Premier, Inc. v. Peterson , 232 N.C. App. 601 ( 2014 )

NO. COA13-344
NORTH CAROLINA COURT OF APPEALS
Filed: 4 March 2014
PREMIER, INC.,
Plaintiff,
v. Mecklenburg County
No. 11 CVS 1054
DAN PETERSON; OPTUM COMPUTING
SOLUTIONS, INC.; HITSCHLER-CERA,
LLC; DONALD BAUMAN; MICHAEL
HELD; THE HELD FAMILY LIMITED
PARTNERSHIP; ROBERT WAGNER;
ALEK BEYNENSON; I-GRANT
INVESTMENTS, LLC; JAMES MUNTER;
GAIL SHENK; STEVEN E. DAVIS;
CHARLES W. LEONARD, III and JOHN
DOES 1-10,
Defendants.
Appeal by defendants from order entered 11 December 2012 by
Judge Calvin E. Murphy in Mecklenburg County Superior Court.
Heard in the Court of Appeals 29 August 2013.
Moore & Van Allen, PLLC, by J. Mark Wilson, Kathryn G.
Cole, and Benjamin R. Huber, for plaintiff-appellee.
Williams Mullen, by Christopher G. Browning, Jr. and
Garrick A. Sevilla, for defendants-appellants.
DAVIS, Judge.
Dr. Dan Peterson (“Dr. Peterson”); Optum Computing
Solutions, Inc.; Hitschler-Cera, LLC; Donald Bauman; Michael
-2-
Held; the Held Family Limited Partnership; Robert Wagner; Alek
Beynenson; I-Grant Investments, LLC; James Munter; Gail Shenk;
Steven E. Davis; Charles W. Leonard, III; and John Does 1-10
(collectively “Defendants”) appeal from the trial court’s 11
December 2012 order granting summary judgment in favor of
Plaintiff Premier, Inc. (“Premier”) on (1) its claim for a
declaratory judgment that it did not breach its contract with
Defendants; and (2) Defendants’ counterclaims for breach of
contract, attorneys’ fees, and recovery of audit expenses.
After careful review, we vacate the trial court’s order granting
summary judgment and remand for further proceedings.
Factual Background
On 29 September 2006, Premier acquired Cereplex, Inc.
(“Cereplex”) by entering into a Stock Purchase Agreement (the
“Agreement”) with Defendants, the former shareholders and
stakeholders of Cereplex. Cereplex developed and designed web-
based surveillance and analytic services to healthcare providers
through its software products, Setnet and PharmWatch. Setnet
was designed to assist healthcare providers in detecting,
responding to, and preventing healthcare-associated infections
(“HAIs”). HAIs are infections that patients acquire during
their course of treatment in a healthcare facility or setting.
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The Setnet program provided various alerts, reports, and other
monitoring and surveillance functions regarding the possible
presence of HAIs in healthcare providers’ patient population.
PharmWatch was a program designed to optimize treatment,
curb resistance to antibiotics, and prevent unnecessary use or
overuse of antibiotics. The PharmWatch product provided
automated surveillance and monitoring by generating alerts to
notify a healthcare provider of a potential problem in the
provision and dosage of antibiotics to a particular patient.
After acquiring Cereplex, Premier developed
SafetySurveillor, a successor product that combined the
functionalities of Setnet and PharmWatch into one software
program. SafetySurveillor, like its predecessors, generates
automated alerts to notify the user of potential problems that
require attention. SafetySurveillor’s key features relate to
its ability to (1) facilitate infection prevention by firing
alerts to infection control professionals regarding the
potential existence of clusters or outbreaks of HAIs; and (2)
provide configurable pharmacological-related alerts based on set
variables, including high-cost medication, drug combinations,
length of therapy, lab results, and other factors.
Pursuant to the Agreement, Defendants were entitled to
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receive an annual earnout payment (the “Earnout Amount”) from
Premier for five years following the date of the Agreement. The
Earnout Amount provision of the Agreement states, in pertinent
part, as follows:
(iii) Earnout. On each of the dates that
are the first five (5) anniversaries of the
Closing Date, the Earnout Amount earned
during the preceding twelve (12) months
shall be determined by the Buyer in good
faith (the “Yearly Earnout”). . . . “Earnout
Amount” shall mean an amount equal to
$12,500 for each Hospital Site where a
Product Implementation occurs during the
applicable 12-month period; excluding the
first fifty (50) Hospital Sites where a
Product Implementation occurs . . . . For
the avoidance of doubt the first fifty (50)
Hospital Site threshold is a one-time
threshold, not an annual threshold.
