St. Alphonsus Diversified Care, Inc. v. MRI Associates, LLP

IN THE SUPREME COURT OF THE STATE OF IDAHO
Docket No. 34885-2007
SAINT ALPHONSUS DIVERSIFIED CARE, )
INC., an Idaho nonprofit corporation, ) Boise, August 2009 Term
)
Plaintiff-Appellant, ) 2009 Opinion No. 132
)
v. ) Filed: October 21, 2009
)
MRI ASSOCIATES, LLP, an Idaho limited ) Stephen W. Kenyon, Clerk
liability partnership, )
)
Defendant-Respondent. )
_______________________________________ )
MRI ASSOCIATES, LLP, an Idaho limited )
liability partnership, on its own behalf, and )
on behalf of MRI Limited, an Idaho limited )
partnership, and MRI Mobile Limited, an )
Idaho limited partnership, )
)
Counterclaimant-Respondent, )
)
v. )
)
SAINT ALPHONSUS DIVERSIFIED CARE, )
INC., an Idaho nonprofit corporation; and )
SAINT ALPHONSUS REGIONAL )
MEDICAL CENTER, INC., )
)
Counterdefendants-Appellants. )
Appeal from the District Court of the Fourth Judicial District of the State of
Idaho, in and for Ada County. The Hon. Michael R. McLaughlin, District Judge.
The judgment of the district court is vacated and this case is remanded.
Jones Day, Washington, D.C.; Gjording & Fouser, PLLC, Boise; and Givens
Pursley LLP, Boise, for appellants. Donald B. Ayer argued.
Banducci Woodard Schwartzman PLLC, Boise, for respondent. Thomas A.
Banducci argued.
EISMANN, Chief Justice.
This is an appeal from a judgment against a general partner for wrongful dissociation,
breach of a noncompete clause, breach of the covenant of good faith and fair dealing, intentional
interference with prospective contractual relations or business expectations, breach of fiduciary
duties, and civil conspiracy. We vacate the judgment and remand this case for further
proceedings.
I. BACKGROUND
Doctors of Magnetic Resonance, Inc.; Saint Alphonsus Diversified Care, Inc.;1 Mednow,
Inc.; and HCA of Idaho, Inc.,2 formed a general partnership named MRI Associates (MRIA).3
The parties executed a written partnership agreement that was effective on April 26, 1985. The
purpose of the partnership was to acquire and operate diagnostic and therapeutic devices,
equipment, and accessories, beginning with a magnetic resonance imaging (MRI) scanner; to
acquire related buildings and other facilities; and to transact all business matters incident to such
activities. MRIA and others formed two limited partnerships: MRI Limited Partnership (MRI
Center), which owned and operated an MRI scanner located on the hospital campus of St.
Alphonsus Regional Medical Center (St. Alphonsus) under the name of MRI Center of Idaho,
and MRI Mobile Limited Partnership (MRI Mobile), which owned and operated mobile MRI
scanners. MRIA owned thirty percent of, and was the general partner of, each limited
partnership.
For years following the creation of MRIA, physicians at St. Alphonsus used MRI Center
to produce MRI scans and radiologists from the Saint Alphonsus Radiology Group, also known
as Gem State Radiology (GSR), to read the scans. The radiologists organized as GSR were
under an exclusive contract to serve the professional radiological needs of St. Alphonsus‟s
patients.
In 1998, the radiologists at GSR began planning to construct and operate an outpatient
medical imaging facility that would provide a full range of medical imaging services, including
1
Saint Alphonsus Diversified Care, Inc., is the successor of Saint Alphonsus Magnetic Resonance, Inc., which was
an original partner in MRIA.
2
West Valley Medical Center, Inc., later succeeded to the interest of HCA of Idaho, Inc.
3
On January 1, 1995, The Dominican Sisters of Ontario, Inc., an Oregon corporation doing business as Holy Rosary
Medical Center, joined the partnership.
2
both MRI imaging and other imaging services that were not provided by MRI Center. After
GSR had acquired land in downtown Boise, it disclosed its plans to St. Alphonsus and
encouraged it to become involved in the project. Thereafter, there were unsuccessful
negotiations among the GSR radiologists, St. Alphonsus, and MRIA to have one medical
imaging entity.
The radiologists formed the partnership Intermountain Medical Imaging, LLC
(Intermountain Imaging), which began operating on September 1, 1999. On July 1, 2001, Saint
Alphonsus became a partner in the non-MRI part of the business of IMI.
On February 24, 2004, Saint Alphonsus Diversified Care, Inc. gave notice to MRIA that
it would dissociate from the partnership effective on April 1, 2004, and on October 18, 2004, it
filed this lawsuit seeking a judicial determination of the amount it was entitled to receive for its
interest in MRIA. MRIA responded by filing a multi-count counterclaim against Saint
Alphonsus Diversified Care, Inc., and against St. Alphonsus4 (both herein called St. Alphonsus)
and by filing third-party claims. The claims against the third-party defendants were ultimately
dismissed.
Ultimately, the case went to a jury trial on the remaining causes of action in MRIA‟s
counterclaim alleging causes of action for wrongful dissociation, breach of a noncompete clause,
breach of the covenant of good faith and fair dealing, intentional interference with prospective
contractual relations or business expectations, breach of fiduciary duties, and civil conspiracy.
The jury found St. Alphonsus liable on all causes of action, and awarded damages of $63.5
million. The district court reduced the verdict to $36.3 million after determining that the jury
had totaled damage awards on two alternative theories. The court also denied St. Alphonsus‟s
motions for a judgment notwithstanding the verdict or a new trial. St. Alphonsus then timely
appealed.
II. ISSUES
1. Did the district court err in holding that St. Alphonsus wrongfully dissociated from MRIA?
2. Did the district court err in submitting to the jury the issue of whether the partnership
agreement contained a definite term?
4
Saint Alphonsus Diversified Care, Inc., is a wholly-owned subsidiary of St. Alphonsus.
3
3. Did the district court err in admitting into evidence a memorandum that included a reference
to legal advice received by St. Alphonsus?
4. Did the district court err by admitting into evidence a settlement offer made by MRIA?
5. Must the award of damages be vacated because it includes damages sustained by nonparties?
6. Must the award of damages be vacated because it includes lost profits beyond the term of the
partnership?
7. Must the award of damages be vacated because there was insufficient evidence to support the
award of lost profits?
8. Does the evidence support an award of damages based upon the value of MRIA?
9. Did the district court err in denying MRIA‟s motion to amend to add a claim for punitive
damages?
10. Did the district court err in dismissing MRIA‟s antitrust cause of action?
11. Is either party entitled to an award of attorney fees on appeal?
III. ANALYSIS
A. Did the District Court Err in Holding that St. Alphonsus Wrongfully Dissociated from
MRIA?
St. Alphonsus dissociated from MRIA on April 1, 2004. MRIA included in its
counterclaim a cause of action for wrongful dissociation alleged under two theories: (a) the
dissociation breached an express provision of the partnership agreement and (b) the partnership
agreement had a definite term and the dissociation occurred prior to the expiration of that term.
MRIA and St. Alphonsus both filed motions for partial summary judgment on that cause of
action. The district court granted MRIA‟s motion for summary judgment, holding that St.
Alphonsus‟s dissociation was wrongful because it breached an express provision of the
partnership agreement. The court did not discuss the alternative theory that the dissociation
occurred prior to the expiration of the definite term of the partnership. St. Alphonsus contends
the district court erred in granting the partial summary judgment.
“A partner who wrongfully dissociates is liable to the partnership and to the other
partners for damages caused by the dissociation.” I.C. § 53-3-602(c). A partner‟s dissociation is
wrongful if “[i]t is in breach of an express provision of the partnership agreement.” I.C. § 53-3-
602(b)(1). Whether there is an express provision in the partnership agreement that was breached
4
by the dissociation is an issue of law over which we will exercise free review. See Howard v.
Perry, 141 Idaho 139, 142, 106 P.3d 465, 468 (2005) (“Whether a contract is ambiguous is a
question of law over which we exercise free review.”). The partnership agreement was effective
on April 26, 1985. Because of a subsequent change in the applicable law, it is necessary to first
discuss how the agreement is to be viewed when addressing this issue.
When the parties entered into the partnership agreement, the applicable law in Idaho was
the “Uniform Partnership Law” (UPL), former I.C. §§ 53-301 et seq.5 The UPL did not include
the concept of dissociation. Under the UPL, a partnership was not a legal entity distinct from
the partners. Swope v. Swope, 112 Idaho 974, 981, 739 P.2d 273, 280 (1987). It was “an
association of two or more persons to carry on as co-owners a business for profit.” State v.
Cosgrove, 36 Idaho 278, 285, 210 P. 393, 395 (1922); former I.C. § 53-306(1). Therefore, the
withdrawal of one partner caused a dissolution of the partnership. Kelly v. Silverwood Estates,
127 Idaho 624, 628, 903 P.2d 1321, 1325 (1995); Elliot v. Elliot, 88 Idaho 81, 86, 396 P.2d 719,
722 (1964); former I.C. § 53-329. A partner could at any time withdraw from the partnership by
the partner‟s express will to cease being associated in the carrying on of the partnership business.
