Hardy v. Vision Service Plan

No. 05-020
IN THE SUPREME COURT OF THE STATE OF MONTANA
2005 MT 232DAVID HARDY, individually, and as member/
owner of DOCHARDY.COM, LLC,
Plaintiffs and Appellants,
v.
VISION SERVICE PLAN, a California corporation,
Defendant and Respondent.
APPEAL FROM: District Court of the First Judicial District,
In and for the County of Lewis and Clark, Cause No. CDV-2003-285,
The Honorable Thomas C. Honzel, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Joe Seifert, Keller, Reynolds, Drake, Johnson and Gillespie, Helena,
Montana
For Respondent:
Raoul A. Renaud, Senior Counsel, Vision Service Plan, Rancho Cordova,
California
Mark D. Meyer, Ugrin, Alexander, Zadick & Ugrin, Great Falls, Montana
Submitted on Briefs: July 13, 2005
Decided: September 14, 2005
Filed:
__________________________________________
Clerk
Justice Brian Morris delivered the Opinion of the Court.
¶1 Appellant David Hardy (Hardy) appeals from an order entered by the First Judicial
District Court, Lewis and Clark County, granting summary judgment in favor of Respondent
Vision Service Plan (VSP) on Hardy’s claims of breach of contract based on the implied
covenant of good faith and fair dealing and tortious interference with business relations. We
affirm.
¶2 We must determine whether the District Court properly granted VSP’s motion for
summary judgment after concluding that VSP had not breached its contract with Hardy and
had not caused tortious interference with his business relations.
PROCEDURAL AND FACTUAL BACKGROUND
¶3 Hardy is a licensed optometrist practicing in Helena, Montana. VSP is a California
nonprofit corporation that contracts with optometrists to provide prepaid vision care services
to groups and other beneficiaries of VSP plans.
¶4 Hardy enrolled as a VSP member in February 2000 when he signed a two-year
“Member Doctor Agreement” (VSP Agreement). The two-year VSP Agreement provided
for automatic renewal of his member status for successive terms of one year, unless
terminated by either party pursuant to its terms. Either party could terminate the relationship
under the terms of the VSP Agreement by giving 90 days written notice prior to cessation,
and VSP could terminate the agreement immediately if Hardy failed to comply with VSP’s
policies, rules, and procedures. VSP agreed to provide Hardy written notice of the reasons
for any adverse decision resulting in a change of his membership status. The VSP
Agreement also required that Hardy maintain majority ownership and complete control of
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all aspects of his practice, including his dispensary.
¶5 Unbeknownst to VSP, Hardy previously had entered into a franchise agreement with
Pearle Vision, Inc. (Pearle) in December 1999. The Pearle franchise agreement required
Hardy to “operate the Franchise Business in a manner that strictly adheres to [Pearle’s]
standards and policies,” including operating under prescribed hours; exclusively offering
Pearle-approved optical products; using designated Pearle promotional materials such as
fixtures, equipment and signs; paying Pearle 7% in royalties and 9% for advertising;
restricting any association with other optical businesses; and, when permitted by law,
following Pearle’s procedures for the practice of optometry.
¶6 VSP learned of Hardy’s Pearle franchise agreement in 2002. VSP determined that
Hardy’s Pearle franchise agreement contravened certain provisions of its VSP Agreement
and proceeded to terminate his membership. VSP specifically stated that Hardy no longer
met the criteria established for VSP membership in that “[o]wnership and control of a
Member Doctor’s practice, including dispensary, is essential for VSP membership,” and that
a member “shall have majority ownership and complete control of all aspects of his practice
including dispensary.”
¶7 Hardy appealed VSP’s decision to terminate his member agreement through VSP’s
corporate administrative review process. VSP conducted two separate hearings during which
Hardy attempted to demonstrate that his Pearle franchise agreement failed to cede any aspect
of control over his practice to Pearle. Both VSP hearing panels, comprised of VSP corporate
officers and private optometrists, upheld the decision to terminate his agreement.
¶8 Hardy filed this action on May 14, 2003, alleging breach of contract based upon the
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implied covenant of good faith and fair dealing and tortious interference with business
relations arising from the termination of the VSP Agreement. VSP moved for summary
judgment contending that Hardy remained unable, as a matter of law, to establish either
claim.