"Hospital Site" shall mean an individual
hospital, nursing home, care center or
similar facility (and for the avoidance of
doubt a single health care company or
hospital group may consist of multiple
Hospital Sites). “Product Implementation”
means a Hospital Site that has (A)
subscribed to or licensed the Company's
Setnet or PharmWatch product (or any
derivative thereof, successor product, or
new product that substantially replaces the
functionality of either product), whether
such product is provided, sold or licensed
(for a charge or at no charge, or provided
on a stand-alone basis or bundled with other
products and/or services) to the applicable
Hospital Site by Company (or its successor
in interest), any affiliate of the Company
or any reseller authorized by the Company,
and (B) completed any applicable
implementation, configuration and testing of
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the product so that the product is ready for
production use by the Hospital Site.
Together with the delivery of each Yearly
Earnout, the Buyer shall provide the
Sellers' Representative with a written
report listing the names and addresses of
the Hospital Sites covered by the applicable
Yearly Earnout payment.
The Agreement provided that Defendants were authorized to
conduct an annual audit to verify that Premier was paying out
the correct Earnout Amount to Defendants. Defendants were
responsible for paying the expenses associated with the audit
unless the audit revealed that Premier had underpaid the Earnout
Amount by more than 5%. If the applicable Earnout Amount was in
dispute, Premier would not have any obligation to pay the costs
and expenses of the audit “unless a final, nonappealable order
of a court or an arbitrator that is binding on [Premier] finds
that the Audit findings are correct.”
From May 2010 to September 2010, Dr. Peterson, the co-
founder and former Chief Executive Officer of Cereplex,
conducted a pilot audit on Defendants’ behalf regarding
Premier’s compliance with the Agreement. Dr. Peterson testified
by affidavit that in determining the appropriate Earnout Amount
that Defendants were due, his audit “reported on the occurrence
of single-event alerts as a simple and sure way to identify
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Product Implementations of SafetySurveillor1 for the Audit.” A
single-event alert refers to the notification the
SafetySurveillor program dispatches to infection control
professionals or other designated medical personnel to identify
either (1) the potential presence of an HAI in a patient who was
discharged from a hospital and later sought medical attention
from another healthcare facility; or (2) a possible problem with
the antibiotic therapy prescribed to a patient.
Dr. Peterson examined Premier’s databases and discovered
over 1,000 healthcare facilities from which an alert had been
fired. His affidavit states that “[e]ach alert relates to an
individual patient and is specific to the facility at which that
patient was seen, and each alert was sent to at least one
clinician who had chosen to be alerted about the event.” He
also explained that in order for an alert to be fired from a
facility, the SafetySurveillor program must have acquired access
to the facility’s patient data.
The conclusion reached by Dr. Peterson from his audit was
that Premier had provided SafetySurveillor to over 1,000
facilities yet had only recognized 263 Hospital Sites for
1
SafetySurveillor, the successor product of Setnet and
PharmWatch, replaced those two software programs and was the
only relevant product for purposes of Product Implementation in
2010.
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purposes of the Product Implementation provision of the
Agreement. Based on Dr. Peterson’s audit, Defendants informed
Premier that they intended to initiate litigation against
Premier for miscalculating the Earnout Amount and violating the
terms of the Agreement.
On 19 January 2011, Premier filed an action in Mecklenburg
County Superior Court seeking a declaratory judgment that it had
not breached the Agreement. On 27 April 2011, Defendants filed
an answer and counterclaims. Defendants alleged that Premier
had, in fact, breached its contract with Defendants and sought
damages as well as the recovery of audit expenses and attorneys’
fees. The matter was designated a complex business case and
assigned to the Honorable Calvin E. Murphy.
On 29 July 2011, the trial court entered a case management
order giving the parties until 30 April 2012 to complete fact
discovery and until 31 July 2012 to complete all discovery. On
30 August 2011, approximately 40 days after the entry of the
case management order, Premier filed a motion for judgment on
the pleadings pursuant to Rule 12(c) of the North Carolina Rules
of Civil Procedure or, in the alternative, a motion for summary
judgment pursuant to Rule 56.
