Montana Health Network, Inc. v. Great Falls Orthopedic Associates , 379 Mont. 513 ( 2015 )

June 30 2015
DA 14-0795
Case Number: DA 14-0795
IN THE SUPREME COURT OF THE STATE OF MONTANA
2015 MT 186
MONTANA HEALTH NETWORK, INC.,
a Montana corporation,
Plaintiff and Appellant,
v.
GREAT FALLS ORTHOPEDIC
ASSOCIATES, a Montana corporation,
Defendant and Appellee.
APPEAL FROM: District Court of the Eighth Judicial District,
In and For the County of Cascade, Cause No. ADV 11-0420
Honorable Gregory G. Pinski, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Steven R. Milch, Crowley Fleck PLLP; Billings, Montana
For Appellee:
Robert Pfennigs, Joshua I. Campbell, Jardine, Stephenson, Blewett, and
Weaver, P.C.; Great Falls, Montana
Submitted on Briefs: May 13, 2015
Decided: June 30, 2015
Filed:
__________________________________________
Clerk
Justice Michael E Wheat delivered the Opinion of the Court.
¶1 Montana Health Network, Inc. (MHN) appeals from the order of the Montana
Eighth Judicial District Court, Cascade County, denying its motion for summary
judgment and granting summary judgment to Great Falls Orthopedic Associates (GFOA).
We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
¶2 MHN maintains a multiple employer health and welfare plan and trust known as
the Montana Health Network Health Insurance Plan & Trust (the Plan). MHN is the
designated Sponsor and Trustee of the Plan and was its sole drafter. GFOA is a medical
clinic located in Great Falls which provides medical services to residents of Great Falls
and the surrounding areas.
¶3 Around October 1, 2005, GFOA and MHN executed a document entitled Montana
Health Network Health Insurance Plan & Trust Adoption Agreement (the Adoption
Agreement) under which GFOA would adopt the Plan for purposes of obtaining coverage
for its employees and would agree to be bound by its terms. The Adoption Agreement
was drafted by MHN specifically for GFOA and by its terms incorporated the Plan.
¶4 The initial term of the Adoption Agreement ran from October 1, 2005 to
December 31, 2008. The Adoption Agreement was then automatically renewed for a two
year term beginning on January 1, 2009 and running until December 31, 2010. By the
provisions of the Adoption Agreement and the Plan, the automatic term renewals would
continue every two years unless GFOA provided notice of its intent not to renew at least
30 days prior to the commencement of a new term.
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¶5 On December 10, 2010, GFOA sent MHN an e-mail stating that it did not wish to
renew the plan for the 2011-2012 term. GFOA followed up on that e-mail with a letter
dated December 15, 2010, wherein GFOA stated that it wished to withdraw from the Plan
on January 15, 2011. At the time, the Plan covered around 30 eligible GFOA employees.
¶6 MHN denied GFOA’s attempt to withdraw from the Plan, pointing out that under
the Plan GFOA was required to give notice by December 1, 2010, if it wished to avoid
automatic renewal of the Adoption Agreement for the term of January 1, 2011 to
December 31, 2012.
¶7 GFOA did not challenge MHN’s refusal to grant a withdrawal from the Plan.
Instead, GFOA submitted waivers of coverage for 27 of its covered employees, and
ceased submitting premium payments for those employees. Five GFOA employees
remained covered by the Plan and GFOA continued to pay premiums for their coverage.
¶8 The GFOA employee waivers were submitted pursuant to Paragraph 4 of the
Adoption Agreement, which stated, in part:
[a]n employee may waive coverage for any Plan Year by executing and
returning a waiver form provided by Montana Health Network, Inc. at the
time provided for initial enrollment, or during the annual enrollment period.
¶9 MHN denied the waivers based on the fact that, if the waivers were granted,
GFOA would not be in compliance with Section 2.1 of the Plan, which stated, in part:
[i]t shall be a continuing condition of participation by any Eligible
Employer that seventy-five percent of such Eligible Employer’s Employees
in each class of Eligible Employees be Participants in the Plan.
¶10 GFOA did not remit payment for the premiums of the 27 employees who
submitted waivers. On March 4, 2011, MHN declared GFOA in default and, under an
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acceleration provision in the Plan, assessed liquidated damages of $400,674.00,
immediately due and payable. GFOA did not pay the assessed damages.
¶11 On May 6, 2011, MHN filed a breach of contract action against GFOA. Both
parties moved for summary judgment. On September 23, 2013, the District Court issued
an order denying summary judgment to MHN and granting summary judgment to GFOA.
The court later amended its judgment to grant attorney’s fees to GFOA. MHN appeals.