¶9 The District Court held a hearing and granted summary judgment to VSP on the
grounds that Hardy did not have a justifiable expectation of a continued contractual
relationship with VSP as evidenced by the fact that either party could terminate the VSP
Agreement by giving the other party at least 90 days prior written notice. The court further
determined that Hardy’s Pearle franchise agreement violated his VSP Agreement and
therefore he reasonably could not expect to continue working under the VSP Agreement’s
terms. The court also rejected Hardy’s tortious interference claim on the grounds that VSP
had not terminated the VSP Agreement without justifiable cause. The court determined that
Hardy’s decision to enter a franchise agreement with Pearle provided just cause for VSP to
terminate the VSP Agreement. This appeal followed.
STANDARD OF REVIEW
¶10 We review a district court’s decision to grant summary judgment de novo, based on
the same criteria applied by the district court. Counterpoint, Inc. v. Essex Insurance
Company, 1998 MT 251, ¶ 7, 291 Mont. 189, ¶ 7, 967 P.2d 393, ¶ 7. We must determine
whether the court correctly found no genuine issue of material facts existed and whether it
applied the law correctly. Pablo v. Moore, 2000 MT 48, ¶ 12, 298 Mont. 393, ¶ 12, 995
P.2d 460, ¶ 12.
DISCUSSION
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¶11 Hardy argues that the District Court incorrectly resolved a factual dispute on summary
judgment regarding his justifiable expectations over the continued contractual relationship
with VSP. VSP claims that either party could cancel the agreement without cause on 90
days prior written notice. Hardy maintains, however, that he expected the agreement to
renew automatically for successive terms of one year unless terminated by either party for
cause. Hardy contends that VSP could not terminate his contract without cause and, in fact,
had to supply written notice to him enumerating the reasons for any adverse decision
resulting in the change of his membership status.
¶12 Indeed, Hardy asserts that VSP’s written notice failed to assert that he was being
terminated without cause, but instead cited his alleged failure to maintain complete
ownership and control of all aspects of his practice as grounds for the termination. Hardy
argues he should have an opportunity to prove that the cause stated for his termination by
VSP remains false. In substance, then, Hardy alleges that VSP misrepresented–and the
District Court erroneously accepted–its reasons for terminating the agreement in its motion
for summary judgment.
¶13 Every contract contains a covenant of good faith and fair dealing. Story v. City of
Bozeman (1990), 242 Mont. 436, 450, 791 P.2d 767, 775. A breach of the covenant
constitutes a breach of the contract. Story, 242 Mont. at 450, 791 P.2d at 775. The implied
covenant of good faith and fair dealing requires honesty in fact and observance of reasonable
commercial standards of fair dealing in the trade. Section 28-1-211, MCA. We measure the
nature and extent of the obligations of good faith and fair dealing by the parties’ justifiable
expectations. Talley v. Flathead Valley Community College (1993), 259 Mont. 479, 489,
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857 P.2d 701, 707.
¶14 In Farris v. Hutchinson (1992), 254 Mont. 334, 838 P.2d 374, we considered on a
motion to dismiss whether an employer breached the covenant of good faith and fair dealing
where it failed to renew an employee’s one-year employment contract pursuant to a non-
renewal provision in the agreement. We held that the employee could prove no set of facts
in support of her implied covenant claim where the employer had terminated the employee,
without cause, under an express provision of the contract. Farris, 254 Mont. at 339-40, 838
P.2d at 377. We also cited to our decision in Prout v. Sears, Robuck and Company (1989),
236 Mont. 152, 772 P.2d 288, where we allowed prospectively an employer to terminate an
employee without cause under the terms of the agreement, but noted that if a termination had
been for cause, the employee must have an opportunity to prove that the stated cause was
false. Farris, 254 Mont. at 339, 838 P.2d at 377. We concluded, however, that the eventual
determination of any factual issues regarding cause did not and would not contradict the
express wording of the agreement where the employer gave no stated cause for the
termination pursuant to an express contractual provision. Farris, 254 Mont. at 339, 838 P.2d
at 377.
¶15 Here the District Court correctly determined that Hardy did not have a justifiable
expectation of a continued contractual relationship with VSP as evidenced by the fact that
either party could terminate the VSP Agreement by giving the other party at least 90 days
prior written notice. The terms of the VSP Agreement permitted either party to conclude the
affiliation for any reason or VSP could terminate the contract if Hardy breached its policies,
rules, or procedures.
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¶16 We interpret the language of contractual provisions according to their plain, ordinary
meaning, Schwend v. Schwend, 1999 MT 194, ¶ 39, 295 Mont. 384, ¶ 39, 983 P.2d 988, ¶
39, and under these express terms it remains difficult to imagine any contracting party
maintaining a justifiable expectation of an indefinitely continuing contractual relationship.