Former I.C. §§ 53-329 & 53-331.6 If that breached the partnership agreement, the partner could
be liable for wrongful dissolution. Former I.C. § 53-338(2)(a)(2).
In 1998, the UPL was repealed effective July 1, 2001, and the “Uniform Partnership Act
(1996)” (RUPA), I.C. §§ 53-3-101 et seq., was enacted effective January 1, 2001.7 Ch. 65, §§ 1
5
The partnership agreement recites, “Except as modified hereunder, the parties hereto hereby form a general
partnership pursuant to the Uniform Partnership Law of the State of Idaho.”
6
Those statutes provided:
53-329. Dissolution defined. The dissolution of a partnership is the change in the
relation of the partners caused by any partner ceasing to be associated in the carrying on as
distinguished from the winding up of the business.
53-331. Causes of dissolution. Dissolution is caused:
1. Without violation of the agreement between the partners.
...
b. By express will of any partner when no definite term or particular
undertaking is specified.
...
2. In contravention of the agreement between the partners, where the circumstances do
not permit a dissolution under any other provision of this section, by the express will of any
partner at any time.
7
The new Act is also known as the Revised Uniform Partnership Act (RUPA). Costa v. Borges, 145 Idaho 353,
356, 179 P.3d 316, 319 (2008).
5
& 3, 1998 Idaho Sess. Laws 226, 227, 259. The RUPA introduced the new concept of
“dissociation.”
Under the RUPA, “[a] partnership is an entity distinct from its partners.” I.C. § 53-3-
201(a). An association of two or more persons to carry on as co-owners a business for profit
forms a partnership; they are not the partnership. I.C. § 53-3-202(a). A partner who chooses to
withdraw from the partnership is dissociated, I.C. § 53-3-601(1), but “[t]he dissociation of the
partner does not require the dissolution of the partnership and the winding up of its affairs.”
Costa v. Borges, 145 Idaho 353, 357, 179 P.3d 316, 320 (2008). A partner has the power to
dissociate at any time, rightfully or wrongfully. I.C. § 53-3-602(a). If a partner wrongfully
dissociates, a majority in interest of the remaining partners can, within ninety days, agree to
continue the partnership, I.C. § 53-3-801(1) & (2)(i), but they will have to purchase the
dissociating partner‟s interest. I.C. § 53-3-701.
Under the UPL, a partner by express will could cease to be associated in the carrying on
of the partnership business. Former I.C. §§ 53-329 & 53-331(1)(b) & (2). Under the RUPA, a
partner can give notice of the partner‟s express will to withdraw as a partner, which terminates
the partner‟s right to participate in the management and conduct of the partnership business. I.C.
§§ 53-3-601(1) and 53-3-603(a). Under both statutory schemes, a partner can choose to
withdraw from a partnership. Thus, the issue is whether St. Alphonsus‟s withdrawal from the
partnership breached an express provision of the partnership agreement. In construing the
meaning of the provision allegedly breached, however, the terms of the agreement must be
viewed in the context of the UPL because that was the law in effect when the parties entered into
the agreement.
The relevant provision of the partnership agreement is as follows:
ARTICLE 6
WITHDRAWAL OF HOSPITAL PARTNER
6.1 Conditions for withdrawal. Any Hospital Partner may withdraw from
the Partnership at any time if, in a Hospital Partner‟s reasonable judgment,
continued participation in this Partnership: (i) jeopardizes the tax-exempt status
of such Hospital Partner or its parent or their subsidiaries; or (ii) jeopardizes
medicare/medicaid or insurance reimbursements or participations; (iii) if the
business activities of the Partnership are contrary to the ethical principles of the
Roman Catholic Church as designated from time to time; or (iv) is or may be in
6
violation of any local, state or federal laws, rules or regulations. In the event that
a Hospital Partner withdraws, such Hospital Partner‟s interest in the Partnership
shall terminate on the date of withdrawal, and that interest, including, without
limitation, the Hospital Partner‟s vote on the Board of Partners and its interest in
the Partnership management fee, shall be reallocated among the remaining
Hospital Partners. (If there are no remaining Hospital Partners, the reallocation
shall be among the remaining Partners). Unless otherwise agreed, the
withdrawing Hospital Partner shall only be entitled to receive for its interest in the
Partnership an amount: which is equal to the balance in such Hospital Partner‟s
capital account at the time of withdrawal.
6.2 Payment for Interest. The price for the withdrawing Hospital
Partner‟s interest in the partnership shall be paid to such Hospital Partner by the
Partners to which its interest in the Partnership has been allocated, without
interest, in installments equal to, and due at the same time as, distributions of the
Net Cash Flow which the Hospital Partner would have received had it remained a
Partner in the Partnership.
6.3 Loans and Other Liabilities. Loans payable to the withdrawing
Hospital Partner shall be paid as provided herein. Withdrawal shall not relieve
the Hospital Partner from its contingent liability for its Capital Ratio share of
Partnership liabilities in existence on the date of withdrawal.
When deciding whether St. Alphonsus‟s dissociation was wrongful, the district court
considered only the first sentence in section 6.1 of the agreement. It concluded that the words
“Any Hospital Partner may withdraw from the Partnership at any time if” followed by four
defined circumstances was an express provision limiting the circumstances under which St.
Alphonsus could rightfully dissociate. The court reasoned as follows:
When reading contract terms, the Court must apply the ordinary and plain
meaning to the words used. The word “if” is commonly defined as “a: in the
event that, b: allowing that, c: on the assumption that, d: on condition that.”
Substituting one of these definitions into the contract language, section 6.1 allows
the Hospital Partners to withdraw on the condition that one of the listed events
occurs. In the reverse, if one of the four reasons is not present, the Hospital
Partners may not withdraw from the partnership rightfully. In the Court‟s view,
the use of “only” before “if” would be redundant in this context. The section,
“Conditions for Withdrawal” lends further support to the Court's finding that “if”
was expressly conditional language. (Emphases in original; citation and footnote
omitted.)
The district court picked one definition of the word “if” (“on condition that”) and
concluded that section 6.1 established the conditions that must exist before a hospital partner
could withdraw from the partnership without breaching the agreement. Another definition
7
rejected by the court would also be consistent with the context. The sentence could be read to
state that the hospital partner may withdraw in the event that one of the listed events occurs. For
example, the second sentence of the section begins, “In the event that a Hospital Partner
withdraws . . . .” It would not change the meaning to substitute “If” for “In the event that.” The
district court found some support for its interpretation by the section title, “Conditions for
Withdrawal.” However, the word “conditions” is synonymous with “circumstances.” Roget’s II:
The New Thesaurus 164 (Houghton Mifflin Co. 1988). With “if” and “conditions” given these
alternative meanings, the section is not an express provision limiting the circumstances under
which St. Alphonsus could withdraw without breaching the partnership agreement.
With these meanings, the section would provide that St. Alphonsus could withdraw from
the partnership in the event that any of four circumstances occurred. To conclude it prohibited
withdrawal unless one of those four circumstances occurred, one would have to apply the maxim
expressio unius est exclusio alterius (the expression of one thing is the exclusion of another).
“When certain persons or things are specified in a law, contract, or will, an intention to exclude
all others from its operation may be inferred.” Black’s Law Dictionary 581 (6th ed. 1990).
Application of the maxim is not mandatory. Hewson v. Asker’s Thrift Shop, 120 Idaho 164,
166-67, 814 P.2d 424, 426-27 (1991). However, even if that maxim were applied to infer that
these four circumstances were exclusive, that would not be an express provision limiting the
circumstances in which St. Alphonsus could rightfully dissociate.
In Asker’s Thrift Shop, a statute granted an injured employee “the right to have a
physician or surgeon designated and paid by himself present at an examination by a physician or
surgeon so designated by the employer.” The employer‟s surety arranged for the employee to
undergo a panel evaluation by a psychiatrist and neurologist, and the employee refused to
undergo the examination unless either she could tape record it or her former husband could
observe it. The Industrial Commission applied the maxim expressio unius est exclusio alterius
and concluded that the statute only permitted the employee to have either a physician or surgeon
present during the examination. It then dismissed the employee‟s case for refusing to submit to
the examination, and she appealed. We held that the statute did not limit whom the employee
could have present during the examination. We stated:
Idaho Code § 72-433 does not contain any express enumeration of persons
who can or can not attend a medical evaluation or exam. The statute simply
guarantees the right of an employee to attend a compelled medical examination
8
with a physician of his or her choice. . . . The fact that the statute allows the
employee‟s physician to be present, does not automatically or necessarily exclude
all others.
120 Idaho at 167, 814 P.2 at 427 (emphasis added). If we inferred that the listing of four
circumstances excluded all others, it would not be an express provision limiting the
circumstances under which St. Alphonsus could withdraw from the partnership.
It is also necessary to consider the section in the context of the UPL to see if there was a
reason for the provision other than limiting the circumstances under which a hospital could
withdraw from the partnership without breaching the agreement. The four circumstances listed
were ones beyond the control of the hospital partner in which it would, in essence, be compelled
to withdraw from the partnership. They were:
[I]f . . . continued participation in [the] Partnership: (i) jeopardizes the tax-
exempt status of such Hospital Partner or its parent or their subsidiaries; or (ii)
jeopardizes medicare/medicaid or insurance reimbursements or participations;
(iii) if the business activities of the Partnership are contrary to the ethical
principles of the Roman Catholic Church as designated from time to time; or (iv)
is or may be in violation of any local, state or federal laws, rules or regulations.
