gain closer to eight million dollars annually,
but feared that disclosure of the true amount of benefit would
lead RMH to discover the concept on its own.
1
As noted below, because McKay was the nonmoving party
against whom summary judgment was granted, we recite the facts
and reasonable inferences drawn therefrom in the light most
favorable to it. Bonds v. Leavitt, 629 F.3d 369, 380
(4th Cir. 2011).
2
The concept proffered by McKay to RMH was not widely
recognized in 2009. In short, it involved RMH applying to
change its Medicare status from that of an “urban” hospital to a
“rural” hospital which would then allow RMH to apply for sole
community hospital (“SCH”) status. Such a change, if approved
by federal agency authorities, could significantly increase the
Medicare reimbursement rate for RMH. This concept now appears
to be common knowledge throughout the health care industry.
3
In a May 26, 2009 e-mail to Holsinger, Brown explained
From our discussion I don’t believe that you are aware
of, or working on, the issue. But if you are you’ll
have no obligation to us whatsoever. . . . If you
aren’t aware of the issue we’ll ask that you do keep
its nature confidential, and that if you choose to
address it, you’ll use McKay Consulting as your agent.
Our fee would be 20% of the adjustment for up to four
(4) years adjustment after it has materialized.
J.A. 525 (emphasis in original). Michael McKay (McKay’s
principal) and Brown met with Holsinger on June 3, 2009 to
formally “pitch” the idea. Michael McKay later testified that
prior to disclosing the idea to Holsinger, he and Brown reviewed
all of the terms of a proposed agreement with RMH, including
confidentiality, a twenty percent annual contingency fee, and
the requirement that RMH use McKay as its agent should it decide
to implement the concept. Michael McKay also testified that
before he disclosed the idea, he and Brown repeatedly asked
Holsinger whether she was “comfortable” going forward and
verified that she wanted them to proceed and tell her about the
concept. McKay did not offer a written agreement to Holsinger,
but contends a binding contract with RMH was formed at the June
3, 2009 meeting based on her oral commitment and McKay’s
description of the concept. 3
3
RMH argues on appeal that Holsinger lacked either actual
or apparent authority to bind it to a contract. The district
court did not address this issue in view of its decision that no
contract was formed on other grounds. In light of our
conclusion that there was no mutual assent to the essential
(Continued)
4
Although the parties disagree about whether Holsinger
explicitly agreed to the terms proposed by McKay, it is
undisputed that Michael McKay and Brown presented Holsinger with
a description of the concept and a binder containing documents
that described it in detail. In the course of this
presentation, McKay disclosed for the first time that upon
conversion from an urban to a rural hospital classification RMH
would likely incur several million dollars in reimbursement
losses until it obtained SCH status, which was not guaranteed.
After Holsinger expressed enthusiasm for the idea, Brown
and Michael McKay then met with Michael King, RMH’s Chief
Financial Officer, to whom they explained the reimbursement
concept. King had a number of questions and expressed concern
over whether RMH would be indemnified for the up-front losses.
King also stated that the twenty percent fee was too high.
In the days that followed the meeting, Michael McKay
continued to discuss the arrangement with both Holsinger and
King and sent a written agreement that, according to McKay,
simply memorialized the parties’ oral agreement. Although McKay
now contends a firm, oral contract was made at the June 3, 2009
meeting with Holsinger, an e-mail between McKay and Brown that
terms of a contract under Virginia law, we do not address this
issue.
5
day after the meeting appears equivocal. 4 In addition to a
merger clause, the proposed written contract contained the
compensation term of “twenty percent (20%) of the additional
reimbursement received by RMH as a result of this Service for
the first three (3) years for which the Service has a positive
effect.” 5 J.A. 546 (emphasis added). RMH never responded to the
proposed written contract. King, meanwhile, continued to insist
that the twenty percent contingency fee was too high, and
proposed either a flat fee or an hourly payment schedule in lieu
of the twenty percent contingency. McKay rejected the counter-
proposal, but offered to reduce the amount of the contingency
fee to nineteen percent.
