Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-05-01103/USCOURTS-ca8-05-01103-0/pdf.json

Parties Involved:
Mike Bingham
Appellee
Ron Disney
Appellee
Genesee Associates
Appellant
Surgical Synergies
Not Party

Document Text:

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

________________

No. 05-1103

________________

Surgical Synergies, Inc.,

Plaintiff,

v.

Genesee Associates, Inc.,

Defendant/Third Party 

Plaintiff - Appellant,

v.

Ron Disney; Mike Bingham,

Third Party Defendants - 

Appellees.

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

Appeal from the United States

District Court for the Eastern

District of Missouri.

________________

Submitted: October 14, 2005 

 Filed: December 29, 2005 

________________

Before ARNOLD, MURPHY, and GRUENDER, Circuit Judges. 

________________

Appellate Case: 05-1103 Page: 1 Date Filed: 12/29/2005 Entry ID: 1991073
1

The Honorable Stephen N. Limbaugh, United States District Judge for the

Eastern District of Missouri.

2

SSI, the plaintiff below, is not involved in this appeal.

-2-

GRUENDER, Circuit Judge.

 Third-party plaintiff Genesee Associates, Inc. (“Genesee”) appeals the order

of the district court1

 granting judgment on the pleadings to third-party defendants Ron

Disney and Mike Bingham on Genesee’s indemnification claim. For the reasons

discussed below, we affirm the judgment of the district court.

I. BACKGROUND

Genesee is in the business of providing management services for outpatient

surgery centers. Before March 2002, Disney and Bingham collectively owned 100%

of Genesee’s stock. Beverly Kirchner, the president of Genesee since at least 1999,

purchased all of Genesee’s stock from Disney and Bingham in March 2002. 

Genesee derives most of its income from a contract to provide management

services to the New Iberia Surgery Center (“New Iberia”). In mid-2001, Genesee

considered a potential merger with Surgical Synergies, Inc. (“SSI”), another provider

of services to outpatient surgery centers.2

 While the companies investigated the

potential for a merger, SSI assumed part or all of Genesee’s duty to provide

management services to New Iberia. At the same time, Kirchner and other Genesee

employees performed the tasks of SSI employees. After a few months, Genesee and

SSI decided not to complete the merger. By no later than January 30, 2002, SSI made

a demand to Genesee for payment for the services SSI performed on the New Iberia

contract on behalf of Genesee during the merger investigation period.

Appellate Case: 05-1103 Page: 2 Date Filed: 12/29/2005 Entry ID: 1991073
-3-

Kirchner began negotiating with Disney and Bingham to buy Genesee in early

2002. In March 2002, Kirchner purchased 100% of Genesee’s stock from Disney and

Bingham by executing a stock purchase agreement. Kirchner again considered

completing the merger with SSI after she purchased Genesee, but those plans were

never finalized. 

Two paragraphs of the stock purchase agreement are at issue in this case:

6.4 Other than obligations Genesee may have under the management

contract between Genesee and New Iberia Surgery Center (the

“Management Contract”), Genesee has no other liabilities, whether

contingent or otherwise. Genesee has not assigned or otherwise

transferred any rights or obligations under the Management Contract,

and Genesee is not in default of any of its legal obligations under the

Management Contract. Accounts receivable from New Iberia are a

Genesee asset which accrue to Genesee.

* * *

10.2(a) Disney and Bingham, jointly and severally, agree to defend,

indemnify, protect and hold harmless Kirchner, and her successors and

assigns, from and against any damages, debts, liabilities, costs, losses

and expenses incurred by Kirchner as a result of any breach of this

Agreement by Disney and/or Bingham, or a breach by Disney and/or

Bingham of any of the representations or warranties made by them in

this Agreement.

SSI brought suit against Genesee in Missouri state court for payment for the

services SSI performed on behalf of Genesee on the New Iberia contract during the

merger investigation period. Genesee removed the case to federal district court based

on diversity of citizenship. After Kirchner assigned her rights under the stock

purchase agreement to Genesee, Genesee filed a third-party complaint against Disney

and Bingham. Genesee claimed that the existence of any liability to SSI would breach

¶ 6.4 of the stock purchase agreement and that Disney and Bingham were bound to

Appellate Case: 05-1103 Page: 3 Date Filed: 12/29/2005 Entry ID: 1991073
3

The district court properly considered the stock purchase agreement along with

the pleadings because it was attached to the complaint and was “necessarily embraced

by the pleadings.” Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir.

1999) (quoting Piper Jaffray Cos. v. Nat’l Union Fire Ins. Co., 967 F. Supp. 1148,

1152 (D. Minn. 1997)); see also Silver v. H&R Block, Inc., 105 F.3d 394, 397 (8th Cir.