Under the UPL, if St. Alphonsus withdrew the partnership would be dissolved and its
affairs wound up. Absent an agreement to the contrary, the partnership property would be
applied to discharge its liabilities and the surplus, if any, paid to the partners. Former I.C. § 53-
338(1).8 If that occurred, St. Alphonsus and the other partners may have recovered less than they
had invested in the partnership.
Article 6 could be read as a dissolution agreement applicable if a hospital partner was, in
essence, forced to withdraw from the partnership for one of the four reasons listed. If that
occurred, the partnership would be dissolved, but it would not have to be wound up. The
remaining partners could continue the partnership business and pay off the withdrawing hospital
partner over time. The hospital partner would receive an amount equal to the balance of its
capital account, which may be more than it would receive if the partnership were wound up, and
the remaining partners could have the benefit of continuing with the business.
8
Former Idaho Code § 53-338(1) provided that when the dissolution did not breach the partnership agreement,
“each partner, as against his copartners and all persons claiming through them in respect of their interests in the
partnership, unless otherwise agreed, may have the partnership property applied to discharge its liabilities, and the
surplus applied to pay in cash the net amount owing to the respective partners.”
9
In addition, the district court held that article 6 was ambiguous insofar as whether the
dissolution agreement in that provision applied to any withdrawal by a hospital partner or only to
withdrawals for one of the four reasons listed. The court held that both interpretations were
equally plausible. If the dissolution agreement only applied to those four reasons, it would add
credence to the interpretation that article 6 was drafted only to permit a hospital partner to
withdraw if it felt compelled to do so for one of those four listed reasons and, if it did so, to
recover its investment. Thus, article 6 may have been drafted to cover the most likely situations
in which a hospital partner may be forced to withdraw from the partnership due to circumstances
beyond its control in order to allow the hospital partner to recover its investment and to permit
the remaining partners to continue with the partnership business.
Idaho Code § 53-3-602(b)(1) provides that a dissociation is wrongful if it is “in breach of
an express provision of the partnership agreement.” The statute does not simply provide that
dissociation is wrongful if it is in breach of the partnership agreement, or if it is in breach of a
provision in the partnership agreement. It is only wrongful if it breaches an express provision of
the partnership agreement. We have defined the word “express” as follows: “Black‟s Law
Dictionary defines „express‟ as, „[c]lear; definite; explicit; plain; direct; unmistakable; not
dubious or ambiguous. Declared in terms; set forth in words. Directly and distinctly stated.
Made known distinctly and explicitly, and not left to inference. „Express‟ means „manifested by
direct and appropriate language.‟” Sweeney v. Otter, 119 Idaho 135, 140, 804 P.2d 308, 313
(1990) (citations omitted). Because the provision limiting the right to withdraw rightfully must
be an express provision, any doubt as to the meaning of the provision at issue must be resolved
in favor of not limiting the right to withdraw. The provision of the partnership agreement at
issue does not contain any prohibitive language. For example, it does not state that a hospital
partner shall not withdraw from the partnership except under the specified circumstances.
Likewise, it does not state that a hospital partner may only withdraw from the partnership under
the specified circumstances.9 We hold that the provision is not an express provision limiting the
right to dissociate rightfully.
9
Webster’s New Universal Unabridged Dictionary 306 (Barnes and Noble Books 1989) gives an example of the
word “condition” used when it means “a restricting, limiting, or modifying circumstance.” The example is, “It can
happen only under certain conditions. (Italics in original; emphasis added.)
10
St. Alphonsus was clearly prejudiced by the district court‟s determination that it had
wrongfully dissociated from the partnership. At the beginning of the trial before opening
statements, the district court instructed the jury, “The Court has already determined as a matter
of law that Saint Alphonsus Diversified Care breached the MRI Associates Partnership
Agreement when Saint Alphonsus Diversified Care, Inc., dissociated from MRI Associates in
April of 2004.” At the beginning of MRIA‟s opening statement, its counsel stated:
What the real story in this case is about, though – it is about betrayal. It is
about abandonment.
Now, the court has said that it has found that Saint Alphonsus wrongfully
withdrew from the partnership. That‟s been discussed in opening statement. It
will be discussed – excuse me, it‟s been discussed during jury selection. It will be
discussed in opening statement. You‟ll hear a lot about that.
At the conclusion of the evidence, the court again instructed the jury, “The following
facts are not in dispute: St. Alphonsus and MRIA were partners and entered into a Partnership
Agreement in 1985. St. Alphonsus disassociated from the partnership in April of 2004, and this
dissociation has been determined by the Court to be a wrongful dissociation.” When instructing
the jury on the cause of action for wrongful dissociation, the court instructed the jury that the
elements of the existence of the contract (partnership agreement) and St. Alphonsus‟s breach by
wrongfully dissociating had already been established, and the jury need only decide the amount
of damages proximately caused by that breach. In the damages instructions, the court again
instructed the jury, “The Court has already determined that Saint Alphonsus‟s dissociation from
the partnership was wrongful” and that if MRIA was damaged the jury should award an amount
that will reasonably and fairly compensate MRIA “for any benefit of the bargain that the
evidence proves they have lost and was proximately caused by Saint Alphonsus‟s wrongful
dissociation from the partnership.”
“An erroneous instruction is prejudicial when it could have affected or did affect the
outcome of the trial.” Garcia v. Windley, 144 Idaho 539, 543, 164 P.3d 819, 823 (2007). In this
case, the court‟s erroneous instructions regarding wrongful dissociation were prejudicial in two
respects. First, the court instructed the jury that St. Alphonsus had wrongfully dissociated, and
the jury need only determine the amount of damages proximately caused by such wrongful
dissociation. In the special verdict, the jury found that MRIA had been damaged by that
wrongful dissociation. The jury awarded damages, which were not separated by cause of action.
11
Second, instructing the jury at the beginning of the trial that “the Court has already determined as
a matter of law” that St. Alphonsus had breached the partnership agreement when it dissociated
and instructing the jury at the conclusion of the evidence that the “facts are not in dispute” that
St. Alphonsus‟s dissociation “has been determined by the Court to be a wrongful dissociation”
could have affected the jury‟s determination on MRIA‟s other causes of action.
Two of the items of evidence introduced by MRIA were internal memoranda from the
investment banking firm Shattuck Hammond. It had been retained to review various options
under consideration by St. Alphonsus regarding its relationship with MRIA. One memorandum
was dated August 22, 2001 (August Shattuck memorandum), and the other was dated September
25, 2001 (September Shattuck memorandum).
The August Shattuck memorandum included the following:
SARMC [St. Alphonsus] has been exploring ways to exit MRIA but has
met resistance from the other general partners, particularly the physicians, and
from Jack Floyd, the recently appointed CEO of MRIA. (Reasons for this
resistance are discussed later in the memorandum.) From the correspondence
provided, SARMC is frustrated with the situation and is strongly considering
simply withdrawing from MRIA and competing with existing MRI facilities on its
own campus after the end of the one-year non-compete agreement. SARMC has
been advised by counsel that this option would likely engender litigation with
MRIA.
....
Alternatives Considered by St. Alphonsus
Presently SARMC is considering a number of alternatives for achieving
their goal of ending the non-compete associated with their ownership in MRIA so
that they can partner with SARG to provide MRI services on the St. Alphonsus
campus and in the surrounding community. As mentioned previously, under the
terms of the non-compete, SARMC must wait one year after exiting the general
partnership before competing in magnetic resonance imaging within 100 miles of
Boise. In addition, there are “wrongful” termination provisions entitling the
MRIA to damages in the event that SARMC exits the partnership for the purposes
of competing with MRIA after the end of the non-compete. We are awaiting the
actual partnership agreement to analyze the wrongful termination provisions in
more detail.
....
Option A: Withdrawal from MRIA
If SARMC‟s withdrawal from MRIA is not deemed wrongful, SARMC
would be entitled to the liquidation value of their portion of the investment and,
after a period of one year, would be able to compete in the Boise market. (It has
been reported that DMR offered to accept $2.5 million to vote to waive the non-
compete agreement and allow SARMC to open other centers.) Givens Pursley
[St. Alphonsus‟s counsel] believes that there would likely be litigation as to
12
whether the termination was wrongful and that there may be a risk of St.
Alphonsus breaching its fiduciary responsibility to the LPs. Under this scenario
SHP would not receive a success fee. (Emphases added.)
The September Shattuck memorandum included the following:
The following is an overview of the options under consideration by
SARMC with regard to negating its non-compete. These options have been
reviewed with Givens Pursley, counsel to SARMC, and we have included their
thoughts on the potential litigation involved with each alternative.
Option A: Withdrawal from MRIA
If SARMC‟s withdrawal from MRIA is not deemed wrongful, SARMC
would be entitled to the liquidation value of their portion of the investment and,
after a period of one year, would be able to compete in the Boise market. . . .
Givens Pursley believes that there would likely be litigation as to whether the
termination was wrongful and that there may be a risk of St. Alphonsus breaching
its fiduciary responsibility to the LPs. Under this scenario SHP would not receive
a success fee.