As the relationship deteriorated, McKay asserted that the
parties had reached an agreement and that King was “trying to
retrospectively negotiate an already agreed upon fee[,]” and
4
“The meeting with [RMH] lasted until 4 pm. The accounting
and reimbursement staff seem to be in agreement 100% to move
forward. The CFO, who knows [Michael McKay] peripherally, had
concerns about: a. The fee; b. The certainty of success.” J.A.
1449.
5
Brown later testified that the reference to a three-year
period was a typographical error, and that he had intended to
memorialize the four-year term mentioned in his e-mail with
Holsinger. However, a June 17, 2009 e-mail between Michael
McKay and Brown concluded the discrepancy between a 4-year or 3-
year duration is “never going to be explained away.” J.A. 1457.
6
stated that “[w]e are not attempting to change our agreement and
we ask that you do the same.” J.A. 548.
Invoking diversity jurisdiction, McKay filed a complaint
against RMH seeking, among other things, a declaratory judgment
that the parties had an enforceable oral contract, or, in the
alternative, an enforceable implied-in-fact contract. 6 McKay
alleged RMH had entered into an agreement (either orally or
implied-in-fact) by which RMH agreed (1) to keep McKay’s idea
confidential; (2) if it chose to pursue the idea, it would
retain McKay as its agent to perform the work necessary to
implement the concept; and (3) to pay McKay twenty percent of
“additional revenues” that RMH received as a result of
implementing the idea. RMH moved for summary judgment and McKay
made a cross-motion for partial summary judgment.
While concluding that the parties had an enforceable
agreement to keep McKay’s concept confidential, the district
court held that “no reasonable jury could find that McKay and
RMH mutually assented to all of the essential terms outlined in
the original complaint.” J.A. 2425. In granting summary
judgment to RMH, the district court held that “the record
6
McKay also sought a declaratory judgment on promissory
estoppel grounds, and made claims for unjust enrichment and
misappropriation of trade secrets. Those claims were dismissed
pursuant to Fed. R. Civ. P. 12(b)(6), and McKay does not appeal
from that judgment.
7
evinces no meeting of the minds as to the compensation and
agency terms asserted by McKay. Moreover, the court
conclude[d], as a matter of law, that the compensation and
agency terms are not established with reasonable certainty.”
Id.McKay filed a timely appeal from the district court’s
judgment and we have jurisdiction pursuant to 28 U.S.C. § 1291.
II.
Whether a party is entitled to summary judgment is a
question of law that we review de novo. Canal Ins. Co. v.
Distrib. Servs., Inc., 320 F.3d 488, 491 (4th Cir. 2003).
Summary judgment is appropriate only if taking the evidence and
all reasonable inferences drawn therefrom in the light most
favorable to the nonmoving party (McKay, in this case), “no
material facts are disputed and the moving party is entitled to
judgment as a matter of law.” Ausherman v. Bank of Am. Corp.,
352 F.3d 896, 899 (4th Cir. 2003).
As noted by the district court and the parties, “because
the matter is before us in diversity, we are bound by the
applicable state substantive law.” Benner v. Nationwide Mut.
Ins. Co., 93 F.3d 1228, 1234 (4th Cir. 1996).
8
III.
The district court based its grant of summary judgment upon
its primary holding that McKay and RMH failed to mutually assent
to the essential terms of the purported contract, those being
“compensation and agency.” The district court held in the
alternative that there was no contract under Virginia law
because those terms were “not established with reasonable
certainty.” J.A. 2425. McKay contends that the district court
erred as to each holding.
Although the district court stated its decision as
alternative holdings, those principles are two sides of the same
coin. There can be no meeting of the minds so as to form a
valid contract when the essential terms are not “established
with reasonable certainty.” Accordingly, a single analysis
which blends the district court’s holdings resolves the question
whether a valid contract under Virginia law was formed in this
case.