1997) (finding two published statements were properly considered with the pleadings

for purposes of a motion to dismiss because the entire lawsuit was based on the

statements and the parties did not dispute their content). However, the district court’s

determination of the parties’ understanding of the liabilities disclosed by ¶ 6.4 of the

-4-

indemnify Genesee, as Kirchner’s assignee, under ¶ 10.2(a) for any amounts deemed

owed to SSI.

Genesee settled SSI’s claim for an undisclosed sum. Disney and Bingham

moved for judgment on the pleadings on Genesee’s third-party indemnification claim,

and Genesee in turn moved for summary judgment against Disney and Bingham on

that claim. The district court elected to grant Disney and Bingham’s motion for

judgment on the pleadings, considering the stock purchase agreement as part of the

pleadings and finding that (1) the plain language of the stock purchase agreement

disclosed Genesee’s liability to SSI, so the liability to SSI could not constitute a

breach, and (2) Genesee did not plead a loss by Kirchner sufficient to trigger the

indemnification provision. Genesee appeals, arguing that the pleadings present an

issue of material fact as to whether a breach occurred and that they allege a loss to

Kirchner.

II. DISCUSSION

The district court concluded that ¶ 6.4 of the stock purchase agreement, which

identified “obligations Genesee may have under the management contract between

Genesee and New Iberia Surgery Center,” disclosed the contested obligation to SSI.

As an initial matter, we find that the district court reached this conclusion based on

knowledge of the case gleaned from matters outside the pleadings.3

 Where the district

Appellate Case: 05-1103 Page: 4 Date Filed: 12/29/2005 Entry ID: 1991073
stock purchase agreement required reference to exhibits introduced by the parties on

Genesee’s competing motion for summary judgment. These briefs and exhibits are

outside the pleadings.

-5-

court considers matters outside the pleadings, a motion for judgment on the pleadings

“shall be treated as one for summary judgment.” Fed. R. Civ. P. 12(c). However, any

error in a district court’s failure to treat a motion for judgment on the pleadings as one

for summary judgment “is harmless if the nonmoving party had an adequate

opportunity to respond to the motion and material facts were neither disputed nor

missing from the record.” Kerr v. Fed. Emergency Mgmt. Agency, 113 F.3d 884, 885

(8th Cir. 1997) (quoting Gibb v. Scott, 958 F.2d 814, 816 (8th Cir. 1992)). In this

case, as a result of Genesee’s competing motion for summary judgment, both parties

addressed the meaning of ¶ 6.4 of the stock purchase agreement in multiple briefs and

exhibits and, as discussed below, no disputed material facts remain. Therefore, we

find harmless any error in the district court’s decision not to convert Disney and

Bingham’s motion for judgment on the pleadings to one for summary judgment. 

Because the district court considered matters outside the pleadings, we review

this case under the summary judgment standard, viewing the facts in the light most

favorable to the nonmoving party and affirming if there is no genuine issue of material

fact and the moving party is entitled to a judgment as a matter of law. Forest Park II

v. Hadley, 408 F.3d 1052, 1057 (8th Cir. 2005). In this diversity case, we apply the

laws of the forum state, Missouri, to determine which state’s law governs our

interpretation of the stock purchase agreement. Highwoods Props. v. Exec. Risk

Indem., Inc., 407 F.3d 917, 920 (8th Cir. 2005). “The Missouri courts generally

enforce contractual choice-of-law provisions.” PVI, Inc. v. Ratiopharm GmbH, 253

F.3d 320, 329 (8th Cir. 2001) (citing Rheem Manufacturing Co. v. Progressive

Wholesale Supply Co., 28 S.W.3d 333, 339 (Mo. Ct. App. 2000)). Paragraph 16 of

the stock purchase agreement provides that it is to be governed by the substantive law

of Texas.

Appellate Case: 05-1103 Page: 5 Date Filed: 12/29/2005 Entry ID: 1991073
-6-

The decisive question in this case is whether, under ¶ 6.4 of the stock purchase

agreement, Kirchner assumed the risk of a liability to SSI as an “obligation[] Genesee

may have under the management contract between Genesee and New Iberia Surgery

Center.” Under Texas law, “a contract is ambiguous if it is susceptible to more than

one reasonable interpretation.” Frost Nat’l Bank v. L&F Distribs., Ltd., 165 S.W.3d

310, 312 (Tex. 2005) (per curiam). The court decides whether a contract is ambiguous

as a question of law, “looking at the contract as a whole in light of the circumstances

present when the parties entered the contract.” Friendswood Dev. Co. v. McDade +

Co., 926 S.W.2d 280, 282 (Tex. 1996) (per curiam). 

At the time the stock purchase agreement was drafted, the parties were aware

that SSI had assumed all or part of Genesee’s duties under the New Iberia

management contract during the merger investigation period and that SSI had

demanded payment for that work. In light of the circumstances present when the

parties entered the contract, the phrase “obligations Genesee may have under the

management contract between Genesee and New Iberia Surgery Center” is susceptible

to two reasonable interpretations: referring either to (1) the Genesee obligations that

may have been specifically identified in the New Iberia management contract, or (2)

the Genesee obligations arising under the New Iberia management contract, including

liabilities to SSI arising from SSI’s performance of Genesee’s duties under the New

Iberia management contract. Therefore, ¶ 6.4 of the stock purchase agreement is

ambiguous.

