Cardinal Health 108, Inc. v. East Tennessee Hematology-Oncology Associates, P.C.

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
November 18, 2015 Session
CARDINAL HEALTH 108, INC., ET. AL. v. EAST TENNESSEE
HEMATOLOGY-ONCOLOGY ASSOCIATES, P.C., ET. AL.
Appeal from the Chancery Court for Washington County
No. 41913 Hon. John C. Rambo, Chancellor
No. E2015-00002-COA-R3-CV-FILED-JANUARY 14, 2016
This is a breach of contract action in which the trial court granted summary judgment to a
creditor against defendant doctors. We affirm the grant of summary judgment.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Affirmed; Case Remanded
JOHN W. MCCLARTY, J., delivered the opinion of the Court, in which D. MICHAEL
SWINEY, C.J., and THOMAS R. FRIERSON, II, J., joined.
Thomas C. Jessee, Johnson City, Tennessee, for the appellant, M. Ray Lamb, MD.
James E. Moon, Fort Myers, Florida, for the appellant, William R. Kincaid, MD.
Margaret Burns Fugate, Johnson City, Tennessee, for the appellant, Charles O. Famoyin,
MD.
Rick J. Bearfield, Johnson City, Tennessee, for the appellees, Cardinal Health 108,
Incorporated and Cardinal Health 200, LLC.
OPINION
I. BACKGROUND
On May 31, 2011, East Tennessee Hematology-Oncology Associates, PC, doing
business as McLeod Cancer and Blood Center (“McLeod”), completed a credit
application for Cardinal Health (“Cardinal Health”), a specialty pharmaceutical supplier.
McLeod is owned by William R. Kincaid, MD; M. Ray Lamb, MD; and Charles O.
Famoyin, MD (collectively “Defendants”). The application contained a security
agreement providing Cardinal Health with a security interest in McLeod‟s personal
property. McLeod‟s business administrator, Mike Combs, signed the credit application
and security agreement; however, Defendants personally signed a guaranty of the debt as
part of the credit application. The guaranty provided as follows:
The undersigned Principal(s) of Applicant, by reason of their interest in
Applicant and as an inducement for Cardinal Health to extend credit to
Applicant, hereby personally, jointly and severally, irrevocably, and
unconditionally guarantee to Cardinal Health and its subsidiaries, affiliates
and successors, and assigns (each a Guaranteed Party) the prompt and full
payment (and not merely the ultimate collectability) and performance of all
obligations of Applicant to each Guaranteed Party, whether now existing or
hereafter arising. The undersigned authorize Cardinal Health to verify this
information and/or additional information by obtaining data from a credit
reporting agency. If Applicant or its business is hereafter sold, this
guaranty shall continue to apply to all credit thereafter made available to
that Applicant or its business (as the case may be) until such time as
Cardinal Health has received 5 days advanced written notice (via certified
mail, return receipt requested) that Applicant and/or Personal Guarantor(s)
will no longer be responsible for credit thereafter made available with
respect to that Applicant or its business. This guaranty shall be governed
by the laws of the State of Ohio.
McLeod ordered and received pharmaceutical products and supplies from Cardinal
Health pursuant to the agreement. McLeod failed to pay for the products and supplies it
ordered and received.
On January 22, 2013, Cardinal Health 108, Incorporated and Cardinal Health 200,
LLC (collectively “Plaintiffs”) filed suit against McLeod and Defendants. Plaintiffs
alleged in the complaint that they are subsidiaries, related or affiliated companies of
Cardinal Health. Defendants, each responding individually to the complaint, denied
personal responsibility for the outstanding debt. An agreed judgment, signed by each
defendant, was later entered in favor of Plaintiffs against McLeod in the amount of
$1,247,974.97, plus post-judgment interest.
Thereafter, Plaintiffs filed a motion for summary judgment, alleging that the
undisputed facts entitled them to a judgment as a matter of law against Defendants.
Plaintiffs provided a statement of undisputed material facts, which provided, as follows:
1. On or about May 31, 2011, [McLeod] entered into a Credit
Application with Cardinal Health (the “Credit Agreement”). A true and
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correct copy of the Credit Agreement is attached to the Complaint as
Exhibit A.
