Floyd Memorial Hospital and Health Services v. Harrison County Hospital (mem. dec.) ( 2018 )

MEMORANDUM DECISION
Pursuant to Ind. Appellate Rule 65(D),
this Memorandum Decision shall not be FILED
regarded as precedent or cited before any Aug 20 2018, 8:57 am
court except for the purpose of establishing CLERK
Indiana Supreme Court
the defense of res judicata, collateral Court of Appeals
and Tax Court
estoppel, or the law of the case.
ATTORNEYS FOR APPELLANT ATTORNEY FOR APPELLEE
Rodney L. Scott Brian F. Haara
Tricia Kirkby Hofmann Tachau Meek PLC
Waters, Tyler, Hofmann & Scott, LLC Louisville, Kentucky
New Albany, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Floyd Memorial Hospital and August 20, 2018
Health Services, Court of Appeals Case No.
Appellant-Defendant 18A-PL-46
Interlocutory Appeal from the
v. Harrison Circuit Court
The Honorable Frank Newkirk,
Harrison County Hospital, Jr., Special Judge
Appellee-Plaintiff. Trial Court Cause No.
31C01-1301-PL-01
Bradford, Judge.
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Case Summary
[1] In 2004, Harrison County Hospital (“HCH”) and Floyd Memorial Hospital &
Health Services (“Floyd”) entered into a joint venture, Harrison-Floyd Health
Services LLC (the “LLC”), to rent space for different practices in Harrison
County, Indiana. The operating agreement (the “Operating Agreement”) also
provided that Floyd would offer HCH a right of first refusal before expanding
its health services into Harrison County and further provided that Floyd would
refrain from duplicating services already provided in Harrison County by HCH.
In 2011, HCH filed a complaint alleging that Floyd breached the terms of the
Operating Agreement when it acquired Harrison Family Medicine (“HFM”).
In response, Floyd asserted several affirmative defenses which included
abandonment, waiver, and equitable estoppel. Later, Floyd also raised issues
regarding causation and damages.
[2] After a series of summary judgment motions and hearings, the trial court
granted summary judgment in favor of HCH on the issue of breach. The trial
court also denied Floyd’s summary judgment motion on the issue of causation
and damages and found that there were no genuine issues of material fact
relating to Floyd’s affirmative defenses. Instead of proceeding to a jury trial in
2018, Floyd sought discretionary interlocutory appellate review of several
restated issues: (1) whether the trial court erroneously rejected, as a matter of
law, the affirmative defenses of waiver, estoppel, and abandonment; (2)
whether the trial court erroneously concluded that the right of first refusal
clause in the Operating Agreement was enforceable under Indiana law; and (3)
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whether the trial court properly denied Floyd’s motion for summary judgment
on the issue of damages Floyd’s actions may have caused to HCH.
[3] Because there are genuine issues of material fact, we reverse and remand the
trial court’s judgment on the affirmative defenses of abandonment and waiver.
The trial court’s rulings on the equitable estoppel affirmative defense, the
enforceability of the Operating agreement, and the issue of damages are
affirmed.
Facts and Procedural History
[4] In 2003, HCH and Floyd1 were both county hospitals in southern Indiana.
That year, the two hospitals agreed to enter into a joint venture to provide
medical services in Harrison County. As a result of their shared desire for a
partnership, HCH and Floyd drafted and signed the Operating Agreement for
the LLC on February 23, 2004. HCH and Floyd agreed to jointly lease a space
in Corydon where HCH would provide urgent care services and Floyd would
provide occupational health services. In addition, Floyd agreed to give HCH a
“right of first refusal” to join with Floyd in any further expansion by Floyd into
Harrison County:
Section 10.1. [Floyd] Covenant. [Floyd] agrees, on behalf of itself
and its Affiliates, not to market its occupational health services to
any business entity in Harrison County which utilizes a member
1
Floyd has since been purchased by Louisville-based Baptist Health Systems.
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of the HCH medical staff as its company physician, unless
otherwise agreed to by HCH. Furthermore, in the event [Floyd]
opts to expand any other health services in Harrison County,
[Floyd] will provide HCH with a right of first refusal to
participate in such expanded health services by means of a 50/50
joint venture between [Floyd] and HCH. With respect to the
expansion of health services in Harrison County, Floyd agrees,
on behalf of itself and its Affiliates, to use its good faith efforts to
avoid duplication of services currently provided by HCH.