The covenant of good faith cannot be read to prohibit a party from doing that which the
agreement expressly permits. Farris, 254 Mont. at 339, 838 P.2d at 377.
¶17 The VSP Agreement at issue here remains, as a matter of law, unambiguous. We
apply the contract language as written when it remains unambiguous and not subject to two
different interpretations. Carelli v. Hall (1996), 279 Mont. 202, 209, 926 P.2d 756, 761.
We need look no further than the contract language to conclude that Hardy’s actions in
entering into the franchise agreement with Pearle contravened VSP’s explicit dominion
conditions where the Pearle franchise agreement required him to cede control over aspects
of his practice. Hardy reasonably cannot expect the VSP Agreement to continue when he
failed to comply with a condition of membership. No facts exist that suggest VSP
terminated Hardy for any reason other than his failure to comply with the Agreement’s
condition. As such, we conclude that Hardy cannot maintain any justifiable expectations
regarding his continued contractual relationship with VSP. Talley, 259 Mont. at 489, 857
P.2d at 707.
¶18 Hardy also argues that the District Court incorrectly determined that VSP retained
justifiable cause to terminate the Agreement and therefore did not tortiously interfere with
business relations when it discontinued Hardy’s membership. In order to establish a prima
facie case of tortious interference with contractual or business relations, the plaintiff must
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establish the defendant’s acts: 1) were intentional and willful; 2) were calculated to cause
damage to the plaintiff in his or her business; 3) were done with the unlawful purpose of
causing damage or loss, without right or justifiable cause on the part of the actor; and 4) that
actual damages and loss resulted. Grenfell v. Anderson, 2002 MT 225, ¶ 64, 311 Mont. 385,
¶ 64, 56 P.3d 326, ¶ 64.
¶19 Hardy contends that the court erroneously concluded that he had violated a condition
of the Agreement requiring that he maintain complete control over all aspects of his practice.
Hardy maintains that the contract term “control” does not necessarily encompass the “right
to control” and asserts that Pearle did not enforce the conditions of the franchise agreement.
Hardy argues that promoting the economic interests of independent practitioners associated
exclusively with VSP provided the real reason for terminating his agreement and not, as VSP
suggested, his failure to maintain control over his dispensary. Hardy asserts that VSP
intentionally caused damages without justifiable reason when it undertook a campaign to
discourage current and prospective patients from patronizing his dispensary.
¶20 We again interpret the language of contractual provisions according to their plain,
ordinary meaning. Schwend, ¶ 39. The VSP Agreement required that Hardy maintain
majority ownership and complete control of all aspects of his practice, including his
dispensary. Specifically, the VSP Agreement required that the control of all professional eye
care services, including dispensing, remained delegated solely to the VSP member doctor.
The Pearle franchise agreement concomitantly required that Hardy strictly adhere to its
standards and policies including business methods, promotional and marketing programs
and, in certain circumstances, procedures for the practice of optometry.
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¶21 We again apply the contract language as written when it remains unambiguous and
not subject to two different interpretations. Carelli, 279 Mont. at 209, 926 P.2d at 761. The
VSP Agreement at issue here remains unambiguous as a matter of law considering Hardy’s
actions in entering into the franchise agreement with Pearle conflicted with the plain
language of the VSP Agreement that he retain control of all aspects of his practice. Thus,
VSP maintained justifiable cause to terminate its agreement with Hardy when he enrolled
as a Pearle franchisee and therefore, Hardy’s claim for interference proves unpersuasive.
Grenfell, ¶ 64.
¶22 The Dissent adopts and promotes Hardy’s proposition that VSP terminated his
agreement under the guise of the dominion conditions while covertly orchestrating a
systematic purge of Pearle franchisees from its ranks in order to protect private optometrists.
Dissent, ¶¶ 35-37. VSP’s putative subterfuge aside, Hardy’s VSP Agreement contained
conditions requiring complete control over his practice. Hardy agreed to the conditions and
failed to comply, seeking instead the benefits of both a private practice and franchisee label.
Hardy brought a breach of contract suit based on the implied covenant of good faith and fair
dealing and the decision today rests squarely on legal bedrock. See Grenfell, ¶ 64; Farris,
254 Mont. at 339, 838 P.2d at 377.
¶23 The Dissent also approves Hardy’s contention that VSP willfully harmed his business
after terminating the VSP Agreement. Dissent, ¶ 45. A reading of Hardy’s complaint,
affidavit and briefs, however, fails to illuminate which actions, if any, VSP unlawfully
engaged to cause damage to Hardy’s business. Indeed, the Dissent also fails to cite to any
matter in the record in support of this contention.