The trial court conducted a hearing on 14 December 2011 and
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entered its order and opinion on 11 December 2012 granting
summary judgment in Premier’s favor on its declaratory judgment
claim as well as on Defendants’ counterclaims for breach of
contract, attorneys’ fees, and recovery of audit expenses.2
Defendants appealed to this Court.
Analysis
On an appeal from an order granting summary judgment, this
Court reviews the trial court’s decision de novo. Shroyer v.
Cty. of Mecklenburg, 154 N.C. App. 163, 167, 571 S.E.2d 849, 851
(2002). Summary judgment is appropriate if “the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that any party is
entitled to a judgment as a matter of law.” Dockery v. Quality
Plastic Custom Molding, Inc., 144 N.C. App. 419, 421, 547 S.E.2d
850, 852 (2001).
In a contract dispute between two parties, the trial court
may interpret a plain and unambiguous contract as a matter of
law if there are no genuine issues of material fact. See
McKinnon v. CV Indus., Inc., 213 N.C. App. 328, 333, 713 S.E.2d
2The trial court granted summary judgment in favor of Defendants
on Premier’s claim for attorneys’ fees after concluding that
there was no statutory basis for an award of attorneys’ fees in
Premier’s favor.
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495, 500 (“Courts may enter summary judgment in contract
disputes because they have the power to interpret the terms of
contracts.”), disc. review denied, 365 N.C. 353, 718 S.E.2d 376(2011); Metcalf v. Black Dog Realty, LLC, 200 N.C. App. 619,
633, 684 S.E.2d 709, 719 (2009) (“[W]hen the language of a
contract is not ambiguous, no factual issue appears and only a
question of law which is appropriate for summary judgment is
presented to the court.”).
“Whenever a court is called upon to interpret a contract
its primary purpose is to ascertain the intention of the parties
at the moment of its execution.” Lane v. Scarborough, 284 N.C.
407, 409-10, 200 S.E.2d 622, 624 (1973). In determining the
parties’ intent, the court must construe the contract “in a
manner that gives effect to all of its provisions, if the court
is reasonably able to do so.” Johnston Cty. v. R.N. Rouse &
Co., 331 N.C. 88, 94, 414 S.E.2d 30, 34 (1992).
The key language in the Agreement that lies at the heart of
this dispute states as follows:
“Product Implementation” means a Hospital
Site that has (A) subscribed to or licensed
the Company's Setnet or PharmWatch product
(or any derivative thereof, successor
product, or new product that substantially
replaces the functionality of either
product), whether such product is provided,
sold or licensed (for a charge or at no
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charge, or provided on a stand-alone basis
or bundled with other products and/or
services) to the applicable Hospital Site by
Company (or its successor in interest), any
affiliate of the Company or any reseller
authorized by the Company . . . .
(Emphasis added.)
The parties offer different views on how the italicized
language quoted above should be interpreted. Relying on the
“subscribed to or licensed” phrase, Premier contends that in
order for Product Implementation to occur, a Hospital Site must
affirmatively take steps to subscribe to or license the
SafetySurveillor product. Based on this interpretation, Premier
claims that it fully satisfied its obligations under the
Agreement by making Earnout payments for 213 of the 263 Hospital
Sites that had formal written subscription agreements with
Premier.3
Defendants, conversely, assert that Premier’s
interpretation of Product Implementation is too narrow. They
argue that the “whether such product is provided, sold or
licensed” phrase broadens the circumstances under which an
annual Earnout payment can accrue. As such, Defendants contend
3
Pursuant to the Agreement, the first 50 Hospital Sites where
Product Implementation occurs are excluded when calculating the
appropriate Earnout Amount total. Thus, payment was made for
only 213 of these 263 Hospital Sites.
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that the “subscribed to or licensed” component of Product
Implementation is satisfied simply by virtue of Premier’s
provision of the SafetySurveillor product to a facility. Based
on this reasoning, Defendants contend that Premier was not
entitled to summary judgment because the results of Dr.
Peterson’s audit — specifically the data showing the numerous
facilities from which single-event alerts were fired — indicated
that Premier had “provided” the SafetySurveillor program to over
1,000 facilities, thereby causing Product Implementation to
occur regardless of whether those facilities had actually taken
steps to subscribe to or license the product.
Premier responds by arguing that Defendants’ interpretation
of Product Implementation reads the “subscribed to or licensed”
language out of the Agreement. Defendants’ interpretation,
according to Premier, treats the “subscribed to or licensed”
phrase as having been effectively superseded by the “whether
such product is provided, sold or licensed” phrase.
