Blue Cross Blue Shield v. City of Lawrenceburg ( 1997 )

BLUE CROSS-BLUE SHIELD OF )
TENNESSEE, )
) APPEAL NO.
PLAINTIFF/APPELLANT, ) 01-A-01-9611-CV-00526
)
v. ) CIRCUIT COURT NO.
) CC-31-95
CITY OF LAWRENCEBURG, )
DEFENDANT/APPELLEE.
)
)
FILED
April 23, 1997
Cecil W. Crowson
Appellate Court Clerk
COURT OF APPEALS OF TENNESSEE
MIDDLE SECTION AT NASHVILLE
APPEAL FROM THE LAWRENCE COUNTY CIRCUIT COURT
AT LAWRENCEBURG, TENNESSEE
THE HONORABLE WILLIAM B. CAIN, JUDGE
ROBERT G. NORRED, JR
JANE M. STAHL
Spears, Moore, Rebman & Williams
801 Pine Street, P.O. Box 1749
Chattanooga, Tennessee 37401-1749
ATTORNEYS FOR PLAINTIFF/APPELLANT
ALAN C. BETZ
White & Betz, Attorneys
22 Public Square, P.O. Box 488
Lawrenceburg, Tennessee 38464
ATTORNEY FOR DEFENDANT/APPELLEE
AFFIRMED AND REMANDED
SAMUEL L. LEWIS, JUDGE
OPINION
This is an appeal by plaintiff/appellant, Blue Cross-Blue Shield of Tennessee
(“Blue Cross”), from the trial court’s decision which dismissed Blue Cross’s
complaint requesting reimbursement from the City of Lawrenceburg (“the City”) for
certain claims paid by Blue Cross. The facts out of which this matter arose are as
follows.
Blue Cross provided medical insurance to the City and its employees from
November 1984 until 31 January 1993. During this period, Blue Cross denied certain
claims made by the City and its employees. Charles Brown, the City’s Secretary
/Treasurer, and Ivan Johnston, the City’s Mayor, wrote letters to Blue Cross asking
Blue Cross to pay the out of contract claims for the benefit of the City’s employees.
All the letters also contained the following paragraph: “We understand that if our
group policy with Blue Cross & Blue Shield of Tennessee terminates and we are in
a deficit position we will be liable to reimburse Blue Cross & Blue Shield of
Tennessee for any amount paid out of contract.” Thereafter, Blue Cross paid the
claims.
The City canceled the insurance contract on 31 January 1993. Blue Cross was
in a deficit position and demanded the City reimburse it for the out of contract
payments. The City refused and claimed it had not authorized Brown or Johnston to
make the agreements with Blue Cross.
Blue Cross filed a complaint on 23 February 1995. Blue Cross claimed the
agreements found in the letters entitled it to reimbursement from the City. The City
responded and claimed that neither Brown nor Johnston had authority to enter into
a binding agreement on behalf of the City. Thereafter, Blue Cross amended its
complaint to include equitable estoppel and quantum meruit as grounds for recovery.
The trial court entered its final judgment dismissing the complaint on 5 August 1996.
The judgment included the following conclusion:
Lawrenceburg is governed by a City Charter which provides that there
will be five commissioners who make up the Board of Commissioners,
and that there must be an affirmative vote to adopt any motion,
resolution, or ordinance or pass any measure unless otherwise provided
for in the act. The Charter further provides that the Board of
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Commissioners have and possess all administrative, judicial and
legislative powers and duties and have complete control over the affairs
of the City. For a contract to be enforceable and binding on
Lawrenceburg, it must [sic] voted upon and adopted in a public meeting.
The minutes of the meetings of the Board of Commissioners from 1984
through 1993 were introduced as Exhibit 6, and there is no mention of
the alleged agreement seeking reimbursement for out of contract
payments. It was never voted upon, approved or disapproved, or even
discussed by the Board. This alleged contract between Charles Brown
and Mayor Ivan Johnston and Blue Cross-Blue Shield therefore become
ultra vires, void and unenforceable.