2. Subsequently, McLeod ordered and received pharmaceutical
products and supplies from Cardinal Health on account (the “Trade
Account”).
3. On or about May 31, 2011, [Defendants] executed their Guarantees
(the “McLeod Guarantee”) of the McLeod debt. A true and correct copy of
McLeod Guarantee is part of the credit application attached to the
Complaint as Exhibit A.
4. McLeod failed to pay Cardinal Health‟s invoices for the
pharmaceutical products and supplies that it ordered and received and
Cardinal Health obtained an Agreed Judgment against McLeod for the
amounts owing.
5. The amount of the Judgment was $1,247,974.97, plus post-judgment
interest at the rate of Eighteen Percent (18%) per annum.
(Internal citations omitted).
Defendants agreed that the material facts were undisputed for purposes of ruling
on the motion. As pertinent to this appeal, Defendants alleged that the following
additional material facts were disputed and prohibited entry of summary judgment:
1. Plaintiffs were not named as parties in the guaranty.
2. The amount owed was not proven other than by the filing of an
account balance.
3. Neither the security agreement nor the guaranty sufficiently describe
what Defendants were guaranteeing and for which corporation.
4. The security agreement was signed by a business administrator who
lacked authority to bind McLeod and Defendants pursuant to the plain
terms of the security agreement.
Dr. Lamb further alleged that he had no contact or business relationship with Plaintiffs
and that he did not sign the security agreement. Plaintiffs responded by asserting that the
additional facts pled by Defendants were not genuine issues of material fact that would
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preclude summary judgment. Plaintiffs noted that Defendants agreed to the entry of a
judgment against McLeod, thereby acknowledging the debt secured by the guaranty.
Following a hearing, the trial court granted the motion for summary judgment,
finding that Defendants had not denied their execution of the guaranty and that they
agreed to secure the obligation as applied to Cardinal Health and any subsidiaries. The
court further found that the amount owed was established in the agreed judgment entered
against McLeod. This timely appeal followed.
II. ISSUE
We restate the issue raised on appeal as follows:
Whether the trial court erred in granting the motion for summary judgment.
III. STANDARD OF REVIEW
The contract at issue contained a choice of law provision providing that the
agreement would be governed by Ohio law. While Ohio law governs the interpretation
of the agreement, Tennessee law governs procedural matters, including the applicable
standard of review. Charles Hampton’s A-1 Signs, Inc. v. Am. States Ins. Co., 225
S.W.3d 482, 487 (Tenn. Ct. App. 2006).
Summary judgment is appropriate where: (1) there is no genuine issue with regard
to the material facts relevant to the claim or defense contained in the motion and (2) the
moving party is entitled to judgment as a matter of law on the undisputed facts. Tenn. R.
Civ. P. 56.04. A properly supported motion for summary judgment “must either (1)
affirmatively negate an essential element of the nonmoving party‟s claim; or (2) show
that the nonmoving party cannot prove an essential element of the claim at trial.”
Hannan v. Alltel Publ’g. Co., 270 S.W.3d 1, 9 (Tenn. 2008), superseded by statute, 2011
Tenn. Pub. Acts ch. 498 §§ 1, 3 (codified at Tenn. Code Ann. § 20-16-101), and
overruled by Rye v. Women’s Care Center of Memphis, MPLLC, -- S.W.3d --, 2015 WL
6457768, at *21-22 (Tenn. Oct. 26, 2015).1 “The burden-shifting analysis differs [when]
the party bearing the burden at trial is the moving party. For example, a plaintiff who
1
The Tennessee General Assembly legislatively attempted to reverse our Supreme Court‟s holding in
Hannan as applied to cases filed on or after July 1, 2011, where the moving party who does not bear the
burden of proof at trial files the motion. Tenn. Code Ann. § 20-16-101. Our Supreme Court also
overruled Hannan as applied to all cases where the moving party who does not bear the burden of proof at
trial files the motion. Rye v. Women’s Care Center of Memphis, MPLLC, -- S.W.3d --, 2015 WL
6457768, at *21-22 (Tenn. Oct. 26, 2015). In this appeal, we will continue to apply the summary
judgment standard set forth in Hannan because Plaintiff filed the motion for summary judgment.