In its order and opinion, the trial court agreed with
Premier’s interpretation of the Agreement, ruling that a
Hospital Site was required to subscribe to or license the
product in order for Product Implementation to occur. The trial
court harmonized the “subscribed to or licensed” phrase with the
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“whether such product is provided, sold or licensed” phrase by
determining that “while it does not matter who provides the
product to the Hospital Site or whether the Hospital Site is
charged, the Hospital Site still must subscribe to or license
the product in order for ‘Product Implementation’ to occur.”
(Emphasis added.)
The trial court, therefore, rejected Defendants’ contention
that they would be entitled to an Earnout payment any time
SafetySurveillor was “merely provided” to a Hospital Site
because that interpretation “unreasonably construes the
otherwise unambiguous language of the contract that requires a
license or subscription.” Based on its interpretation of the
Product Implementation definition in the Agreement, the trial
court concluded that summary judgment in favor of Premier was
appropriate.
We agree with the trial court that Defendants’
interpretation would impermissibly read the phrase “subscribed
to or licensed” out of the Agreement. See Singleton v. Haywood
Elec. Membership Corp., 357 N.C. 623, 629, 588 S.E.2d 871, 875
(2003) (explaining that when interpreting a contract “[t]he
various terms of the contract are to be harmoniously construed,
and if possible, every word and every provision is to be given
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effect” (citation and brackets omitted)). Defendants’ argument
hinges on the notion that Product Implementation can occur
simply by virtue of a facility’s receipt of the SafetySurveillor
product. However, the unmistakable meaning of the language the
parties agreed upon in drafting the Agreement is that some
affirmative act on the part of the Hospital Site is required.
Defendants simply cannot escape the fact that the definition of
Product Implementation makes clear that it is the Hospital Site
that must “subscribe[] to or license[]” the product. Thus,
contrary to Defendants’ proffered interpretation, the mere
receipt of SafetySurveillor by a facility is, standing alone,
insufficient to trigger an Earnout payment under the Agreement.
However, our adoption of this interpretation of the Product
Implementation definition does not resolve the case. To hold,
as we do, that a Hospital Site must subscribe to or license the
product in order for Product Implementation to occur is to raise
the question of whether the additional facilities that
Defendants contend qualify as Hospital Sites at which Product
Implementation has occurred have, in fact, affirmatively
undertaken steps to subscribe to or license the SafetySurveillor
product.
It is well established that in construing contract
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provisions, “[w]here a contract defines a term, that definition
is to be used. If no definition is given, non-technical words
are to be given their meaning in ordinary speech, unless the
context clearly indicates another meaning was intended.” Reaves
v. Hayes, 174 N.C. App. 341, 345, 620 S.E.2d 726, 729 (2005)
(citation and quotation marks omitted). As neither “subscribed”
nor “licensed” is defined in the Agreement, it is appropriate to
examine the ordinary and plain meaning of these terms.
“Subscribe” means “to agree to receive and pay for a
periodical, service, etc.” Webster’s New World Dictionary 588
(1995). The most applicable dictionary definition of the word
“license” is “official or legal permission to do or own a
specified thing.” American Heritage College Dictionary 782 (3d
ed. 1993). Both definitions connote an affirmative act by the
recipient prior to receipt of the product or service — be it the
act of agreeing to receive the product or service or the act of
obtaining permission to use the product or service. Applying
these definitions here, we believe that the Agreement
contemplates a mutual arrangement between Premier and the
Hospital Site whereby Premier agrees to provide the
SafetySurveillor product and the Hospital Site agrees to accept
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it and utilize its services.4
While the trial court correctly interpreted the Agreement
as requiring the Hospital Site to take some action to subscribe
to or license SafetySurveillor, we cannot agree with the trial
court’s conclusion that summary judgment was appropriate at this
stage in the litigation. Defendants submitted evidence,
consisting primarily of the affidavit of Dr. Peterson,
suggesting that Premier provided SafetySurveillor to numerous
additional facilities (beyond the 263 Hospital Sites
acknowledged by Premier in its calculation of the Earnout
Amount) for which no payment was made. Premier does not dispute
Defendants’ contention that alerts were fired from these
facilities but claims that (1) there is no evidence that any of
the facilities identified have subscribed to or licensed
SafetySurveillor; and (2) evidence of the firing of alerts is
not relevant to the issue of whether a facility has subscribed
to or licensed SafetySurveillor.
