Brim Holding Company, Inc. v. Province Healthcare Company

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
April 9, 2008 Session
BRIM HOLDING COMPANY, INC. v. PROVINCE HEALTHCARE
COMPANY
Appeal from the Chancery Court for Davidson County
No. 06-1597-I Claudia C. Bonnyman, Chancellor
No. M2007-01344-COA-R3-CV - Filed May 28, 2008
The issue on appeal in this contract dispute is whether the defendant breached its indemnification
obligations under the terms of a stock purchase agreement. The trial court found that the plaintiff
was entitled to be reimbursed for payment of a claim specifically identified under the
indemnification provisions of a stock purchase agreement. Significantly, the trial court found that
the indemnity provisions in the stock purchase agreement anticipate the specific loss and assure that
it will be paid by the defendant. The defendant contends that the plaintiff has already received
reimbursement for that payment through the post-closing working capital adjustment and the
plaintiff, therefore, is not entitled to reimbursement under the indemnification provisions. Finding
no error, we affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed
FRANK G. CLEMENT , JR., J., delivered the opinion of the court, in which PATRICIA J. COTTRELL,
P.J., M.S., and RICHARD H. DINKINS, J., joined.
C. Mark Pickrell, Joseph A. Woodruff and R. Mitchell Porcello, Nashville, Tennessee, for the
appellant, Province Healthcare Company.
Brigid M. Carpenter, Nashville, Tennessee, and Allen V. Farber, Washington, D. C., for the appellee,
Brim Holding Company, Inc.
OPINION
Brim Holding Company, Inc. (“Plaintiff”) and Province Healthcare Company (“Defendant”)
entered into a Stock Purchase Agreement (“Agreement”) on June 15, 2004. Pursuant to the
Agreement, Defendant, which was the sole shareholder of Brim Healthcare, Inc., agreed to sell to
Plaintiff all of the outstanding stock of Brim Healthcare, Inc., (the “Company”).1 The sale of the
stock closed on June 30, 2004.
The Agreement expressly provided that Defendant, the seller of the stock, would indemnify
Plaintiff, the buyer of the stock, from and against “any Losses related to or in connection with In re:
CHAMA, Inc., DCH, Inc., et. al (Debtors), Chapter 7 Case No. 98-2252, 98-2750 (jointly
administered) and Jeffrey L. Burtch, Chapter 7 Trustee (Plaintiff) v. Brim Healthcare, Inc.
(Defendant), (Adversary proceeding No. 03-52528), U.S. Bankruptcy Court for the District of
Delaware.”
In August of 2004, Plaintiff paid $500,000 to settle the CHAMA litigation, and then made
demand upon Defendant for indemnification. Defendant rejected Plaintiff’s request for
indemnification. Defendant argued that Plaintiff had already received the funds for that payment
through the working capital calculation.2 Defendant contended that the closing balance sheet had
included a $500,000 reserve for the CHAMA litigation, which had the effect of reducing the working
capital of the Company by $500,000. Moreover, Defendant claimed that reimbursing Plaintiff for
the CHAMA litigation payment would result in a double payment of the CHAMA liability by
Defendant because Plaintiff had already been compensated for the $500,000 CHAMA litigation
payment through the reduction in working capital attributable to the $500,000 reserve.
Thereafter, Plaintiff filed this breach of contract action against Defendant. Following
discovery, Plaintiff filed a motion for summary judgment. Defendant opposed the motion, arguing
that a dispute of material fact existed as to whether Plaintiff suffered a loss. Specifically, Defendant
contended that a trier of fact could reasonably conclude that Plaintiff suffered no loss because the
CHAMA litigation payment did not exceed the amount that had been reserved as a current liability
in computing the working capital as provided in Article 1 of the Agreement.
The trial court granted Plaintiff summary judgment. Significantly, the trial court found that
“the indemnity paragraph in the [Agreement] clearly anticipates the specific loss and assures that it
will be paid by [Defendant], not by the Company” and that “[t]he [Agreement] does not state or
imply that indemnification will affect the Company value, by adjusting the working capital or
otherwise.” This appeal followed.
1
Pursuant to the Agreement, Plaintiff purchased 1.6 million shares of the issued and outstanding stock of the
Company for $13.1 million.
2
According to Article 1, the parties agreed that the “working capital” of the Company at the time of closing
would be $550,000. Adjustments and calculations would be made post-closing to determine the actual working capital
as of the date of closing, and thereafter payments would be made, if needed, to ensure that working capital as of the date
of closing was $550,000.