A.
The Supreme Court of Virginia has consistently set forth as
necessary elements of contract formation that:
[T]he parties must have a distinct intention common to
both and without doubt or difference. Until all
understand alike, there can be no assent, and,
therefore, no contract. Both parties must assent to
the same thing in the same sense, and their minds must
9
meet as to all the terms. If any portion of the
proposed terms is not settled . . . there is no
agreement.
Smith v. Farrell, 98 S.E.2d 3, 7 (Va. 1957) (citations omitted);
see also Persinger & Co. v. Larrowe, 477 S.E.2d 506, 509
(Va. 1996) (“Until the parties have a distinct intention common
to both and without doubt or difference, there is a lack of
mutual assent, and therefore, no contract.”) (citation omitted).
“[M]utuality of assent—the meeting of the minds of the parties—
is an essential element of all contracts.” Moorman v.
Blackstock, Inc., 661 S.E.2d 404, 409 (Va. 2008) (internal
quotation marks and citation omitted).
When determining whether mutual assent exists to a degree
sufficient to form an enforceable agreement, Virginia courts
ascertain whether a party assented to the terms of a contract
from that party’s words or acts, not from his or her unexpressed
state of mind. Wells v. Weston, 326 S.E.2d 672, 676 (Va. 1985).
Virginia courts “cannot make a new contract for the parties, but
must construe [the contract’s] language as written.” Berry v.
Klinger, 300 S.E.2d 792, 796 (Va. 1983).
1. Compensation
The most vivid proof supporting the district court’s
holding that there was no meeting of the minds as to the
compensation element is McKay’s inability, even through oral
10
argument, to consistently identify the term of compensation to
which the parties were alleged to have agreed. During the
course of this litigation, McKay asserted at least four
different iterations of what constituted the compensation term
to which the parties were alleged to have agreed. 7
Based on the May 26th e-mail, which McKay contends formed
the basis for a June 3, 2009 contract, McKay argues the
compensation term was “20% of the adjustment.” The proposed
written contract of June 4, 2009, however, has a different
compensation term of “20% of the additional reimbursement.”
J.A. 546. This version is followed by another in a June 19,
2009 e-mail from Michael McKay to King in which he represents
the compensation term is “increased reimbursements.” J.A. 1160.
These different iterations of a compensation term are
confusing enough, but what compellingly sinks McKay’s claim is
its inability, even in its own complaint, to tell the court the
term of compensation. In both Count I (oral contract) and Count
II (implied in fact contract), McKay (omitting any claim of
7
Arguably McKay proposed a fifth and separate explanation
of the agreed compensation term in its opening brief by stating
compensation was “20% of the benefit to RMH for four years.”
Br. of plaintiff-appellant 3 (emphasis added). As that
variation was not placed before the district court, our analysis
will be limited to the four iterations that were. We include
the “benefits” version only to underscore McKay’s utter failure
to specify an essential term of the purported contract.
11
“adjustment” or “increased reimbursement”) pleads that the
compensation would be “20% of any additional reimbursements” but
then prays for relief in the amount of “20% of any additional
revenues.” J.A. 27. If a plaintiff can’t plead the essential
terms of its own proffered contract, no court will make a
contract for it. See City of Manassas v. Bd. of Cnty. Sup’rs of
Prince William Cnty., 458 S.E.2d 568, 572 (Va. 1995) (while
courts will not permit parties to be released from obligations
that they have assumed, Virginia courts nevertheless “cannot
make contracts for the parties”) (citation omitted).
Setting aside the discrepancy as to whether any term of
compensation would last for three or four years, even if McKay
had settled on one of its multiple proposed definitions of
compensation as the actual contract term of the parties, it
would beg too many questions to be established as a contract
term with reasonable certainty.