STANDARDS OF REVIEW
¶12 We review a district court’s grant of a summary judgment motion de novo,
applying the same Rule 56, M. R. Civ. P. criteria as the district court. Krajacich v. Great
Falls Clinic, LLP, 2012 MT 82, ¶ 8, 364 Mont. 455, 276 P.3d 922. The interpretation of
a contract, including whether the contract is ambiguous, is a question of law, which we
review for correctness. Johnston v. Centennial Log Homes & Furnishings, Inc.,
2013 MT 179, ¶ 25, 370 Mont. 529, 305 P.3d 781.
DISCUSSION
¶13 In granting summary judgment to GFOA, the District Court found that the waiver
provision of the Adoption Agreement and the 75% provision of the Plan conflicted such
that the contract as a whole was ambiguous. The court therefore interpreted the contract
most strongly against the drafter, MHN, and found that GFOA did not breach the
contract.
¶14 MHN argues that the District Court erred when it concluded that the contract was
ambiguous. MHN further argues that, if we reverse the District Court, we should uphold
the validity of the acceleration clause or, in the alternative, remand for a determination of
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actual damages. However, because we affirm, we need not address the enforceability of
the acceleration clause. As an additional matter, we will address GFOA’s request for
attorney’s fees incurred defending this appeal.
¶15 Did the District Court err when it found the contract ambiguous and
granted summary judgment to GFOA?
¶16 As a preliminary matter, we note that the Adoption Agreement and the Plan must
be interpreted as part of a single contract. “Several contracts relating to the same matters,
between the same parties, and made as parts of substantially one transaction are to be
taken together.” Section 28-3-203, MCA. As explained by the District Court, “[h]ere,
the Plan and Adoption Agreement are not mutually exclusive. The Plan is only
enforceable through the Adoption Agreement. The Adoption Agreement binds the
parties to the Plan. This Court must interpret the contracts as an integrated agreement.”
We will likewise consider provisions in the Plan and in the Adoption Agreement to be
part of the same document.
¶17 As stated above, Paragraph 4 of the Adoption Agreement reads in part:
[a]n employee may waive coverage for any Plan Year by executing and
returning a waiver form provided by Montana Health Network, Inc. at the
time provided for initial enrollment, or during the annual enrollment period.
Section 2.1 of the Plan states in part:
[i]t shall be a continuing condition of participation by any Eligible
Employer that seventy-five percent of such Eligible Employer’s Employees
in each class of Eligible Employees be Participants in the Plan.
¶18 The District Court concluded that these two provisions were irreconcilable and
thus created an ambiguity in the contract. MHN disagreed, arguing that it was a perfectly
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reasonable construction of the contract to interpret Paragraph 4 as allowing employees to
waive coverage while at the same time interpreting Section 2.1 as requiring the employer
to pay premiums for at least 75% of eligible employees, regardless of how many had
waived coverage. The District Court reasoned that this construction would create an
absurd result. As the court explained, MHN’s proposed interpretation would require
GFOA to pay premiums for 75% of eligible employees even if all employees waived
coverage. Furthermore, the open enrollment period for employees ended on December
31 of the plan year. Thus, on its December 1 withdrawal deadline, GFOA would not
necessarily have known whether MHN would meet the 75% participation requirement for
the upcoming year.
¶19 The District Court pointed out that MHN was the sole drafter of both the Adoption
Agreement and the Plan, but failed to include any provision that could reconcile conflicts
between the two parts of the contract. As a result, the court turned to general principles
of contract interpretation. The court enunciated the rule of construction that, in general,
if the terms of a later contract contravene the terms of a former contract, the later contract
controls. Applying this principle, and considering the fact that MHN drafted the
Adoption Agreement specifically for GFOA, whereas the Plan was drafted for general
application, the District Court concluded that the Adoption Agreement was adopted to
modify the Plan. Thus, the court found Paragraph 4 to be controlling with respect to
Section 2.1. As a result, the court found that GFOA properly submitted waivers for 27 of
its employees, and there was no breach of contract.
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¶20 We agree with the District Court’s analysis. A contract must be given a
reasonable interpretation. Section 28-3-201, MCA. The language of a contract governs
its interpretation unless that language would result in an absurdity. Section 28-3-401,
MCA. In other words, interpretation must be reasonable. Section 1-3-233, MCA.
¶21 We recognize that in interpreting a contract we must endeavor to give effect to
every part of the contract whenever reasonably practical. Section 28-3-202, MCA. In
this case, however, giving effect to both provisions at issue is not reasonably practical.
As written, the interplay between Paragraph 4 and Section 2.1 is ambiguous. Paragraph 4
of the Adoption Agreement provides the employees with the unqualified power to waive
coverage, and nothing elsewhere in the Adoption Agreement requires the employer to
pay premiums for employees who decide to waive that coverage. However, Section 2.1
of the earlier Plan imposes upon the employer the strict duty to maintain 75%
participation. We do not see how the right granted to the employees can be plainly
reconciled with the duty imposed on the employer, except, as noted by the District Court,
in the absurd interpretation whereby the employer would be required to pay coverage
premiums for employees who have waived coverage. Montana law compels us to reject
an interpretation that would lead to absurdities. We are left to conclude that one
provision must take precedence over the other. Either employees have the unqualified
right to waive coverage, regardless of any effect on participation percentages, or
employers have the implied right to prohibit employee waiver in order to maintain 75%
participation. Each of these interpretations is reasonable, but neither is expressly favored
in the contract.