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STANDARD OF REVIEW
The issues were resolved in the trial court upon summary judgment. Summary judgments
do not enjoy a presumption of correctness on appeal. BellSouth Adver. & Publ’g Co. v. Johnson, 100
S.W.3d 202, 205 (Tenn. 2003). This court must make a fresh determination that the requirements
of Tenn. R. Civ. P. 56 have been satisfied. Hunter v. Brown, 955 S.W.2d 49, 50-51 (Tenn. 1997).
We consider the evidence in the light most favorable to the non-moving party and resolve all
inferences in that party’s favor. Stovall v. Clarke, 113 S.W.3d 715, 721 (Tenn. 2003); Godfrey v.
Ruiz, 90 S.W.3d 692, 695 (Tenn. 2002). When reviewing the evidence, we first determine whether
factual disputes exist. If a factual dispute exists, we then determine whether the fact is material to
the claim or defense upon which the summary judgment is predicated and whether the disputed fact
creates a genuine issue for trial. Byrd v. Hall, 847 S.W.2d 208, 214 (Tenn. 1993); Rutherford v.
Polar Tank Trailer, Inc., 978 S.W.2d 102, 104 (Tenn. Ct. App. 1998).
Summary judgment is appropriate where a party establishes that there is no genuine issue as
to any material fact and that a judgment may be rendered as a matter of law. Tenn. R. Civ. P. 56.04;
Stovall, 113 S.W.3d 721. Moreover, it is proper in virtually all civil cases that can be resolved on
the basis of legal issues alone, Byrd v. Hall, 847 S.W.2d at 210; Pendleton v. Mills, 73 S.W.3d 115,
121 (Tenn. Ct. App. 2001); however, it is not appropriate when genuine disputes regarding material
facts exist. Tenn. R. Civ. P. 56.04. The party seeking a summary judgment bears the burden of
demonstrating that no genuine disputes of material fact exist and that the party is entitled to
judgment as a matter of law. Godfrey, 90 S.W.3d at 695. Summary judgment should be granted at
the trial court level when the undisputed facts, and the inferences reasonably drawn from the
undisputed facts, support one conclusion, which is the party seeking the summary judgment is
entitled to a judgment as a matter of law. Pero’s Steak & Spaghetti House v. Lee, 90 S.W.3d 614,
620 (Tenn. 2002); Webber v. State Farm Mut. Auto. Ins. Co., 49 S.W.3d 265, 269 (Tenn. 2001). The
court must take the strongest legitimate view of the evidence in favor of the non-moving party, allow
all reasonable inferences in favor of that party, discard all countervailing evidence, and, if there is
a dispute as to any material fact or if there is any doubt as to the existence of a material fact,
summary judgment cannot be granted. Byrd v. Hall, 847 S.W.2d at 210; EVCO Corp. v. Ross, 528
S.W.2d 20 (Tenn. 1975). To be entitled to summary judgment, the moving party must affirmatively
negate an essential element of the non-moving party’s claim or establish an affirmative defense that
conclusively defeats the non-moving party’s claim. Cherry v. Williams, 36 S.W.3d 78, 82-83 (Tenn.
Ct. App. 2000).
ANALYSIS
Defendant presents four issues on appeal. The issues presented are: (1) whether the plaintiff
is entitled, as a matter of law, to receive reimbursement for an indemnified loss through one
provision of the contract when reimbursement for the same loss was received under a separate
section of the contract; (2) whether the plaintiff established, as a matter of law, that the defendant
breached the contract between the parties where the contract required indemnification only for a
defined “loss”; (3) whether the plaintiff established, as a matter of law, that it suffered damages; and
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(4) whether the trial court erred in awarding prejudgment interest to the plaintiff. We have
determined the first three issues are resolved by our determination that the indemnification provision
in Article 9 of the Agreement is unequivocal.
Choice of Law
The parties agreed that the Agreement would be construed in accordance with Delaware law.
Accordingly, we look to Delaware for the applicable legal principles to be applied to interpret the
Agreement.