Appellant’s App. Vol. II p. 47.
[5] Despite the fact that the parties did not follow the terms of the Operating
Agreement for meetings, assessments, and the appointment of officers, the
parties continued to abide by its terms in various ways. Both hospitals
continued to pay rent for the space that they leased together in Corydon.2 HCH
also included the LLC in its audited financial statements submitted to the
Indiana State Board of Accounts.3
[6] In 2009, Floyd acquired a physical therapy clinic in Corydon called PT Works.
HCH did not object or assert any rights to participate in the expansion under
the Operating Agreement. In 2010, Floyd made plans to expand its services in
Harrison County through the purchase of a family practice group, Harrison
Family Medicine (“HFM”). At that same time, HCH also explored the
2
Floyd references a lease guaranty in its brief, but there is no evidence in the record that shows a guaranty
was ever signed by either party.
3
HCH continued to recognize the LLC in its statements until 2012.
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possibility of purchasing HFM. HCH, however, was not under the same
contractual duty to offer a right of first refusal as Floyd. Floyd proceeded with
its plans to purchase without ever offering HCH a right of first refusal. HFM
was fully acquired by Floyd in September of 2011.
[7] On December 10, 2012, Floyd provided written notice of its desire to dissolve
the LLC.4 On January 2, 2013, HCH filed its lawsuit against Floyd alleging
breach of contract, breach of fiduciary duty, unjust enrichment, and promissory
estoppel. The following month, the LLC was officially dissolved when Floyd
filed Articles of Dissolution with the Indiana Secretary of State.
[8] On December 22, 2014, Harrison filed a motion for partial summary judgment,
asking that the trial court find as a matter of law that Floyd breached the
Operating Agreement. After some discovery, Floyd filed its response on
February 25, 2016. Floyd also filed a cross-motion for summary judgment. In
May of 2016, the trial court entered an order granting HCH’s motion for partial
summary judgment and ruling that the undisputed evidence established as a
matter of law that Floyd breached the parties’ Operating Agreement. The trial
court also denied Floyd’s motion for summary judgment in which it argued
legal defenses to the enforcement of the Operating Agreement.
4
At all times since its formation, Harrison-Floyd Health Services, LLC remained an active in-good-standing
company under Indiana law. However, either party could have unilaterally dissolved the company at any
time.
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[9] On June 17, 2016, Floyd filed a motion to reconsider the order granting HCH’s
motion for partial summary judgment. Floyd then filed a second motion for
summary judgment in July of 2016, arguing that HCH could not establish
causation or damages as a result of Floyd’s breach. In September of 2017, the
trial court held a hearing on both Floyd’s motion to reconsider and its second
motion for summary judgment. On October 19, 2017, the trial court entered an
order reaffirming its prior order of May 2016 granting HCH partial summary
judgment. The trial court also denied Floyd’s second motion for summary
judgment on the question of breach.
[10] Instead of proceeding to the jury trial which was schedule to begin in May of
2018, Floyd sought discretionary interlocutory appellate review of several
restated issues: (1) whether the trial court erroneously rejected, as a matter of
law, the affirmative defenses of waiver, estoppel, and abandonment; (2)
whether the trial court erroneously concluded that the right of first refusal
clause in the Operating Agreement was enforceable under Indiana law; and (3)
whether the trial court properly denied Floyd’s motion for summary judgment
on the issue of damages Floyd’s actions may have caused to HCH.
Discussion and Decision
[11] We review summary judgment using the same standard as the trial court. Quirk
v. Delaware Cty, 91 N.E. 3d 1008 (Ind. Ct. App. 2018). The fact that a party has
filed a cross-motion does not alter our standard of review. Floyd Cty v. City of
New Albany, 1 N.E.3d 207 (Ind. Ct. App. 2014). Summary judgment is only
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appropriate where the designated evidence shows that there is no genuine issue
of material fact and the moving party is entitled to judgment as a matter of law.
Id. All facts and inferences are construed in favor of the non-moving party.