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¶22 Where contracts are ambiguous, we will construe the ambiguity “most strongly”
against the drafter. West v. Club at Spanish Peaks L.L.C., 2008 MT 183, ¶ 53,
343 Mont. 434, 186 P.3d 1228; § 28-3-206, MCA. In this instance, it is undisputed that
both the Plan and the Adoption Agreement were drafted solely by MHN. Thus, we
construe the ambiguity and confusion engendered by the conflicting provisions most
strongly against MHN.
¶23 Furthermore, as explained by the District Court: when the terms of a former
contract are contradicted by the terms of a later contract relating to the same subject
matter, the later contract controls. Bridaham v. Moore, 199 Mont. 161, 166, 648 P.2d
731, 734 (1982); Kester v. Nelson, 92 Mont. 69, 74, 10 P.2d 379, 380 (1932); see also
Frank v. Cobban, 20 Mont. 168, 171, 50 P. 423, 424 (1897). The Plan was originally
drafted by MHN in 1993 and–prior to GFOA adopting the Plan by executing the
Adoption Agreement in October 2005–was last amended in November 2003. Thus the
doctrine that the most recent contract controls would result in Paragraph 4 being read as
the controlling provision.
¶24 Additionally, the fact that the Plan was drafted to apply generically to Qualified
Employers, whereas the Adoption Agreement was drafted specifically for GFOA,
suggests that the Adoption Agreement was meant to contain specific provisions that
might alter or supersede provisions of the Plan. “Particular expressions qualify those
which are general.” Section 1-3-225, MCA. Or, as stated by the District Court:
[i]mportantly, the Plan is generic in its application to participants like
GFOA. The Adoption Agreement, on the other hand, is specific to
GFOA’s adoption of the generic Plan. A reasonable interpretation is that
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the Adoption Agreement inherently modifies the Plan as it applies to
GFOA.
¶25 Finally, the District Court noted that MHN’s conduct in failing to enforce the 75%
provision supports the interpretation that the waiver clause controls. MHN’s CEO
testified that MHN never treated the waiver provision as limited by the 75% provision.
Furthermore, MHN admits that it never enforced the 75% provision, never rejected a
waiver based on the provision, and in fact had no enforcement mechanism in place. The
District Court correctly found that MHN’s conduct with respect to the 75% provision
supported the conclusion that the waiver provision was meant to modify the 75%
provision, not vice versa.
¶26 Is GFOA entitled to attorney’s fees under the plan for defending this
appeal?
¶27 GFOA requests attorney’s fees incurred while defending this appeal. MHN does
not contest GFOA’s request. The Plan and the Adoption Agreement contain nearly
identical provisions requiring the Employer to indemnify MHN for all expenses,
including attorney’s fees, arising out of a breach of the contract. In Montana, provisions
granting attorney’s fees to one party are reciprocal by statute. Section 28-3-704, MCA,
provides:
Whenever, by virtue of the provisions of any contract or obligation in the
nature of a contract . . . one party to the contract or obligation has an
express right to recover attorney fees from any other party to the contract or
obligation in the event the party having that right brings an action upon the
contract or obligation, then in any action on the contract or obligation all
parties to the contract or obligation are considered to have the same right to
recover attorney fees and the prevailing party in any action, whether by
virtue of the express contractual right or by virtue of this section, is entitled
to recover reasonable attorney fees from the losing party or parties.
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¶28 Applying the statute, it is clear that GFOA has the right to recover attorney’s fees
under the terms of the contract if it is the prevailing party. MHN does not contest this
assertion. Because we affirm the District Court, GFOA is the prevailing party in this
action and is entitled to the reasonable attorney’s fees accrued while defending this
appeal.
CONCLUSION
¶29 We concur with the District Court that the 75% provision of Section 2.1 of the
Plan and the waiver provision of Paragraph 4 of the Adoption Agreement are
incompatible and render the contract ambiguous. Interpreting the contract most strongly
against the drafter, and considering the facts that the Adoption Agreement is the most
recent document, that the Adoption Agreement was meant to apply specifically to GFOA
while the Plan was prepared for generic use, and that MHN’s conduct demonstrated a
lack of concern for enforcing the 75% provision, we conclude that the waiver provision
controls. Thus GFOA properly submitted waivers for 27 employees and did not breach
the contract by falling below 75% participation. The District Court did not err when it
interpreted the contract thusly and granted summary judgment to GFOA. Because we
determine that GFOA did not breach the contract we need not consider the enforceability
of the acceleration clause in the Plan. GFOA is entitled to its attorney’s fees accrued
while defending this appeal.
¶30 Affirmed.
/S/ MICHAEL E WHEAT
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We Concur:
/S/ JAMES JEREMIAH SHEA
/S/ PATRICIA COTTER
/S/ BETH BAKER
/S/ JIM RICE
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