Under Delaware law, the interpretation of a contract is a question of law, Delaware Bay
Surgical Servs., P.A. v. Swier, 900 A.2d 646, 650 (Del. 2006), and questions of law are reviewed de
novo. Grand Ventures v. Whaley, 632 A.2d 63, 66 (Del. 1993). The Supreme Court of Delaware
explained the principles governing contract interpretation as follows:
The principles governing contract interpretation are well settled. Contracts must be
construed as a whole, to give effect to the intentions of the parties. Where the
contract language is clear and unambiguous, the parties’ intent is ascertained by
giving the language its ordinary and usual meaning. Courts consider extrinsic
evidence to interpret the agreement only if there is an ambiguity in the contract.
Northwestern Nat’l Ins. Co. v. Esmark, Inc., 672 A.2d 41, 43 (Del. 1996) (internal citations omitted).
The court must determine whether a contract is ambiguous by reviewing the entire contract.
Pisano v. Delaware Solid Waste Auth., No. 05C-03-132-FSS, 2006 WL 3457686, at *2 (Del. Super.
Ct. Nov. 30, 2006). “Ambiguity only exists when the contract's terms are ‘reasonably or fairly
susceptible of different interpretations’ or if the terms may have more than one meaning.” Id.
(quoting Rhone-Poulenc Basic Chemicals Co. v. American Motorists Ins. Co., 616 A.2d 1192, 1195
(Del. 1992)). The court will not create ambiguity where the ordinary meaning of the terms leaves
no room for uncertainty. Id. (citing Rhone, 616 A.2d at 1197). “If the language is clear and
unequivocal, the parties are bound by its plain meaning.” Id. (citing Emmons v. Hartford
Underwriters Ins. Co., 697 A.2d 742, 745 (Del.1997)).
The Indemnification Provision
The parties made express provision for the CHAMA claim when they entered into the
Agreement. The relevant provision is set forth in Article 9 of the Agreement, which provides:
9.1 Seller’s Indemnification Obligations. After the Closing, and subject to the
conditions set forth in this Article 9, Seller agrees to indemnify, defend and hold
harmless Buyer . . . from and against any and all Losses (as defined in Section 11.1
below) reasonably paid or incurred by the Buyer Indemnities, or any of them, and
resulting from, based upon or arising out of:
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9.1.1 the inaccuracy or untruth of any representation or
warranty made by Seller in Articles 2 and 3 of this Agreement or in
the Seller Disclosure Schedule;
9.1.2 a breach of or failure to perform any covenant or
agreement of Seller made in this Agreement;
9.1.3 any Losses related to or in connection with In re:
CHAMA, Inc., DCH, Inc., et. al (Debtors), Chapter 7 Case No. 98-
2252, 98-2750 (jointly administered) and Jeffrey L. Burtch, Chapter
7 Trustee (Plaintiff) v. Brim Healthcare, Inc. (Defendant), (Adversary
proceeding No. 03-52528), U.S. Bankruptcy Court for the District of
Delaware;
9.1.4 any Losses related to or in connection with (i)
medical malpractice claims or (ii) other claims, including workers
compensation claims, for which the Company would have had the
benefit of insurance coverage provided by Seller or Seller’s insurers
if such claim would have been made immediately prior to the
Closing, . . .
9.1.5 any Losses related to Company’s supplemental
deferred compensation plan maintained by Seller; and . . .
The Agreement defined “Losses” as “any and all assessments, losses, fines, judgments, costs,
damages and expenses, including without limitation, interest, penalties, cost of investigation and
defense, and reasonable attorneys’ and other reasonable professional fees and expenses.”
In granting summary judgment to Plaintiff, the trial court analyzed the issue as follows:
Read in context with the other indemnification obligations itemized in Article
9.1, the straight-forward language requires that the items to be indemnified are the
obligations of [Defendant]. Other indemnification items listed in Article 9 of the
[Agreement], besides the loss caused by the CHAMA claim, are breach of the
[Agreement] by [Defendant], failure of any warranty in the Agreement from
[Defendant], and claims for payment to a third party which were previously insured
claims. The [Agreement] states that indemnification of these items will adjust the
purchase price for tax purposes. The [Agreement] does not state or imply that
indemnification will affect the Company value, by adjusting working capital or
otherwise. The Court finds instead, that Article 9 of the [Agreement], requires
payment to the Plaintiff without regard to the Company and its Share value and
without the intent to affect the Company. If [Defendant] indemnification of these
losses was intended to affect the Company, the parties could have said so in the
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[Agreement]. As a result, the indemnification payment to the Plaintiff, required
under the Agreement, will not be an accrued liability adjustment from or a cash
equivalent asset adjustment to, working capital of the company.