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¶24 We thus conclude that the District Court properly granted VSP’s motion for summary
judgment after finding that VSP did not breach its contract with Hardy and did not cause
tortious interference with his business relations.
¶25 Affirmed.
/S/ BRIAN MORRIS
We Concur:
/S/ KARLA M. GRAY
/S/ W. WILLIAM LEAPHART
/S/ JOHN WARNER
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Justice James C. Nelson dissents.
¶26 I dissent from the Court’s decision.
¶27 First, all of our discussion of VSP’s ability to terminate the agreement on 90 days
notice without cause--a topic to which VSP also devotes substantial ink in its briefs--is
irrelevant. VSP did not terminate Hardy’s membership on this basis, but rather, it did so
under the provision of the agreement that required good cause. Like VSP’s arguments on
appeal, the Court’s attempt to seamlessly weave the two bases together, one theory
supporting the other in a sort of legal symbiosis, simply muddles what is actually at issue
here--whether there were genuine issues of material fact which precluded summary judgment
on Hardy’s claim that he was not in violation of the agreement when his membership was
terminated.
¶28 A review of the record reveals that there were genuine issues of material fact on this
issue; that Hardy was entitled to have these issues resolved by a jury; and that the District
Court’s short-circuiting of the trial process and our affirmance of that improperly denies
Hardy his day in court.
¶29 Hardy’s defense of VSP’s summary judgment motion clearly demonstrated the
existence of these genuine issues of material fact.
¶30 In granting VSP’s motion for summary judgment, the court held:
Condition E of the Member Doctor Agreement requires Hardy to
maintain complete control of his practice. However, Hardy’s franchise
agreement requires him to surrender control of many aspects of his practice to
Pearle Vision.
The court failed to acknowledge Hardy’s affidavit which stated:
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While I conduct business utilizing Pearle Vision advertising and
marketing assistance, I own and fully control my practice and dispensary.
I am strictly required, under my Pearle Vision franchise agreement, to “make
it clear that [I am] an independent contractor and not in any way an agent,
employee, partner or joint venturer” with Pearle. While my franchise
agreement requires me to adhere to standards of quality and good practice, I
am solely financially and professionally responsible for my work. Although
VSP asserts that Pearle exerts “control” over my practice, it never has in fact.
Moreover, every optical dispensary which carries national lines of eyewear is
subject to restrictions and standards for inventory, marketing and such things
as lense fabrication and installation. This certainly includes dispensaries
owned by VSP member doctors in good standing. [First emphasis added.]
¶31 In regard to the matter of control, VSP’s designated corporate representative, Cheryl
Johnson, testified on deposition that the member doctor agreement had been construed by
VSP’s quality assurance committee. Johnson testified:
Q. MR. SEIFERT: Returning now to your Declaration, Exhibit 10, I would
like to continue on and ask you some things about that document.
Paragraph 12, which appears on page 6 at the top of page 6, towards the
end of that paragraph it recites, “In 1993, the Quality Assurance Committee
of the Board passed a motion noting that ‘VSP’s use of the language ‘control
and ownership’ are synonymous.’”
What does that mean?
A. It means that the language control and ownership mean the same thing.
Q. So if you own, you control?
A. For this purpose.
Q. And by “this purpose” what do you mean?
A. Our Member Doctor Agreement and our office standards.
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¶32 While the District Court, and our Opinion, conclude that Hardy “ceded” aspects of
control of his practice to Pearle under his franchise agreement, Johnson’s testimony
established compliance with the “control” requirement. It was uncontradicted that Hardy
owned his own practice and, thus, under VSP’s own criteria, also controlled it.
¶33 Johnson also testified that the “complete control” defined by VSP’s Motion for
Summary Judgment exists nowhere, in fact, in VSP’s member network. She testified that
VSP member doctors are required to purchase and market VSP’s own line of Altair eyewear.
Thus, if VSP regards Pearle’s marketing standards as “control” it must itself agree that every
VSP doctor required to sell Altair eyewear also lacks “complete control” and, thereby, are
in violation of the VSP franchise agreement, Condition E.
¶34 Furthermore, Johnson admitted in her deposition that other VSP franchisees carry
lines of merchandise or eyewear that are accompanied by restrictions on the method and
manner in which they are advertised, displayed and marketed. Johnson’s deposition reveals
that while she tried to avoid the issue every way possible, VSP’s concept of “complete
control” depends totally upon who VSP wants to apply the requirement against and under
what circumstances.