....
Current Status
It is our understanding that St. Alphonsus would prefer Option D
(Negotiated transaction with DMR). However, management has become quite
weary from years of debate on this matter and is leaning toward terminating its
interests in MRIA, receiving the liquidation value for its shares and competing in
one year. SARMC has informed other members of MRIA that they will not
support future growth of MRIA as long as there are no plans to deal with
SARMC’s strategic goals of partnering with GSR. (Emphases added.)
MRIA‟s counsel questioned St. Alphonsus‟s chief executive officer (CEO) extensively
about St. Alphonsus‟s withdrawal from the partnership and about the memorandum stating that
the withdrawal would likely engender litigation with MRIA. The CEO testified that she believed
St. Alphonsus could rightfully dissociate under RUPA. She was asked, “[S]o, are you telling this
jury that the – that you could withdraw without breaching the Partnership Agreement in 2004?”
She answered, “I believe that Idaho law said that Saint Al‟s could withdraw from this
agreement.” Prior to asking the next question, MRIA‟s counsel stated, “We‟ll talk about Idaho
law and your interpretation of Idaho law in a while.” During the CEO‟s continued examination
on the following day, she was asked, “It‟s fair to say that you didn‟t understand how the Idaho
Code played into this issue of withdrawal?” She answered, “No. I understood that there was an
Idaho statute that would allow us to withdraw.” When asked what statute it was, she answered,
“I think it‟s called RUPA.”
13
The court‟s instructions that the dissociation was wrongful as a matter of law coupled
with the Shattuck memoranda could have caused the jury to disbelieve other testimony by the
CEO. The district court acknowledged that her belief as to the legality of the dissociation would
be relevant to the claims for breach of fiduciary duty and breach of the covenant of good faith
and fair dealing. When the court‟s erroneous instructions are considered with other evidence
such as the above-quoted statements from the Shattuck memoranda, the erroneous instructions
could have affected the jury‟s determination of other causes of action.
B. Did the District Court Err in Submitting to the Jury the Issue of Whether the
Partnership Agreement Contained a Definite Term?
As mentioned above, MRIA alleged its claim of wrongful dissociation under two
theories. The second theory was that the partnership agreement was for a definite term and St.
Alphonsus dissociated prior to the expiration of that term. Dissociation can also be wrongful if a
partner withdraws by express will “[i]n the case of a partnership for a definite term . . . , before
the expiration of the term.” I.C. § 53-3-602(b)(2). The parties disagreed as to whether the
partnership agreement had a definite term.
In ruling on the parties‟ motions for summary judgment on the wrongful dissociation
claim, the district court did not address the alternative theory that the dissociation occurred
before the expiration of the partnership‟s definite term. The court submitted that issue to the
jury, and the jury found “that Saint Alphonsus has breached the Partnership Agreement by
dissociating before the end of the partnership term.” On appeal, St. Alphonsus does not
challenge the jury‟s finding. Rather, it alleges that the district court committed error by
submitting the issue to the jury.
MRIA contends that St. Alphonsus cannot raise this issue on appeal because the district
court never ruled on it. In response, St. Alphonsus argues that it “moved for summary judgment
on MRIA‟s claim of wrongful dissociation based on a definite term, and the trial court declined
to so order, thus effectively denying the motion and leaving the claim in the case for trial.” The
district court did not address the issue on the cross motions for summary judgment. MRIA had
one cause of action for wrongful dissociation alleged under two theories. Having granted
summary judgment to MRIA on one theory, the court apparently did not see any need to address
the alternate theory. Even though an issue was argued to the court, to preserve an issue for
14
appeal there must be a ruling by the court. De Los Santos v. J.R. Simplot Co., Inc., 126 Idaho
963, 969, 895 P.2d 564, 570 (1995). St. Alphonsus never obtained a ruling by the district court
on the alternative theory for wrongful dissociation. Likewise, St. Alphonsus did not object to
the trial court‟s jury instructions submitting the issue to the jury. By failing to object, St.
Alphonsus cannot raise the issue on appeal. Jones v. Crawforth, 147 Idaho 11, 19-20, 205 P.3d
660, 668-69 (2009) (where party failed to request during jury instruction conference that a
nonparty be placed on the verdict form, the failure to include the nonparty on the verdict form
could not be raised on appeal). “This Court does not review an alleged error on appeal unless the
record discloses an adverse ruling forming the basis for the assignment of error.” Ada County
Highway Dist. v. Total Success Invs., LLC, 145 Idaho 360, 368-69, 179 P.3d 323, 331-32 (2008).
St. Alphonsus argues, “Saint Alphonsus also renewed this argument post-trial, explaining
that „[a]s a matter of law, the MRIA partnership was not a partnership for a term, and it was an
error in law to submit this issue to the jury.‟” It is too late to raise an alleged error in the jury
instructions in a post-trial motion for a judgment notwithstanding the verdict or, in the
alternative, a new trial. Bates v. Seldin, 146 Idaho 772, 775-76, 203 P.3d 702, 705-06 (2009).
St. Alphonsus has not alleged on appeal that the district court erred by denying the post-trial
motions. Because St. Alphonsus did not obtain a ruling by the district court on the issue of
whether the dissociation was wrongful because it occurred prior to the expiration of the definite
term of the partnership and because it did not timely object to the submission of that issue to the
jury, we will not consider the issue on appeal. However, because we remand this case for a new
trial, the issue of whether the partnership was for a definite term and, if so, whether St.
Alphonsus dissociated prior to the expiration of that term will have to be determined in further
proceedings.
C. Did the District Court Err in Admitting into Evidence a Memorandum that Included a
Reference to Legal Advice Received by St. Alphonsus?
St. Alphonsus contends that the district court erred in admitting into evidence the
September Shattuck memorandum mentioned above. This memorandum is a later version of the
August Shattuck memorandum, also discussed above. St. Alphonsus challenges only the
admission of the September Shattuck memorandum. MRIA counters that St. Alphonsus failed to
object to the admission of the memorandum at trial, and therefore cannot raise the issue on
15
appeal. In response, St. Alphonsus asserts that it was not required to object at trial because it
“filed two motions in limine to exclude from evidence the portions of the Shattuck Hammond
memo that summarized its lawyer‟s legal advice” and the district court “twice categorically
denied” the motions. According to St. Alphonsus:
On February 6, 2007, the court summarized Saint Alphonsus‟s privilege argument
and held that it was “unable to find that Saint Alphonsus has proven the Shattuck
Hammond Memo is privileged and therefore any references to the Shattuck
Hammond Memo and the Memo itself will not be stricken.” On the eve of trial,
the court likewise rejected the second motion in limine to the extent it was
addressed to the claim of attorney-client privilege, stating that it had “previously
addressed the admissibility of this Shattuck Hammond Memorandum” and held
that it “was admissible because Saint Alphonsus had failed to prove the Memo
was subject to the attorney-client privilege.” The district court thus had twice
categorically denied Saint Alphonsus‟s motions to exclude portions of the memo
based on attorney-client privilege.
St. Alphonsus‟s argument misstates the record.
In connection with its motion to seek punitive damages, MRIA‟s briefing and affidavits
referred to the September Shattuck memorandum. St. Alphonsus moved to strike from the briefs
and affidavits references to the memorandum, contending that it was subject to the attorney-
client privilege and contained double-hearsay. During oral argument on the motion, St.
Alphonsus‟s counsel clarified the requested relief by stating, “[W]e‟re not trying to preclude the
whole document. We want to preclude the references to „Givens Pursley‟ and we want to
preclude the references to the „scorched earth.‟” In its memorandum decision entered on
February 6, 2007, the district court ruled that St. Alphonsus had failed to prove that the
memorandum was subject to the attorney-client privilege. The court explained as follows:
Having reviewed the Shattuck Hammond Memo and the arguments by
Saint Alphonsus, the Court is unable to find that Saint Alphonsus has proven the
Shattuck Hammond Memo is privileged and therefore any references to the
Shattuck Hammond Memo and the Memo itself will not be stricken. Shattuck
Hammond was hired by both Givens Pursley and directly by Saint Alphonsus, the
Shattuck Hammond Memo was turned over to MRIA by a Shattuck Hammond
representative, and there is testimony in the record that the document was
prepared by Shattuck Hammond directly for Saint Alphonsus. Additionally, the
Court will find the Shattuck Hammond Memo is itself subject to the business
records exception.
16
The court concluded by denying the motion to strike “for purposes of the motions
presenting [sic] before the Court, however, this issue can be revisited as discovery in this
litigation progresses.” Thus, the court did not, by any stretch of the imagination, categorically
deny the claim that the memorandum, or parts of it, were covered by the attorney-client
privilege. It merely held that St. Alphonsus had failed to prove its claim of attorney-client
privilege in connection with its motion to strike, but the matter could be revisited.
On June 5, 2007, St. Alphonsus filed a motion in limine seeking to redact portions of the
September Shattuck memorandum. In its supporting memorandum, St. Alphonsus stated that it
“now seeks the Court‟s Order, in limine, finding the portions of the Shattuck Hammond
Memorandum referring to Givens Pursley LLP‟s analysis and the „scorched earth‟ language is
not admissible into evidence at trial and precluding MRIA from referring to Saint Alphonsus‟
withdrawal from MRIA as the „scorched earth‟ scenario or approach.” St. Alphonsus contended
that the references to Givens Pursley‟s analysis were protected by the attorney-client privilege
and that references to the “scorched earth” scenario were hearsay and prejudicial.