The [Agreement] requires that its terms will be construed in accordance with
Delaware law. A contract is not ambiguous simply because the parties do not agree
upon its proper construction. Rhone-Poulenc Basic Chemicals Co. v. American
Motorists Ins. Co., 616 A.2d 1192, 1195-96 (Del. 1992). The [Agreement] must be
enforced according to its terms. A court must construe the contract as a whole,
“giving effect to all of its provisions and avoiding a construction which would render
any of those provisions illusory or meaningless.” Seabreak Homeowners Ass’n Inc.
v. Gresser, 517 A.2d 263, 269 (Del. Ch. 1986).
As the trial court correctly found, the parties anticipated the loss now at issue and made
express and unequivocal provisions to assure that the loss, if any, would be paid by Defendant.
Defendant would have us disregard the unambiguous indemnity provision, indeed totally
nullify the indemnity provision as it pertains to the CHAMA claim, and resolve the dispute by sifting
through a murky maze of assumptions to ascertain the parties’ unstated intentions regarding working
capital, which was computed as of the date of closing, long after the parties entered into their
expressed and unequivocal agreement concerning the CHAMA litigation. We decline this invitation
because at arriving at the intention of the parties to a contract, the court does not attempt to ascertain
the parties’ state of mind at the time the contract was executed, rather their intentions as actually
embodied and expressed in the contract as written. See Northwestern Nat’l Ins. Co. v. Esmark, Inc.,
672 A.2d 41, 43 (Del. 1996). The parties to the Agreement expressed their intention to be that
Defendant would indemnify Plaintiff if Plaintiff sustained a loss resulting from the CHAMA
litigation. Thus, an attempt by this court to ascertain the parties’ state of mind at the time the contract
was executed would be improper, not to mention unnecessary. See Id.
It is undisputed that Plaintiff paid $500,000 to settle the CHAMA litigation and that it
incurred attorney fees and costs incident to that litigation. The Agreement expressly and
unequivocally provides that Plaintiff is entitled to recover its losses arising from the CHAMA
litigation, including “cost of investigation and defense, and reasonable attorneys’ . . . fees and
expenses.” The payment of $500,000 to settle the CHAMA litigation, and reasonable attorneys’ fees
and expenses incurred incident thereto, constitute a loss as defined in the Agreement, for which
Plaintiff is entitled to indemnification from Defendant.
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Prejudgment Interest
For its next issue, Defendant contends the trial court erred by awarding Plaintiff prejudgment
interest.3 We respectfully disagree.
Prejudgment interest serves the purpose of compensating a party for the loss of funds to
which it was legally entitled. An award of prejudgment interest is “within the sound discretion of
the trial court” and will not be disturbed “unless the record reveals a manifest and palpable abuse of
discretion.” Myint v. Allstate Ins. Co., 970 S.W.2d 920, 927 (Tenn. 1998) (citing Spencer v. A-1
Crane Service, Inc., 880 S.W.2d 938, 944 (Tenn. 1994); Otis v. Cambridge Mut. Fire Ins. Co., 850
S.W.2d 439, 446 (Tenn. 1992)). Pursuant to this standard, we are required to give great deference
to the trial court in the decision of whether to award prejudgment interest. Myint, 970 S.W.2d at 927.
The court is to consider three general principles when deciding whether to award or deny a
request for prejudgment interest. The court is to consider whether the amount of the obligation is
certain and not disputed on reasonable grounds. Id. It is to consider whether the existence of the
obligation itself is not disputed. Id. And it is to keep in mind that “the purpose of awarding the
interest is to fully compensate a plaintiff for the loss of the use of funds to which he or she was
legally entitled, not to penalize a defendant for wrongdoing.” Id.
The evidence fully supports the trial court’s decision to award Plaintiff prejudgment interest.
Accordingly, we affirm the award of prejudgment interest.
IN CONCLUSION
The judgment of the trial court is affirmed, and this matter is remanded with costs of appeal
assessed against Defendant.
___________________________________
FRANK G. CLEMENT, JR., JUDGE
3
Although we applied the law of Delaware to interpret the Agreement, as mandated by the Agreement, the
parties are in agreement that the law of Tennessee controls the issue of prejudgment interest, as is evidenced by the legal
arguments set forth in their briefs on appeal. Accordingly, we have analyzed the issue of prejudgment interest based
upon the law of Tennessee.
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