While we have rejected Defendants’ contention that evidence
4
However, because the Agreement expressly states that an Earnout
payment can be triggered — assuming the other requirements are
met — regardless of whether the product is provided “for a
charge or at no charge,” payment by the Hospital Site is not
required. Similarly, an Earnout payment can be triggered
whether SafetySurveillor is offered on a stand-alone basis or as
part of a bundle of other products and services.
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of Premier’s mere provision of the SafetySurveillor product to
facilities, without more, automatically triggers Product
Implementation, we believe that such evidence (as shown by the
firing of alerts) and the circumstances under which the product
came to be received by these facilities is probative of the
issue of whether the facilities did, in fact, meet the criteria
for Product Implementation. However, as presently constituted,
the record is devoid of specific evidence on this issue. It may
or may not ultimately be determined that additional facilities
beyond the 263 acknowledged by Premier qualify as Hospital Sites
as to which Product Implementation has occurred; however, on the
present record, we have no way of knowing the answer to this
question.
In its complaint, Premier summarized the relief it was
seeking as follows:
30. Plaintiff is entitled to a judgment
declaring that it has not violated any
purported rights of Defendants pursuant to
the Stock Purchase Agreement or otherwise
under federal, state or common law, and is
not liable to Defendants for any claims,
including any claims concerning the parties’
respective rights or obligations pursuant to
the Stock Purchase Agreement. . . .
As the party seeking summary judgment, Premier bore “the initial
burden of demonstrating the absence of a genuine issue of
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material fact” as to whether it had fully satisfied its payment
obligations under the Agreement. Austin Maint. & Constr., Inc.
v. Crowder Constr. Co., ___ N.C. App. ___, ___, 742 S.E.2d 535,
540 (2012) (citation and quotation marks omitted).
The trial court appears to have reasoned that Premier met
this burden because (1) Product Implementation could only occur
when a Hospital Site entered into a formal written agreement
with Premier; and (2) neither party produced evidence “that
refutes the fact that [Premier] paid Defendant[s] for each
Hospital Site that subscribed to or licensed the product”
through a formal, written subscription or licensing agreement.
However, as explained above, while the Agreement requires some
affirmative act by a Hospital Site to subscribe to or license
the SafetySurveillor product in order for Product Implementation
to occur, the Agreement does not specifically require a formal,
written agreement between Premier and the Hospital Site. The
fact that Product Implementation can occur even when the
SafetySurveillor product is provided to the Hospital Site at no
cost suggests that a more informal process may, in fact, have
existed.
The trial court also concluded that Dr. Peterson’s
affidavit constituted parol evidence that attempted to
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impermissibly add to or revise the unambiguous language of the
Agreement. We agree that Dr. Peterson’s affidavit about the
parties’ intent when negotiating the Agreement should not be
allowed to alter the contractual terms that the parties agreed
upon as contained in the four corners of the Agreement; however,
as explained above, we believe that Dr. Peterson’s affidavit
contained evidence probative on the issue of whether the
additional facilities referenced in his audit may have
subscribed to or licensed SafetySurveillor. Accordingly,
further factual development is necessary to explore what
affirmative acts — if any — were taken by the facilities
identified by Defendants to obtain the SafetySurveillor product
so that any such acts can be evaluated in accordance with our
interpretation of the “subscribed to or licensed” language in
the Agreement.
For these reasons, we conclude that this matter must be
remanded to the trial court for a fuller development of the
factual record. While we do not foreclose the possibility that
summary judgment may ultimately be appropriate in this matter,
we believe that such a determination cannot properly be made at
the present time in light of the incomplete factual record that
currently exists. See Ussery v. Taylor, 156 N.C. App. 684, 686,
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577 S.E.2d 159, 161 (2003) (reversing premature entry of summary
judgment and remanding to give parties “the opportunity to
further develop the facts”). Because we are vacating the entry
of summary judgment and remanding for further proceedings, we
also vacate the trial court’s rulings on both parties’ claims
for attorneys’ fees. We express no opinion as to whether either
party may be entitled to attorneys’ fees once the trial court
has rendered a final judgment in this action on remand.
Conclusion
For the reasons stated above, we vacate the trial court’s
order and opinion and remand for further proceedings consistent
with this opinion.
VACATED AND REMANDED.
Judges CALABRIA and STROUD concur.