The motion in limine was scheduled for hearing on July 2, 2007, along with 29 other
motions in the case. Time for argument was understandably short. St. Alphonsus‟s counsel
began by stating that there were some “sensitive” phrases in the memorandum that should be
stricken. The district court asked, “Your argument goes to the – to the author of that and how in
any way, shape, or form that can be an admission by – by your folks?” St. Alphonsus‟s counsel
responded, “Yes. I wanted to talk to you sometime about the admissibility – maybe redacting of
parts of that memorandum, to excise those parts that we don‟t think are admissible.” He added
that “our papers” will reveal “why it is that we believe some of the information in that
memorandum is inflammatory, prejudicial, and inadmissible.” When MRIA‟s counsel
responded to the motion in limine, he talked solely about the “scorched earth” scenario
mentioned in the memorandum, arguing that it was admissible. In rebuttal, St. Alphonsus‟s
counsel talked only about the “scorched earth” statement in the memorandum, arguing that it was
hearsay and that there was nothing showing that anyone from St. Alphonsus or its counsel used
that phrase. The district court did not announce how it would rule, but took the matter under
advisement.
On July 30, 2007, the district court entered its memorandum decision granting the motion
in limine. The district court identified the issue as follows: “Saint Alphonsus asks the Court to
17
preclude MRIA from referring to Saint Alphonsus‟ dissociation from MRIA as the „scorched
earth‟ scenario and finding portions of the Shattuck Hammond Memorandum inadmissible at
trial.” It identified what St. Alphonsus wanted stricken as follows:
The language in dispute is located in a portion of the Memorandum wherein
Finnerty and Appleyard provide an overview of the contemplated options
apparently being considered by Saint Alphonsus with regard to the non-compete
provision contained in the MRIA Articles of Partnership. The Memo reads in
relevant part, “SARMC has referred to this as their „scorched earth scenario.‟”
The district court then wrote:
The Court previously addressed the admissibility of this Shattuck
Hammond Memorandum with respect to MRIA‟s motion for leave to file an
amended complaint asserting a claim for punitive damages. Based upon the
record before the Court at that time, the Court held the Shattuck Hammond Memo
was admissible because Saint Alphonsus had failed to prove the Memo was
subject to the attorney-client privilege and because the Memo is itself subject to
the business records exception. Memorandum Decision, February 6, 2007.
Based upon the record presently before the Court, including having
reviewed the documents attached to the Affidavit of Jack Gjording dated July 3,
2007, for in camera review, the Court can find that the language at issue is not
attributable to Saint Alphonsus and therefore the motion in limine will be granted.
Even assuming the language at issue is subject to exception to the general
rule precluding hearsay, the challenged language will be excluded under IRE Rule
403. . . .
The Court will grant the relief requested by Saint Alphonsus and preclude
MRIA from referring to Saint Alphonsus‟ dissociation from MRIA as the
“scorched earth” scenario and require the challenged language be redacted from
the Shattuck Hammond Memorandum should the Memo be offered and admitted
into evidence at trial.
The district court did not rule on St. Alphonsus‟s request also to redact references to
Givens Pursley‟s analysis from the memorandum. The court apparently overlooked that portion
of the motion because nobody mentioned it or argued attorney-client privilege during oral
argument on the motion.
In its reply brief on appeal, St. Alphonsus contends that in the district court‟s July 30,
2007 decision, it did rule on the issue of attorney-client privilege and rejected it. According to
St. Alphonsus:
On the eve of trial, the court likewise rejected the second motion in limine to the
extent it was addressed to the claim of attorney-client privilege, stating that it had
“previously addressed the admissibility of this Shattuck Hammond
18
Memorandum” and held that it “was admissible because Saint Alphonsus had
failed to prove the Memo was subject to the attorney-client privilege.”
Again, St. Alphonsus mischaracterizes the record. The portion of the district court‟s July
30, 2007 decision to which St. Alphonsus refers is quoted above in context. The court‟s
reference to its prior ruling on attorney-client privilege was simply a historical reference, as
shown by its introductory statement, “Based upon the record before the Court at that time”
before describing its prior ruling holding that St. Alphonsus had failed to establish grounds for
deleting references to Givens Pursley and to the “scorched earth” scenario. The court began the
next paragraph with the phrase, “Based upon the record presently before the Court,” and then
ruled that the reference to the “scorched earth” scenario would be stricken. The district court
obviously included the reference to its prior ruling in order to explain why it was now ruling that
the “scorched earth” reference should be redacted. Immediately following that reference, the
district court stated, “The Court will grant the relief requested by Saint Alphonsus . . . .” It did
not state that the motion was granted in part and denied in part. The court‟s focus was entirely
upon the “scorched earth” reference probably because that is what was argued in connection with
the motion.
After the district court‟s ruling on this motion in limine, St. Alphonsus filed another
motion in limine on August 3, 2007, seeking “an Order, in limine, for an Order prohibiting
MRIA from using documents produced by Shattuck Hammond Advisors in MRIA‟s opening
statement.” Because the district court had not yet ruled conclusively on whether portions of the
September Shattuck memorandum should be stricken because they were protected by the
attorney-client privilege, St. Alphonsus could have again raised this issue in connection with this
motion in limine. It did not do so.
In summary, the district court did not, by any stretch of the imagination, unqualifiedly
rule on the issue of whether the memorandum, or parts of it, were covered by the attorney-client
privilege. If the trial court unqualifiedly rules on the admissibility of evidence prior to trial, no
further objection is necessary in order to preserve the issue for appeal. Kirk v. Ford Motor Co.,
141 Idaho 697, 702, 116 P.3d 27, 32 (2005). If the trial court does not do so, however, then the
party opposing the evidence must continue to object as the evidence is presented. Schwan’s
Sales Enters., Inc. v. Idaho Transp. Dept., 142 Idaho 826, 833, 136 P.3d 297, 304 (2006). By
failing to object when the memorandum was offered into evidence during the trial, St. Alphonsus
19
waived any objection. Gunter v. Murphy’s Lounge, LLC, 141 Idaho 16, 25, 105 P.3d 676, 685
(2005).
St. Alphonsus also contends that it preserved the issue for appeal by raising it in its
motion for a new trial. A motion for a new trial is not a retroactive, timely objection to evidence.
D. Did the District Court Err by Admitting into Evidence a Settlement Offer Made by
MRIA?
MRIA made a settlement offer to St. Alphonsus in a letter dated March 5, 2004. Typed at
the top of the letter was the statement, “CONFIDENTIAL SETTLEMENT OFFER MADE
PURSUANT TO I.R.E. 408.” In that letter, MRIA offered to sell MRI Center and MRI Mobile
to St. Alphonsus for a net sum of $23,457,000.
During the trial, MRIA offered the letter into evidence as “a fair market valuation that
goes in in the context of negotiations that were initially invited by Saint Alphonsus.” St.
Alphonsus objected that the letter was not admissible under Rule 408 of the Idaho Rules of
Evidence. The district court overruled that objection, stating: “I think that certainly a party can,
if they choose to, disclose a – quote, „an offer of compromise,‟ if it‟s for the purpose of
demonstrating, „This is what we believe our company is worth,‟ and that was communicated to
Saint Alphonsus.” The court then gave St. Alphonsus a continuing objection regarding the
admissibility of the letter.
After ruling that the letter was admissible, the district court gave a limiting instruction to
the jury. The court stated:
Ladies and gentlemen, Exhibit 4332 the court has ruled will be admitted
for – for a limited purpose, for the purpose of demonstrating a communication by
MRIA to Saint Alphonsus as to their belief or their opinion as to what they felt the
fair market of the MRIA partnership was. It does not establish fair market value.
It is simply a communication as to their belief as to what they believe the fair
market value to be.
The district court erred by admitting the letter into evidence. Rule 408 states:
Evidence of (1) furnishing, offering, or promising to furnish, or (2)
accepting, offering, or promising to accept, a valuable consideration in
compromising or attempting to compromise a claim which was disputed as to
either validity or amount, is not admissible to prove liability for, invalidity of, or
amount of the claim or any other claim. Evidence of conduct or statements made
in compromise negotiations is likewise not admissible. This rule does not require
20
the exclusion of any evidence otherwise discoverable merely because it is
presented in the course of compromise negotiations. This rule does not require
exclusion if the evidence is offered for another purpose, such as proving bias or
prejudice of a witness, negativing a contention of undue delay, or proving an
effort to obstruct a criminal investigation or prosecution. Compromise
negotiations encompass mediation.
The Rule states that an offer “is not admissible to prove liability for, invalidity of, or amount of
the claim or any other claim.” The letter was offered to prove liability for and/or the amount of
MRIA‟s claim against St. Alphonsus. The Rule should be given a broad, not narrow,
interpretation in order to encourage settlement negotiations. Holding that the offer of settlement
was admissible not to show value, but to show that the other MRIA partners really believed their
opinion as to value, is a distinction without a difference.