For example, if we assume McKay chose the prayer for relief
iteration of “20% of any additional revenues” as winning the
term-of-compensation lottery, what precisely are the “additional
revenues”? Are they 20% of gross RMH revenue, Medicare revenue,
Medicaid revenue, Tricare revenue or some combination of the
above with perhaps other categories added in? Is the
compensation to be “additional revenue” net of any particular
expenses and if so, what are they? A similar analysis undercuts
12
each of the other potential terms of compensation-
“adjustment,” “additional reimbursement,” or “increased
reimbursements” and underscores the void in McKay’s argument
that the parties agreed to an ascertainable contract term of
compensation.
Without question, compensation is an essential contract
term. See Chittum v. Potter, 219 S.E.2d 859, 863-64 (Va. 1975)
(no contract formed when parties failed to demonstrate mutual
assent to the price term of a certain parcel of property). As a
matter of law, there can be no meeting of the minds between the
parties as to an essential term when that term is unknown. “In
order to be binding, an agreement must be definite and certain
as to its terms and requirements; it must identify the subject
matter and spell out the essential commitments and agreements
with respect thereto.” Dodge v. Trustees of Randolph-Macon
Woman’s Coll., 661 S.E.2d 801, 803 (Va. 2008) (quoting
Progressive Const. Co. v. Thumm, 161 S.E.2d 687, 691
(Va. 1968)). As demonstrated by McKay’s complaint, McKay could
not settle upon a readily ascertainable definition of what it
was to be paid, much less what RMH purported to have covenanted
to pay it.
13
2. Agency
The district court also correctly held that no contract was
formed between the parties because the essential term of agency
could not be ascertained with reasonable certainty. “[A]n
agreement for service must be certain and definite as to the
nature and extent of service to be performed, the place where
and the person to whom it is to be rendered, and the
compensation to be paid, or it will not be enforced.” Mullins
v. Mingo Lime & Lumber Co., 10 S.E.2d 492, 494 (Va. 1940)
(citation omitted).
McKay pled in its complaint that RMH agreed that if it
chose to implement McKay’s concept, it would “[r]etain McKay as
its agent to perform the work necessary to implement McKay’s
idea.” J.A. 27. In the May 26 e-mail from Brown to Holsinger,
Brown stated that “if you choose to address [the issue], you’ll
use McKay Consulting as your agent.” J.A. 1395. Even through
oral argument, McKay could not identify the scope of agency
under the purported contract.
Taken in the light most favorable to McKay, the agency
terms were so vague that the parties could not have mutually
assented to a contract. On their face, the terms “use” and
“perform the work necessary to implement McKay’s idea” simply do
not convey any meaning that would allow the parties to
14
articulate what McKay is bound to do under the terms of the
alleged agreement.
McKay argues, however, that RMH’s experience with other
consultants in the past should inform this court’s analysis of
whether the parties assented to the agency term. Br. for
plaintiff-appellant 30-31. McKay’s reliance on RMH’s
experience, however, is misplaced. Although RMH had engaged the
services of consultants to address Medicare issues, those
consulting agreements explained in detail the respective duties
of the parties. Comparing the alleged agreement here to others
found in the record, it is clear that the terms here are
elusive. As the district court noted, one of McKay’s prior
agreements involved a twenty-two page contract and a two page,
single-spaced addendum that detailed the services McKay was to
provide. Thus, to the extent that the evidence in the record
shows a standard practice in the Medicare reimbursement
consulting industry, the alleged agreement here falls well short
of establishing the existence of a contract.
McKay, in its brief and at oral argument, asserted that its
agency relationship with RMH would merely require McKay to
perform certain administrative tasks. Even if this court were
to accept McKay’s claim at oral argument that the agency term
here entails McKay “fill[ing] out the appropriate paperwork in
conjunction with the hospital to go forward with the idea,” it
15
remains unknown as to what that “paperwork” comprises, who is
responsible for any expenses, and other ancillary duties such as
providing attorneys and experts in the event of litigation.