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files a motion for partial summary judgment on an element of his or her claim shifts the
burden by alleging undisputed facts that show the existence of that element and entitle the
plaintiff to summary judgment as a matter of law.” Id. at 9 n. 6. When the moving party
has made a properly supported motion, the “burden of production then shifts to the
nonmoving party to show that a genuine issue of material fact exists.” Id. at 5; see
Robinson v. Omer, 952 S.W.2d 423, 426 (Tenn. 1997); Byrd v. Hall, 847 S.W.2d 208,
215 (Tenn. 1993). The nonmoving party may not simply rest upon the pleadings but
must offer proof by affidavits or other discovery materials to show that there is a genuine
issue for trial. Tenn. R. Civ. P. 56.06. If the nonmoving party “does not so respond,
summary judgment, if appropriate, shall be entered.” Tenn. R. Civ. P. 56.06.
On appeal, this court reviews a trial court‟s grant of summary judgment de novo
with no presumption of correctness. See City of Tullahoma v. Bedford Cnty., 938 S.W.2d
408, 412 (Tenn. 1997). In reviewing the trial court‟s decision, we must view all of the
evidence in the light most favorable to the nonmoving party and resolve all factual
inferences in the nonmoving party‟s favor. Luther v. Compton, 5 S.W.3d 635, 639 (Tenn.
1999); Muhlheim v. Knox. Cnty. Bd. of Educ., 2 S.W.3d 927, 929 (Tenn. 1999). If the
undisputed facts support only one conclusion, then the court‟s summary judgment will be
upheld because the moving party was entitled to judgment as a matter of law. See White
v. Lawrence, 975 S.W.2d 525, 529 (Tenn.1998); McCall v. Wilder, 913 S.W.2d 150, 153
(Tenn. 1995).
IV. DISCUSSION
Dr. Lamb2 first argues that the trial court erred by failing to apply Ohio law in
granting the motion for summary judgment. Dr. Lamb does not identify any issue that
would have been decided differently had the trial court applied Ohio law instead of
Tennessee law. Moreover, a review of the record reveals that the trial court recognized
that Ohio law governed the interpretation of the contract before granting the motion for
summary judgment. This argument is without merit.
Dr. Lamb next argues that the court erred in granting the motion when genuine
issues of material fact remained regarding whether Plaintiffs have standing to file suit.
He explains that Plaintiffs were not identified as parties to the agreement. Plaintiffs
respond that the service agreement and guaranty specifically include Cardinal Health‟s
subsidiaries as guaranteed parties to the contract.
The Ohio Supreme Court addressed the principles of standing as follows:
2
Dr. Famoyin did not file a brief, and Dr. Kincaid settled with Plaintiffs prior to oral argument.
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Traditional standing principles require litigants to show, at a minimum, that
they have suffered (1) an injury that is (2) fairly traceable to the defendant‟s
allegedly unlawful conduct, and (3) likely to be redressed by the requested
relief. Standing does not depend on the merits of the plaintiff‟s claim.
Rather, standing depends on whether the plaintiffs have alleged such a
personal stake in the outcome of the controversy that they are entitled to
have a court hear their case.
ProgressOhio.org, Inc. v. JobsOhio, 13 N.E.3d 1101, 1104 (Ohio 2014) (internal
citations and quotations omitted). Notably, Dr. Lamb does not allege that Plaintiffs failed
to establish their status as subsidiaries of Cardinal Health. As a subsidiary of Cardinal
Health, Plaintiffs have suffered an injury that is fairly traceable to Dr. Lamb‟s failure to
remit payment pursuant to the guaranty. Additionally, the injury is likely to be redressed
by a breach of contract action. Plaintiffs have standing to file suit.