E. Must the Award of Damages Be Vacated because It Includes Damages Sustained by
Nonparties?
Prior to trial, MRIA filed a motion seeking permission to file a second amended
counterclaim and a first amended third-party complaint. It sought to amend its pleading in order
to assert claims on behalf of MRI Center and MRI Mobile without making them parties to this
lawsuit. The proposed pleading contained twenty claims for relief. The fourth claim for relief
alleged that St. Alphonsus breached fiduciary duties owing to MRI Center and MRI Mobile and
that “[a]s a result of these breaches of fiduciary duties, MRIA, in the name of MRI [Center]
Limited and MRI Mobile Limited, has been damaged in an amount to be proved at trial.”
St. Alphonsus objected to the proposed pleading upon the ground that MRIA could not
recover damages on behalf of MRI Center and MRI Mobile. In a memorandum filed on January
4, 2007, it argued that MRI Center and MRI Mobile were “distinct legal entities” and there is no
authority allowing MRIA to bring a counterclaim on their behalf. In an opinion entered on
February 6, 2007, the district court rejected that argument. It reasoned:
Secondly, based upon the record before the Court, the Court will find that
MRIA is able to assert claims on behalf of MRICI and MRIM. Generally, general
partners have the authority to bind a limited partnership for actions taken within
the ordinary course of business. The partnership agreements of MRICI and
MRIM adopt this rationale, and state the general partner [MRIA] “is vested with
all authority and responsibility necessary for the management of the Partnership
and its business.” (Brackets in original.)
21
The jury awarded damages totaling $63.5 million. In response to St. Alphonsus‟s motion
for a new trial, the district court reduced that award to $36.3 million. The court found that the
jury had combined alternative theories of damages: the purchase price of MRI Center in 2001
and lost profits. The court reduced the award to $36.3 million in lost profits because that was
“the largest amount of damages that the evidence supports.” The lost profits included profits lost
by both MRI Center and MRI Mobile for past and future MRI scans diverted to Intermountain
Imaging. MRIA did not provide any services. Its income came from management fees. MRI
Center agreed to pay MRIA a management fee of $90,000 or 7.5% of its cash receipts from
operations, whichever was greater. MRI Mobile agreed to pay MRIA a management fee of 7.5%
of its cash receipts from operations. In addition, MRIA would receive its share of the net cash
flow from the limited partnerships. MRIA‟s lost profits would be the management fees and its
share of the net cash flow from the limited partnerships.
In Instructions 32 and 33, the district court instructed the jury that one of the issues it
must determine was whether St. Alphonsus breached the fiduciary duties of loyalty and of care
“to MRIA, MRI Center or MRI Mobile” and that if St. Alphonsus breached the duties of loyalty
it “owes to MRIA, MRI Center or MRI Mobile, then your verdict should be for MRIA.” In
Instruction 34, it also instructed the jury that a party had a duty of care in its conduct of
“partnership business” and “[i]f you find that Saint Alphonsus has breached the duty of care in
regards to the duty Saint Alphonsus owes to MRIA, MRI Center or MRI Mobile, then your
verdict should be for MRIA.” During the jury instruction conference, St. Alphonsus asked that
separate instructions be given regarding the breach of fiduciary duty owing to MRIA and the
breach of fiduciary duty, if any, owing to the limited partnerships. The district court refused to
do so, stating, “[T]he Court will decline to differentiate between or give separate instructions as
to MRIA and then MRI Mobile and MRI Center, the limited liability partnerships.” On the
special verdict, it asked the jury, “Do you find that Saint Alphonsus breached a fiduciary duty
owed to MRIA, MRI Center or MRI Mobile, as described in Instructions Nos. 32, 33, 34 and
35?” The jury answered “Yes” to that question. 10 As the question was phrased in connection
10
On appeal, MRIA argues that all of its claims were asserted on behalf of MRI Center and MRI Mobile. It relies
upon the following statement in its pleading:
22
with the jury instructions on breach of duty, the jury would award damages to MRIA if it found
that St. Alphonsus breached a fiduciary duty owed to MRIA or to MRI Center or to MRI Mobile.
St. Alphonsus contends that the damages awarded exceeded the damages incurred by
MRIA. It argues on appeal, “Contrary to ordinary practice, the district court allowed MRIA to
assert claims „on behalf of‟ Center and Mobile without joining these distinct legal entities as
parties.” It adds:
No legal authority permitted MRIA, as a general partner, to sue in a
representative capacity “on behalf of” the limited partnerships. A limited
partnership is a distinct legal entity, with a legal existence separate and apart from
its partners, including its general partner. See Idaho Code § 53-2-104. Further, a
limited partnership has “the power to sue, be sued, and defend in its own name,”
id. § 53-2-105, and limited partnerships routinely do so in the courts of this State,
see, e.g., Brandon Bay, LP v. Payette County, 142 Idaho 681, 132 P.3d 438(2006). The district court thus erred when it allowed MRIA to proceed “on behalf
of” the limited partnerships, without naming those legal entities as distinct parties.
St. Alphonsus is correct. Idaho Code § 53-2-104(1) states, “A limited partnership is an
entity distinct from its partners.” Idaho Code § 53-2-105 provides, “A limited partnership has
the powers to do all things necessary or convenient to carry on its activities, including the power
to sue, be sued, and defend in its own name . . . .” “This Court has clearly held that the trial
court cannot enter judgment for or against the person who is not a party to the action.” Valentine
v. Perry, 118 Idaho 653, 655-56, 798 P.2d 935, 937-38 (1990). The limited partnerships were
not parties to this action. They therefore could not recover a judgment. Although MRIA, as the
general partner, had the right to manage and conduct the activities of the limited partnerships,
I.C. § 53-2-406(1), and would have the power to join the limited partnerships in a lawsuit, there
MRI Associates, LLP is an Idaho limited liability partnership (“MRIA”), which also
acted as a general partner with management responsibilities for two operational entities, MRI
Limited Partnership, known as MRI Center of Idaho (“MRI Center” or the “Center”), and MRI
Mobile Limited Partnership, known as MRI Mobile. MRIA brings this action on its own behalf,
and as general partner for these operational entities; MRIA is entitled to and does hereby bring this
action on behalf of these two limited partnerships. Unless otherwise referenced, the designation
“MRIA” shall refer to all three entities: MRIA, MRI Center and MRI Mobile.
Because it did not “otherwise reference” that “MRIA” did not include the limited partnerships in any of its claims
except the fourth cause of action seeking damages for breach of fiduciary duty to the limited partnerships, MRIA is
technically correct that all of its claims were asserted on behalf of the limited partnerships. However, the only
mention of MRI Center and MRI Mobile in the jury instructions outlining the causes of action submitted to the jury
was in connection with the breach of fiduciary duty claim. That was also the only claim in which the limited
partnerships were mentioned on the special verdict form. Thus, the jury would not have known that MRIA was
asserting all of the claims on behalf of the limited partnerships too.
23
is a difference between having the power to have the limited partnerships join in this lawsuit and
actually doing so. Because the damage award exceeded any damages suffered by MRIA and
because MRIA could not recover damages on behalf of nonparties, the damage award must be
vacated.
F. Must the Award of Damages Be Vacated because It Includes Lost Profits beyond the
Term of the Partnership?
St. Alphonsus contends that the district judge erred by permitting MRIA to recover
damages based upon MRI scans that MRI Center would have lost after December 31, 2015, the
date stated in the limited partnership agreement for the expiration of its term. The partnership
agreement provides, “This Agreement may be amended only through written instrument
executed by the General Partner and the Limited Partners owning 75% of the outstanding Units.”
St. Alphonsus asserts that there is no evidence of any written amendment extending the term of
the MRI Center limited partnership.
Although we will be remanding this case for a new trial, as mentioned above, MRIA‟s
damages could include the amount it is entitled to receive as a portion of MRI Center‟s income.
We will address this issue because it may arise again on retrial.
Idaho Code § 53-2-110(1) provides that “the partnership agreement governs relations
among the partners and between the partners and the partnership.” The limited partnership
agreement for MRI Center provides that it can only be amended through a properly executed
written instrument. The Comment to the Official Text for Idaho Code § 53-2-110 states, “The
partnership agreement has the power to control the manner of its own amendment. In particular,
a provision of the agreement prohibiting oral modifications is enforceable, despite any common
law antagonism to „no oral modification‟ provisions.” There was no properly executed written
instrument extending the term of the MRI Center limited partnership beyond December 31,
2015.
G. Must the Award of Damages Be Vacated because There Was Insufficient Evidence to
Support the Award of Lost Profits?
The lost profits evidence offered by MRIA was based upon “lost scans.” MRIA‟s expert
determined which physicians referred patients to MRI Center and/or MRI Mobile prior to
24
Intermountain Imaging opening. He assumed that all MRI scans later performed at
Intermountain Imaging for patients of those physicians would have been done at MRI Center
and/or MRI Mobile but for St. Alphonsus‟s wrongful conduct. He also assumed that all
physicians who were admitted to St. Alphonsus only and who had not previously referred
patients to MRIA prior to Intermountain Imaging opening would have referred all of their
patients needing MRI scans to MRI Center and/or MRI Mobile but for St. Alphonsus‟s wrongful
conduct. This assumption as to MRIA‟s lost scans was the basis for the past and future lost
profits allegedly suffered by MRI Center and MRI Mobile. St. Alphonsus argues that MRIA
could not simply assume that after Intermountain Imaging opened, none of those physicians
would have referred patients to Intermountain Imaging for MRI scans but for St. Alphonsus‟s
wrongful conduct. Although we will be remanding this case for a new trial, we will briefly
address this issue because it may arise again on retrial.