City of Beech Grove v. Beloat, 50 N.E.3d 135, 137 (Ind. 2016). When the
challenge to summary judgment raises questions of law, we review them de
novo. Rogers v. Martin, 63 N.E.3d 316, 320 (Ind. 2016). The party opposing the
grant of summary judgment has the burden of persuading this court that the
trial court’s ruling was improper. City of Lawrenceburg v. Milestone Contractors,
809 N.E.2d 879, 882–83 (Ind. Ct. App. 2004).
I. Affirmative Defenses
[12] Floyd argues that the trial court erred by ruling that there were no genuine
issues of material facts relating to the affirmative defenses.
A. Abandonment
[13] The first affirmative defense raised by Floyd was abandonment.
The abandonment of a contract is a matter of intention to be
ascertained from the facts and circumstances surrounding the
transaction from which the abandonment is claimed to have
resulted. An abandonment of a contract need not be express but
may be inferred from the conduct of the parties and attendant
circumstances. A contract will be treated as abandoned when the
acts of one party, inconsistent with the existence of the contract,
are acquiesced in by the other party. Abandonment of a contract
is a mixed question of law and fact; what constitutes an
abandonment is a question of law; and whether there has been an
abandonment is a question of fact.
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DiMaggio v. Rosario, 52 N.E.2d 896, 906 (Ind. Ct. App. 2016).
[14] In support of Floyd’s claim that the Operating Agreement was abandoned, the
designated evidence shows that HCH knowingly “decided just to sort of let it
pass” when it heard that Floyd had purchased PT Works in 2009. Appellant’s
App. Vol. III p. 37. Further, in answering a questions about the origin of the
current lawsuit, the HCH CFO testified in a deposition that “We discussed our
options of – of doing nothing, basically just like we had with the PT Works
acquisition . . . .” Appellant’s App. Vol. III p. 38 (emphases added).
[15] Meanwhile, in support of its claim that the Operating Agreement was not
abandoned, HCH points to, among other things, the fact that it continued to file
reports with the Secretary of State’s office and file tax returns on behalf of the
LLC. HCH also highlights the fact that Floyd disclosed its interest in the LLC
in the audited financial statement that it filed as a matter of public record with
the State Board of Accounts. Based upon the abovementioned evidence and
arguments, each party presented designated evidence supporting their respective
positions on the abandonment of the Operating Agreement. Consequently, the
trial court erred when it concluded that there were no genuine issues of material
fact as to the abandonment affirmative defense.
B. Waiver
[16] The second affirmative defense that Floyd raised was waiver. Waiver is the
intentional relinquishment of a known right involving both knowledge of the
existence of the right and the intention to relinquish it. Rogier v. Am. Testing and
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Eng’g Corp., 734 N.E.2d 606, 620 (Ind. Ct. App. 2000). Whether there has been
waiver of a contract provision is ordinarily a question of fact. van de Leuv v.
Methodist Hosp. of Ind., Inc., 642 N.E.2d 531, 533 (Ind. Ct. App. 1994).
[17] Floyd argues that HCH waived its rights to enforce the contractual right of first
refusal when HCH knowingly acquiesced to Floyd’s purchase of PT Works in
2009 and it failed to object to Floyd’s purchase of HFM for at least eighteen
months. This argument is supported by the excerpts of HCH’s CFO’s
deposition in which he admitted HCH “let it pass” when Floyd purchased PT
Works. Appellant’s App. Vol. III p. 37. The CFO further said “That was my
thought on it. I didn’t really think it was of a lot of consequence” and that
HCH debated doing nothing when HFM was purchased. Id. at 37–38.
Conversely, HCH argues that it did not waive its right and that it did not have a
duty to raise the issue of a possible breach when Floyd purchased PT Works in
2009. Based upon these disputed facts, the trial court erred when it found that
there was no genuine issue of material fact as to waiver.
C. Equitable Estoppel
[18] Finally, Floyd raised equitable estoppel as an affirmative defense.
[E]quitable estoppel requires a false representation or
concealment of material facts; it must have been made with
knowledge, actual or constructive, of the facts; the party to whom
it was made must have been without knowledge or the means of
knowledge of the real facts; it must have been made with the
intention that it should be acted on; and the party to whom it was
made must have relied on or acted on it to his prejudice.
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Equitable estoppel may arise from silence or acquiescence as well
as from positive conduct. However, silence will not form the
basis of an estoppel unless the silent party has a duty to speak.
City of New Albany v. Cotner, 919 N.E.2d 125, 133–34 (Ind. Ct. App. 2009)
(internal citations and quotations omitted).