Blue Cross filed a timely notice of appeal and presented the following issue for our
review: “Whether the trial court erred when it dismissed [Blue Cross’s] complaint
based upon finding that [Blue Cross] was not entitled to reimbursement for out of
contract payments because the Secretary/Treasurer and Mayor of [the City] were
without authority to bind [the City] to such a contract.” Blue Cross contends it is
entitled to reimbursement based on the theory of quantum meruit.
Initially, we note that we agree with the trial court’s holding that the contracts
were ultra vires. “Under Tennessee law, a municipal action may be declared ultra
vires for either of two reasons: (1) because the action was wholly outside the scope
of the city's authority under its charter or a statute, or (2) because the action was not
undertaken consistent with the mandatory provisions of its charter or a statute.” City
of Lebanon v. Baird, 756 S.W.2d 236, 241 (Tenn. 1988). The second reason clearly
applies to the facts of this case. The charter required the Board of Commissioners
approve the contracts. The Board never approved the contracts. Thus, the contracts
were ultra vires.
A finding that a contract is ultra vires does not preclude a plaintiff from
recovering funds from a municipal corporation. A plaintiff may still recover under
equitable principles if certain conditions are met. See City of Lebanon, 756 S.W.2d
at 242. A municipal corporation may still be liable if the contract is ultra vires
because “the city failed to exercise a power it has in the manner prescribed by
controlling law.” Id. at 243. The second condition is that the contract not be
executory. Id. The facts of this case satisfy both requirements. First, the contract
was ultra vires because, although the City had the authority to enter into the contracts,
it did not comply with the requirements of the charter. Second, the contracts were not
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executory, i.e., Blue Cross paid the out of contract claims. Thus, Blue Cross may be
able to recoup the amount of the claims from the City if Blue Cross is able to
establish it is entitled to equitable relief.
There are several terms used to describe the equitable relief sought by Blue
Cross in this case. The Tennessee Supreme Court stated:
Actions brought upon theories of unjust enrichment, quasi
contract, contracts implied in law, and quantum meruit are essentially
the same. Courts frequently employ the various terminology
interchangeably to describe that class of implied obligations where, on
the basis of justice and equity, the law will impose a contractual
relationship between parties, regardless of their assent thereto.
....
. . . They are founded on the principle that a party receiving a
benefit desired by him, under circumstances rendering it inequitable to
retain it without making compensation, must do so.
....
. . . Each case must be decided according to the essential elements
of quasi contract, to-wit: A benefit conferred upon the defendant by the
plaintiff, appreciation by the defendant of such benefit, and acceptance
of such benefit under such circumstances that it would be inequitable for
him to retain the benefit without payment of the value thereof.
The most significant requirement for a recovery on quasi contract
is that the enrichment to the defendant be unjust.
Paschall’s, Inc. v. Dozier, 219 Tenn. 45, 53-7, 407 S.W.2d 150, 154-55 (Tenn.
1966); see also Estate of Atkinson v. Allied Fence and Improvement Co., 746
S.W.2d 709, 711 (Tenn. App. 1987) (applying the elements listed in Paschall’s to
quantum meruit). Thus, the City must have received a benefit as a result of Blue
Cross paying the City’s employee’s claims for Blue Cross to recover under quantum
meruit.
Unfortunately, we are unable to conclude the City received any tangible
benefit. The City’s employees received the benefit. If there were any benefit to the
City, it was intangible. That is, it is possible to conclude the City benefited because
its employees were healthier and happier. Nevertheless, there is no evidence in the
record that the employees were healthier and happier or of the value of the intangible
benefit. Evidence of the value of the benefit is necessary to the claim because the
amount of damages recoverable under the theory of quantum meruit equals the value
of the benefit conferred. See Paschall’s, 407 S.W.2d at 155. Thus, Blue Cross is
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either not entitled to reimbursement because the City did not receive a benefit or
because Blue Cross failed to provide evidence of the value of the intangible benefit
received. Either conclusion requires this court affirm the decision of the trial judge.
Therefore, it follows that the judgment of the trial court is affirmed and the case
is remanded to the trial court for any further necessary proceedings. Costs on appeal
are taxed to plaintiff/appellant, Blue Cross-Blue Shield of Tennessee.
_______________________________
SAMUEL L. LEWIS, JUDGE
CONCUR:
_______________________________
HENRY F. TODD, P.J., M.S.
_______________________________
WILLIAM C. KOCH, JR., J.
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