In Pope v. Intermountain Gas Co., 103 Idaho 217, 646 P.2d 988 (1982), the trial court
found that Intermountain Gas was liable for antitrust violations committed by it and its wholly
owned subsidiary Intermountain Gas Company Properties (IGCP) when operating an insulation
business under the name HomeGuard. In calculating damages, the trial court assumed that the
insulation jobs done by Intermountain Gas and IGCP would have all have been done by their
competitors but for the antitrust violations. It therefore calculated the damages suffered by the
competitors based upon Intermountain Gas‟s and IGCP‟s gross sales figures for those jobs. In
reversing, this Court held that this was not a proper manner to measure the competitors‟ lost
profits. We held:
[T]here was no justification in the present case for the trial court‟s determination
that the gross revenues of the defendant Intermountain Gas Company and IGCP
provide a reasonable foundation for calculating the lost profits of plaintiffs. Such
a method of figuring damages assumes, without any support in the record, that the
HomeGuard operation would not have won any portion of the insulation market
absent antitrust violations. Furthermore, it assumes that the plaintiffs had the
capacity to assimilate all of the business which HomeGuard performed, and that
plaintiffs would have won that business over other insulators who chose not to
participate in this action. There is simply no evidence in the record to
demonstrate a relationship between HomeGuard‟s sales figures and plaintiffs‟
damages so as to support a conclusion that HomeGuard‟s income was the
equivalent of plaintiffs‟ lost profits.
The concerns expressed in Pope should be considered on any retrial.
25
H. Does the Evidence Support an Award of Damages Based upon the Value of MRI
Center?
MRIA‟s alternative measure of damages was the sum St. Alphonsus would have had to
pay to purchase MRI Center. According to MRIA, this was an appropriate measure of damages
because
it was shown that since 1999, SARMC [St. Alphonsus] had been advised by its
consultants that if it wished to exit MRIA, partner with the radiologists and pursue
imaging opportunities in its service area, the lawful approach would be to buy its
way out of the partnership (and the noncompete provision which was part and
parcel of the partnership) and purchase 100% of MRICI [MRI Center] from
MRIA.
The advice St. Alphonsus received from its consultants does not determine the measure of
damages. This is not an action for breach of a contract to purchase MRI Center. The cost to
purchase MRI Center is not the measure of damages suffered by MRIA on any of the alleged
causes of action. Thus, the jury‟s alternative award of damages cannot be reinstated.
I. Did the District Court Err in Denying MRIA’s Motion to Amend to Add a Claim for
Punitive Damages?
MRIA sought to amend its pleading to add a claim against St. Alphonsus for punitive
damages. It cross-appeals the district court‟s denial of that motion.
To recover punitive damages, “the claimant must prove, by clear and convincing
evidence, oppressive, fraudulent, malicious or outrageous conduct by the party against whom the
claim for punitive damages is asserted.” Idaho Code § 6-1604(1). “Punitive damages are not
favored in the law and should be awarded in only the most unusual and compelling
circumstances.” Seiniger Law Office, P.A. v. North Pacific Ins. Co., 145 Idaho 241, 249, 178
P.3d 606, 614 (2008). A claim for punitive damages cannot be asserted in the claimant‟s
pleading without the approval of the trial court. The claimant must make a pretrial motion, and,
after a hearing, the trial court must conclude that the claimant has established a reasonable
likelihood of proving facts sufficient to support an award of punitive damages. I.C. § 6-1604(2).
A trial court‟s determination that a plaintiff is not entitled to amend the complaint to
claim punitive damages is reviewed for abuse of discretion. Seiniger, 145 Idaho at 250, 178 P.3d
26at 615. In determining whether the trial court abused its discretion in denying a motion to add a
claim for punitive damages, we consider: (1) whether the judge correctly perceived that the issue
was one of discretion; (2) whether the judge acted within the outer boundaries of that discretion
and consistently with the applicable legal standards; and (3) whether the judge reached the
decision through an exercise of reason. Id.In this case, the district court issued a lengthy, well-reasoned opinion explaining the
reasons for its decision to deny MRIA‟s motion to add a claim for punitive damages. The court
found that there was a lack of evidence of oppressive, fraudulent, malicious or outrageous
conduct on the part of St. Alphonsus. MRIA has not shown that the district court abused its
discretion in making that determination.11
J. Did the District Court Err in Dismissing MRIA’s Antitrust Cause of Action?
MRIA alleged an antitrust claim against St. Alphonsus, based upon its partnership with
Intermountain Imaging. The district court dismissed that claim on St. Alphonsus‟s motion for
summary judgment. MRIA has cross-appealed that decision. It argues on appeal that there was
sufficient evidence in the record to show that Intermountain Imaging was exercising monopoly
power. MRIA relies upon statements by its expert that Intermountain Imaging receives
approximately 5% more for its services than other MRI providers in the market area and that
Intermountain Imaging‟s market share “increased from approximately 21 to 23 percent in 2001
to approximately 44 to 53 percent in 2006.” Because this cause of action was dismissed on
summary judgment, we must accept as true these factual allegations. Stanley v. Lennox Indus.,
Inc., 140 Idaho 785, 789, 102 P.3d 1104, 1108 (2004). The expert‟s opinions were based upon
his analysis of the claims for non-hospital MRI scans paid by Blue Cross of Idaho Health
Services, Inc., and Blue Shield of Idaho Health Services, Inc., at MRI facilities in Ada and
Canyon Counties, Idaho, and Ontario, Oregon, and the records of Practice Management, Inc., of
MRI scans provided by Intermountain Imaging.
In Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398(2004), the United States Supreme Court set forth what must be shown to establish an offense of
monopolizing or attempting to monopolize in violation of section 2 of the Sherman Act. First,
11
MRIA also contends that the district court erred in denying its motion to add a claim for punitive damages made
after the close of the evidence. Idaho Code § 6-1604(2) requires a pretrial motion.
27
the Court stated, “It is settled law that this offense requires, in addition to the possession of
monopoly power in the relevant market, „the willful acquisition or maintenance of that power as
distinguished from growth or development as a consequence of a superior product, business
acumen, or historic accident.‟” 540 U.S. at 407 (quoting from United States v. Grinnell Corp.,
384 U.S. 563 (1966)). Merely growing in market share does not violate the Sherman Act.
MRIA‟s expert did not attempt to analyze whether there were any differences among providers
that would account for Intermountain Imaging‟s alleged growth in market share.
Second, the Court stated, “The mere possession of monopoly power, and the concomitant
charging of monopoly prices, is not only not unlawful; it is an important element of the free-
market system.” Id. It added, “The opportunity to charge monopoly prices-at least for a short
period-is what attracts „business acumen‟ in the first place; it induces risk taking that produces
innovation and economic growth.” Id. Thus, the alleged fact that Intermountain Imaging is
receiving about 5% more for its services than the market average does not show a violation of
the Sherman Act. Again, MRIA‟s expert did not attempt to analyze whether there were any
quality-based or service-based differences that could account for the allegation that
Intermountain Imaging receives higher than average compensation for its services. He simply
stated that he was unaware of any such differences. He assumed that if the Current Procedural
Terminology codes were the same, the particular services provided were identical.
Finally, the Court stated, “To safeguard the incentive to innovate, the possession of
monopoly power will not be found unlawful unless it is accompanied by an element of
anticompetitive conduct.” Id. (emphasis theirs). MRIA does not contend that Intermountain
Imaging has engaged in predatory pricing. Likewise, it does not contend that anticompetitive
conduct is shown by the fact that St. Alphonsus is a partner in Intermountain Imaging. Indeed, it
would be difficult for MRIA to argue that St. Alphonsus being a member of Intermountain
Imaging is anticompetitive conduct, but St. Alphonsus being a partner in MRIA would not be. In
addition, MRIA‟s expert had not done any analysis to determine whether MRIA was actually
damaged by Intermountain Imaging‟s alleged anticompetitive conduct, nor had he done any
analysis to determine whether such alleged conduct had any effect upon market share. He also
did not attempt to determine whether the number of MRI scan providers in the relevant market
had increased or decreased over the prior five years. St. Alphonsus offered evidence that they
had increased. MRIA cannot show anticompetitive conduct merely from its allegation that it was
28
wrongful for St. Alphonsus to have joined the Intermountain Imaging partnership in the first
place. Id. at 408.
The supposed anticompetitive conduct listed in MRIA‟s brief consisted of St. Alphonsus
allegedly disparaging MRIA‟s services, directing patients to Intermountain Imaging in violation
of a non-antitrust law, and failing to cooperate with MRIA. MRIA does not present any
authority stating that any of that alleged conduct constitutes anticompetitive conduct. Generally,
failing to assist or cooperate with a rival is not anticompetitive conduct. Verizon
Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 408-09 (2004).