[19] The heart of Floyd’s equitable estoppel claim is that HCH had a duty to tell
Floyd that it had breached the Operating Agreement when it acquired PT
Works and it was at risk of breaching the Operating Agreement again if it were
to acquire HFM. Floyd does not cite to any provision of the Operating
Agreement or other authority to show that HCH had a duty to inform Floyd
that Floyd had breached the Operating Agreement. Thus, the judgment of the
trial court concerning the equitable estoppel affirmative defense is affirmed.
The case is reversed and remanded to the trial court for a determination of the
affirmative defenses of abandonment and waiver on the merits.
II. Right of First Refusal
[20] Floyd argues that the parties’ contractual right of first refusal is a restrictive
covenant that is unenforceable and against public policy. The provision at issue
here provided that
in the event [Floyd] opts to expand any other health services in
Harrison County, [Floyd] will provide HCH with a right of first
refusal to participate in such expanded health services by means
of a 50/50 joint venture between [Floyd] and HCH. With
respect to the expansion of health services in Harrison County,
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[Floyd] agrees, on behalf of itself and its Affiliates, to use its good
faith efforts to avoid duplication of services currently provided by
HCH.
Appellant’s App. Vol. II p. 47. This section of the Operating Agreement is
titled “Restrictive Covenants.” Appellant’s App. Vol. II p. 47. However, this
title does not properly characterize the content in the section. Black’s Law
Dictionary defines a restrictive covenant as “a written agreement that limits the
use of property for specific purposes and regulates the structures that may be
built on it.” Restrictive Covenant, BLACK’S FREE ONLINE LAW DICTIONARY,
https://thelawdictionary.org/restrictive-covenant/ (last visited July 26, 2018).
Furthermore, this provision is not a “covenant not to compete.” Appellant’s
Br. p. 38. Black’s Law Dictionary defines a covenant not to compete as “the
type of agreement where a party agrees not to compete against another business
of a similar kind.” Covenant Not to Compete, BLACK’S FREE ONLINE LAW
DICTIONARY, https://thelawdictionary.org/covenant-not-to-compete/ (last
visited July 26, 2018). Based on the definitions in Black’s Law Dictionary,
Floyd and HCH’s “restrictive covenant” is neither a restrictive covenant nor a
non-compete. It is merely a right of first refusal provision. See Hyperbaric
Oxygen Therapy Sys., Inc. v. St. Joseph Med. Ctr. of Ft. Wayne, Inc., 683 N.E.2d
243, 249 (Ind. Ct. App. 1997) (stating that the subject matter of a contractual
“right of first refusal” may be anything which parties may make the subject of
contracts). Moreover, according to the terms of the Operating Agreement,
Floyd could have unilaterally dissolved the LLC at any time, thereby
eliminating any restrictions. The parties do not cite to any cases where an
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Indiana court has voided a right of first refusal provision in a contract between
two private parties. The trial court did not err when it found that the right of
first refusal provision in the Operating Agreement was enforceable.
III. Damages from the Breach
[21] In its second summary judgment motion, Floyd asked the court to find as a
matter of law that HCH sustained no damages from Floyd’s breach.
Specifically, Floyd argued that HCH “cannot show that its non-participation
actually caused any damages.” Appellant’s Br. p. 45. “The elements of a
breach of contract claim are the existence of a contract, the defendant’s breach,
and damages to the plaintiff.” WESCO Distribution, Inc. v. ArcelorMittal Ind.
Harbor LLC, 23 N.E.3d 682, 696 (Ind. Ct. App. 2014). In addition to the
breach, the defendant must be the cause in fact of the plaintiff’s loss. Id. “[T]he
test of causation is not whether the breach was the only cause, or whether other
causes may have contributed, but whether the breach was a substantial factor in
bringing about the harm.” Id.[22] Based on our disposition of Issue I, liability has not yet been determined.
Without a determination on liability, there can be no ruling on damages. If
there is ultimately a determination that Floyd is liable, then the issue of
damages can be addressed. We, therefore, affirm the trial court’s denial of
Floyd’s motion for summary judgment on the issue of damages.
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[23] Affirmed in part, reversed in part, and remanded for proceedings not
inconsistent with this opinion.
Bailey, J., and Mathias, J., concur.
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