Dr. Lamb next argues that the court erred in granting the motion when genuine
issues of material fact remained regarding the authority of Mike Combs to bind McLeod
to the contract. He provides that the credit application required the individual signing the
application to have the authority of a “proprietor, partner, controlling shareholder or
authorized officer.” He argues that Mr. Combs did not have the requisite authority
required by the application when Mr. Combs was simply a business administrator.
Plaintiffs respond that Defendants ratified the contract by accepting products and supplies
pursuant to the agreement signed by Mr. Combs and that they later acknowledged the
validity of the contract by affirming the agreed judgment entered against McLeod.
Dr. Lamb specifically admitted for purposes of summary judgment that McLeod
entered into an agreement with Cardinal Health, that McLeod ordered and received
products pursuant to the agreement, and that McLeod failed to remit payment. In Ohio,
[a] contract entered into by an officer which is unauthorized may
nonetheless be binding upon a corporation if there is a ratification on the
part of the board of directors. Such a ratification may be either express or
by implication. Where the board of directors possesses actual knowledge
of the facts, a ratification may be effected through (1) the acceptance of a
benefit from the contract, (2) acquiescence, or (3) a failure to repudiate the
contract within a reasonable period of time.
Ameritrust Co. Natl. Assn. v. Hicks Dev. Corp., 632 N.E.2d 939, 942 (Ohio Ct. App.
1993). Here, Defendants were aware that Mr. Combs signed the credit application on
behalf of McLeod as evidenced by their signatures on the guaranty. They also accepted
products and supplies ordered pursuant to the agreement. Under such circumstances, the
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undisputed facts support only one conclusion, the contract is enforceable because
Defendants ratified the contract.
Finally, Dr. Lamb argues that the court erred in granting the motion when genuine
issues of material fact remained regarding the enforceability of the guaranty. He
complains that the guaranty was not sufficiently definite because it did not “describe
what the guarantors are guaranteeing for which corporations.” Plaintiffs respond that the
guaranty was sufficiently definite.
“In order to declare the existence of a contract, the parties to the contract must
consent to its terms, there must be a meeting of the minds of both parties, and the contract
must be definite and certain.” McSweeney v. Jackson, 691 N.E.2d 303, 308 (Ohio Ct.
App. 1996) (citations omitted). “The cardinal principle in contract interpretation is to
give effect to the intent of the parties.” Transtar Elec., Inc. v. A.E.M. Elec. Servs. Corp.,
16 N.E.3d 645, 648 (Ohio 2014) (citation omitted). „“[W]e will look to the plain and
ordinary meaning of the language used in the contract unless another meaning is clearly
apparent from the contents of the agreement. When the language of a written contract is
clear, a court may look no further than the writing itself to find the intent of the parties.”‟
Id. (quoting Sunoco, Inc. (R & M) v. Toledo Edison Co., 953 N.E.2d 285, 292 (Ohio
2011)). The contract at issue here provided, in pertinent part, as follows:
The undersigned Principal(s) of Applicant, by reason of their interest in
Applicant and as an inducement for Cardinal Health to extend credit to
Applicant, hereby personally, jointly and severally, irrevocably, and
unconditionally guarantee to Cardinal Health and its subsidiaries,
affiliates and successors, and assigns (each a Guaranteed Party) the
prompt and full payment (and not merely the ultimate collectability) and
performance of all obligations of Applicant to each Guaranteed Party,
whether now existing or hereafter arising.
(Emphasis added).
A plain reading of the provision reflects that Defendants guaranteed to Cardinal
Health and “its subsidiaries, affiliates and successors” the “prompt and full payment” and
“performance of all obligations” contained in the contract as a whole. The guarantee was
sufficiently definite. With all of the above considerations in mind, we conclude that the
trial court did not err in granting the motion for summary judgment when the undisputed
facts support only one conclusion, Defendants are personally liable for the outstanding
debt owed by McLeod.
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V. CONCLUSION
The judgment of the trial court is affirmed, and the case is remanded for such
further proceedings as may be necessary. Costs of the appeal are taxed equally to the
appellants, M. Ray Lamb, MD; William R. Kincaid, MD; and Charles O. Famoyin, MD.
_________________________________
JOHN W. McCLARTY, JUDGE
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