Although there are very limited circumstances in which it can be, id., MRIA has not argued that
those circumstances apply in this case. “[T]he antitrust laws do not require the courts to protect
small businesses from the loss of profits due to continued competition, but only against the loss
of profits from practices forbidden by the antitrust laws.” Cargill, Inc. v. Monfort of Colorado,
Inc., 479 U.S. 104, 116 (1986). The district court did not err in dismissing the antitrust claim.
Finally, MRIA contends that “[t]he trial court‟s summary judgment ruling was also in
error because it ignores this Court‟s decision in Twin Falls Farm & City Distributing, Inc. v. D
& B Supply Co., 96 Idaho 351, 528 P.2d 1286 (1974).” The two statutes upon which that case
was based were repealed in 2000. Ch. 148, § 1, 2000 Idaho Sess. Laws 377.12 MRIA has not
pointed to any conduct occurring prior to the repeal of those statutes that would constitute a
violation of them.
K. Is Either Party Entitled to an Award of Attorney Fees on Appeal?
Both St. Alphonsus and MRIA request an award of attorney fees on appeal pursuant to
Idaho Code § 12-120(3). Because we are vacating the judgment and remanding this case, there
is not yet a prevailing party. Once there is a final judgment, the district court can consider
attorney fees incurred on appeal in making its award of a reasonable attorney fee to the
12
One of the statutes, former Idaho Code § 48-101, provided, “Every contract, combination in the form of trust or
otherwise, or conspiracy in restraint of trade of commerce, within this state, is hereby declared to be illegal.” When
former section 48-101 was repealed, the legislature enacted new Idaho Code § 48-104, which provides, “A contract,
combination, or conspiracy between two (2) or more persons in unreasonable restraint of Idaho commerce is
unlawful.” Ch. 148, § 3, 2000 Idaho Sess. Laws 377, 378. The new statute adds the word “unreasonable” to modify
restraint, so that its application is narrower than former section 48-101. The other statute, former Idaho Code § 48-
104, was repealed and no similar statute was enacted in its place.
29
prevailing party. Lexington Heights Dev., LLC v. Crandlemire, 140 Idaho 276, 287, 92 P.3d 526,
537 (2004).
IV. CONCLUSION
We vacate the judgment and verdict and remand this case for further proceedings that are
consistent with this opinion. We award costs on appeal to appellant.
Justices BURDICK, J. JONES, HORTON and Justice Pro Tem KIDWELL CONCUR.
On Denial of Petition for Rehearing – January 12, 2010
EISMANN, Chief Justice
MRIA has filed a petition for rehearing asking the Court to reconsider the award of costs
on appeal. MRIA raises three arguments in support of its motion for reconsideration.
First, it quotes this Court‟s statement in the opinion that because this Court was “vacating
the judgment and remanding this case, there is not yet a prevailing party.” (Emphasis added by
MRIA.) MRIA argues, “This finding accordingly precludes an award of costs to either party as a
matter of law.”
The portion of this Court‟s opinion quoted by MRIA was addressing the parties‟ requests
for an award of attorney fees pursuant to Idaho Code § 12-120(3). That statute provides that the
prevailing party in certain types of civil actions is entitled to an award of a reasonable attorney‟s
fee. A prerequisite to an award of attorney fees under that statute is that the party prevail in the
“civil action.” In Paloukos v. Intermountain Chevrolet Co., 99 Idaho 740, 588 P.2d 939 (1978),
this Court for the first time addressed the issue of awarding attorney fees under Idaho Code § 12-
120(3) to a party who had prevailed on appeal, but may not prevail in the action after remand to
the district court. This Court held:
Although Paloukos was successful, in part at least, on this appeal, it nonetheless
remains to be determined whether he will ultimately prevail on his cause of action
for breach of contract. Should Paloukos ultimately prevail and satisfy the other
requirements of I.C. § 12-120 for an award of attorney fees, the district court, in
fixing the award, should of course consider the fees incurred in bringing this
appeal.
30
Id. at 746, 588 P.2d at 945. Thus, in the instant case, we held: “Both St. Alphonsus and MRIA
request an award of attorney fees on appeal pursuant to Idaho Code § 12-120(3). Because we are
vacating the judgment and remanding this case, there is not yet a prevailing party.”
The holding in Paloukos does not apply to the awarding of costs on appeal because costs
on appeal are awarded to the prevailing party on the appeal, not the prevailing party in the civil
action. I.C. § 12-107; I.A.R. 40. Therefore, costs can be awarded to the prevailing party on the
appeal, even though that party may not ultimately be the prevailing party in the action.
Mendenhall v. Aldous, 146 Idaho 434, 438, 196 P.3d 352, 356 (2008); Todd v. Sullivan Constr.
LLC, 146 Idaho 118, 126-27, 191 P.3d 196, 204-05 (2008).
Second, MRIA contends it would be inequitable to award costs against it on appeal.
When a new trial has been ordered or a judgment has been modified, this Court has discretion
not to award costs on appeal. I.C. § 12-107. The costs claimed by St. Alphonsus total
$426,944.75, and include $414,602.00 for the premiums of a supersedeas bond to prevent MRIA
from executing on its judgment. MRIA contends that it lacks the money to pay such costs. Had
MRIA agreed not to execute pending the appeal, St. Alphonsus would not have been entitled to
recover the cost of the supersedeas bond. I.A.R. 40(b)(5). MRIA did not do so. It contends that
it was concerned that Saint Alphonsus would simply bankrupt its wholly-owned subsidiary, Saint
Alphonsus Diversified Care, Inc., rather than pay the judgment. However, the judgment was
against both St. Alphonsus and its subsidiary. MRIA also states that it was concerned that St.
Alphonsus “might advance arguments in the appeal that, if successful, might overturn the
judgment as against it alone, leaving the entire amount for SADC to pay if MRIA was successful
on appeal.” MRIA does not state what those arguments may have been, nor has it cited to
anything in the record indicating that St. Alphonsus ever asserted that its subsidiary was solely
liable for MRIA‟s claims. The jury was not asked to decide whether St. Alphonsus was liable
for the conduct of its subsidiary. The subsidiary was not even on the special verdict form. All of
the questions were directed to the conduct of St. Alphonsus. MRIA has not shown that the lack
of a bond would have put at risk MRIA‟s ability to obtain payment of its judgment, had it been
upheld on appeal.
MRIA also contends that it did nothing wrong and should not be assessed $426,944.75
for the trial court‟s errors. These errors were the result of the trial court agreeing with arguments
31
made by MRIA. MRIA has not shown that it would be inequitable to assess costs on appeal
against it.
Finally, MRIA argues that there was no prevailing party on appeal because both parties
prevailed in part. MRIA states that its position “carried the day on the issue of whether the jury
should have considered whether the partnership agreement contained a definite term,” and “it
also obtained a favorable ruling from the Court concerning a key piece of evidence.” Actually,
this Court did not rule on the merits of either issue because St. Alphonsus had failed either to
obtain rulings from the district court on the issues or to object at trial. See Parts III.B. and III.C.
of the opinion. MRIA adds that “the result of two other important issues can best be described as
a draw.” It did not identify these two “important issues” other than by stating the pages on
which they were addressed. They were apparently the issue regarding evidence of lost profits
discussed in Part III.G of the opinion and attorney fees on appeal discussed in Part III.K. As to
the first issue, we admonished the trial court to consider our holding in Pope v. Intermountain
Gas Co., 103 Idaho 217, 234, 646 P.2d 988, 1005 (1982), on any retrial. As to the second, we
merely held that the district court can consider attorney fees incurred on appeal in making its
award of a reasonable attorney fee to the prevailing party.
St. Alphonsus appealed the judgment against it for $33,872,677.63 (after offsets and an
award of costs and attorney fees) and obtained a ruling vacating that judgment. MRIA cross-
appealed and lost on all issues raised by its cross-appeal. St. Alphonsus was the prevailing party
on this appeal.
For the above reasons, we deny the petition for rehearing asking that we not award St.
Alphonsus costs on appeal.
Justices BURDICK, HORTON and Justice Pro Tem KIDWELL CONCUR.
J. JONES, J., specially concurring.
I fully concur in the Court‟s opinion regarding the denial of MRIA‟s petition for
rehearing. It is unfortunate for MRIA that it may have to shoulder the burden of a large cost
award relating to the appeal. About 97% of St. Alphonsus‟ cost claim is for the supersedeas
bond. Because of the large amount of the jury award, the substantial number of contested issues,
and the slight possibility that any judgment would prove uncollectible, it would have been
32
prudent for MRIA to agree to forego collection procedures pending a decision on the appeal.
Now the shoe is on the other foot. MRIA contends that an award of this magnitude will inhibit its
ability to pursue its claim against St. Alphonsus. Nothing this Court has said indicates that St.
Alphonsus may not have engaged in actionable conduct. The jury certainly concluded that it had.
While one may not predict what the outcome will be on retrial, based on the evidence in the
record it may well be that St. Alphonsus is ultimately called upon to compensate MRIA in some
significant amount. Therefore, rather than reciprocating and pursuing hardball tactics against
MRIA on collection of any cost award that may result from the appeal, St. Alphonsus might be
advised to consider withholding collection proceedings pending the ultimate outcome of the
litigation.
33