Oral Argument at 41:24. And litigation seems possible, as McKay
acknowledged that the Center for Medicare and Medicaid Services
could initially block RMH’s application to change status,
therefore requiring litigation.
For these reasons we agree with the district court that the
essential term of agency is simply too ill-defined to have
formed a contract enforceable in Virginia.
B.
In the absence of clear contract terms, McKay argues that
its purported contract is nonetheless enforceable because the
trier of fact could deduce and supply the terms of agreement.
McKay cites High Knob, Inc. v. Allen, 138 S.E.2d 49, 53
(Va. 1964) for the proposition that Virginia contract “law does
not favor declaring contracts void for indefiniteness and
uncertainty, and leans against a construction which has that
tendency.” McKay points out that this principle is “especially
true where there has been partial performance.” Id. However,
Virginia courts lack authority to “supply virtually every
essential element” of a contract. Dickerson v. Conklin, 235
S.E.2d 450, 456 (Va. 1977).
16
While McKay is correct that the Supreme Court of Virginia
approved a presumption in favor of enforcing a contract in High
Knob on the unique facts of that case, the court was clear to
reiterate two vital contract principles: (1) “courts cannot
make contracts for the parties,” and (2) courts will not “permit
parties to be released from the obligations which they have
assumed if this can be ascertained with reasonable certainty
from language used, in the light of all the surrounding
circumstances.” 138 S.E.2d at 53. The case at bar, however, is
not remotely analogous to the situation present in High Knob.
High Knob was a developer that sold certain lots in a
subdivision to two buyers. Id. at 49-51. In the written sales
documents, no reference was made to supplying water to the
residences to be built on the lots; however, High Knob’s
restrictive covenants barred the lot owners from developing or
maintaining a “well, spring, or water system of any type.” Id.
at 51. The trial court found that McElroy, High Knob’s
secretary, promised the buyers that High Knob had a water system
and would furnish “a reasonable quantity of water” to houses
constructed in the subdivision for a $200 hook-on fee; that this
was the only consideration to be paid for the water service; and
that this arrangement was one of the inducements to purchase the
lots. Id. Later, High Knob refused to accept the buyers’ $200
hook-on payments and insisted that in order for them to receive
17
water, they would have to sign an agreement that was contrary to
McElroy’s covenants.
The Virginia Supreme Court concluded that McElroy’s
agreement with the two buyers was enforceable, notwithstanding
the fact that the oral agreement did not specify a quantity of
water to be supplied to a residence. The court determined from
“the circumstances under which the agreements were made” this
term was simply “that which was reasonably necessary for
residential purposes . . . [for] so long as its water system was
capable of supplying it . . . [for] their proportionate share of
the maintenance costs.” Id. at 53-54. The court also found it
significant that High Knob had, in fact, supplied the buyers
with water for six months before cutting it off when Allen
refused to sign the written water contract tendered by High
Knob.
The case at bar is a far cry from High Knob. As the
preceding discussion well illustrates, the “circumstances” in
this case give no reasonably ascertainable basis upon which to
conclude the parties made an agreement as to the essential
missing terms.
McKay’s solution, in the absence of either compensation or
agency terms necessary to form a valid contact, is essentially a
“Price is Right” approach; give the trier of fact multiple
options and let it pick one, any one. No principle of contract
18
law supports this methodology, including High Knob. Virginia
law simply does not permit finding a contract when the trier of
fact must determine one from among multiple choices presented by
a party for a term of compensation, then define what the chosen
term encompasses, and finally delineate the scope of agency sua
sponte.
Accordingly, we conclude that High Knob is simply not
applicable to the case at bar. Rather, High Knob supports our
conclusion to the extent that it instructs courts not to make
contracts for the parties, and requires essential contract terms
to be reasonably certain to be enforced.
IV.
On this record, “no reasonable jury could find that the
parties mutually assented to the compensation and agency terms
set forth in the complaint.” For the foregoing reasons, we
affirm the judgment of the district court.
AFFIRMED
19