¶35 Finally, in defense against VSP’s Motion for Summary Judgment, Hardy
demonstrated that hundreds of other Pearle and so called “chain” providers were allowed to
retain VSP membership when he was not; that he did not violate Condition E; that there was
insufficient evidence supporting VSP’s claim that Condition E was to protect against
“suspect” quality of care provided by “chains;” that VSP has never before terminated the
panel membership of a doctor on grounds that it could do so “without cause” or “for any
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reason;” and that while VSP’s claim that Hardy lacked “control” over his practice, referring
to “suspect” standards of care and violation of Condition E, VSP’s real motive was to serve
the economic, competitive interests of its so called “independent practitioners” by excluding
“chain” doctors from its dominate national network. Indeed, VSP’s company periodicals
demonstrated management’s concern over loss of “market share” to “chains” and that
Condition E was really created to “competitively assist” its “private” member doctors.
¶36 In this latter regard, Johnson testified on deposition:
Q. MR. SEIFERT: Is another motivation of VSP for utilizing Condition E to
competitively assist its independent providers?
A. I don’t know that I would use the word competitively assist, but given that
is the network that VSP has and we are promoting that network, that’s the
purpose.
Q. Would it be accurate to say that one of its purposes, and by it I am
referring to Condition E, is to facilitate the economic or business success of
its independent providers?
A. Yes.
¶37 Hardy demonstrated that VSP knowingly allows, under various pretexts,
approximately 235 “chain” doctors to be VSP members. Notwithstanding, in Hardy’s case,
VSP eliminated his membership because he lacked “complete control” over his practice.
¶38 At ¶ 14 of our Opinion, the Court cites Farris v. Hutchinson (1992), 254 Mont. 334,
838 P.2d 374, conceding, as it must, that where the employer terminates an employee for
cause, the employee must have an opportunity to prove that the stated cause was false.
Indeed, we relied upon Stark v. Circle K Corp. (1988), 230 Mont. 468, 751 P.2d 162, and
Prout v. Sears, Roebuck and Co. (1989), 236 Mont. 152, 772 P.2d 288, noting that in both
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cases the discharges were for cause and that it was, therefore, for the jury to decide the
factual issue of whether the stated reasons were true or not. Farris, 254 Mont. at 339, 838
P.2d at 377. That is precisely the situation presented here. The termination of Hardy’s
membership was for cause stated--his lack of control over his practice. VSP’s and our
attempts to muddy the water to the contrary, Hardy was not discharged under the without-
cause provisions of the membership agreement.
¶39 Hardy put more than sufficient evidence before the court in his defense against VSP’s
Motion for Summary Judgment to establish that there are genuine issues of material fact as
to the real reason why VSP terminated his membership for cause. It is up to the jury, not the
trial court, nor this Court on appeal, to adjudicate the validity of those reasons or to
determine questions of good faith at issue in this cause. Those are questions for the jury.
¶40 Our decision here ignores Farris, Stark and Prout and denies Hardy his rightful day
in court.
¶41 I would reverse the District Court’s Order granting VSP’s Motion for Summary
Judgment and would remand for trial.
¶42 I dissent from our failure to do so.
/S/ JAMES C. NELSON
Justice Patricia O. Cotter joins in the dissent of Justice James C. Nelson.
/S/ PATRICIA O. COTTER
Justice Patricia O. Cotter dissents.
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¶43 I join in Justice Nelson’s dissent. I also offer the following additional grounds for
disagreement with the Court’s Opinion.
¶44 I disagree with the Court’s conclusion that Hardy’s claim for interference with
contract fails. For the same reasons set forth in Justice Nelson’s dissent, the question of
whether VSP interfered with Hardy’s contracts with his patients with the intent and
calculation to cause him damage is a question of fact.
¶45 The Court fails to acknowledge Hardy’s contention that, after VSP terminated his
contract, it proceeded to advise his patients that they should discontinue seeing him, and see
instead a VSP-member competitor. According to Hardy, VSP also refused to disclose to
Hardy or his staff how those who might wish to continue as Hardy’s patients could continue
to receive VSP benefits. As a result, Hardy claims damages from lost business in the
millions. Such a claim, if proven, would demonstrate interference with business relations
that post-dates and is arguably severable from the breach of contract claim. This being so,
the interference with business relations claim does not depend for its existence on the
viability of the breach of contract claim. The District Court erred in tying the two claims
together, and this Court has, in my judgment, perpetuated that error. For this reason, I would
reverse the entry of summary judgment on the claim for interference with business relations,
in addition to reversing the entry of summary judgment on the breach of contract claim. I
dissent from our refusal to do so.
/S/ PATRICIA O. COTTER
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