If a contract is ambiguous, extrinsic evidence is admissible “to give the words

of a contract a meaning consistent with that to which they are reasonably susceptible.”

Nat’l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 521 (Tex. 1995) (per

curiam). The extrinsic evidence in this case shows that Kirchner assumed the risk of

a liability to SSI under ¶ 6.4 of the stock purchase agreement. Approximately one

week before the execution of the stock purchase agreement, Disney sent an e-mail to

Kirchner’s attorney describing an agreement among Disney, Bingham and SSI

Appellate Case: 05-1103 Page: 6 Date Filed: 12/29/2005 Entry ID: 1991073
-7-

principal Mike Ribaudo that Disney and Bingham would leave assets in Genesee

sufficient to cover fees owed to SSI at the time of the sale to Kirchner. See ThirdParty Defendant’s Memo in Opposition to Third-Party Plaintiff’s Motion for

Summary Judgment, Exhibit F. The e-mail and attached spreadsheet show how

Disney and Bingham structured Genesee’s accounts prior to the execution of the stock

purchase agreement so that Genesee would have sufficient funds to pay SSI’s claim

after the purchase by Kirchner. Id. 

Genesee attempts to show a disputed material fact by arguing that there is no

evidence Kirchner agreed that the money Disney and Bingham left in Genesee would

be used to pay SSI. Genesee cites deposition testimony from Disney in which Disney

admits Kirchner never committed to pay SSI the money Disney and Bingham left in

Genesee for that purpose. See Third Party Plaintiff’s Response to Third Party

Defendants’ Memo in Opposition to Third-Party Plaintiff’s Motion for Summary

Judgment, at 10-13 and Exhibit F. However, it is not material whether Kirchner

intended to admit Genesee’s liability to SSI and pay on demand after she assumed

ownership of Genesee. It is only material that Kirchner knew that under the stock

purchase agreement, Disney and Bingham left money in Genesee to cover the

management fees claimed by SSI under the New Iberia management contract “[i]f she

chose to pay them.” Id. at 11-12. Consequently, Kirchner knew that Disney and

Bingham had no intention of bearing the risk of any potential liability to SSI after the

stock purchase agreement was executed. It would not have been reasonable for

Kirchner to conclude that the phrase “obligations Genesee may have under the

management contract between Genesee and New Iberia Surgery Center” excluded

Genesee’s liabilities to SSI arising from SSI’s performance of Genesee’s duties under

the New Iberia management contract.

In addition, a fax from Disney and Bingham’s attorney to Kirchner’s attorney

just prior to the execution of the stock purchase agreement shows that an earlier draft

of ¶ 6.4 expressly referred to Kirchner as assuming the risk of “obligations Genesee

Appellate Case: 05-1103 Page: 7 Date Filed: 12/29/2005 Entry ID: 1991073
-8-

may have under the management contract between Genesee and SSI (‘Management

Contract’).” Id., Exhibit I. Genesee contends that the removal of “SSI” from ¶ 6.4 of

the penultimate draft of the stock purchase agreement evidences Kirchner’s intent not

to assume the risk of a liability to SSI. This contention is not supported by the

circumstances. The fax states that Disney and Bingham felt that “SSI” should be

changed to “New Iberia” in the final draft of ¶ 6.4 only because “there is no SSI

management contract.” Id. First, it was Disney and Bingham, not Kirchner, who

suggested replacing “SSI” with “New Iberia,” so the change yields no evidence about

Kirchner’s intent. Second, the evidence shows that Disney and Bingham replaced

“SSI” with “New Iberia” because ¶ 6.4 refers to a “Management Contract,” but there

was no formal management contract with SSI governing its involvement with New

Iberia. Disney and Bingham felt that if “SSI” were named as the antecedent reference

to the “Management Contract,” it might erroneously imply that Kirchner assumed the

risk of SSI’s claims only if those claims were based on a separate formal agreement

with SSI. In other words, the drafting change was made to strengthen, not cancel, the

inclusion of SSI’s potential claims under the New Iberia management contract in the

liabilities disclosed by ¶ 6.4. 

In summary, Genesee raises no genuine issue of material fact as to whether

Kirchner assumed the risk of a liability to SSI under ¶ 6.4 of the stock purchase

agreement. Therefore, Disney and Bingham are entitled to judgment as a matter of

law on Genesee’s claim that they breached the stock purchase agreement. Because

Genesee can prove no breach of the stock purchase agreement, the indemnity

provision in ¶ 10.2(a) cannot be invoked, and we need not consider whether Genesee

successfully pleaded an individual loss by Kirchner as required by that provision.

Accordingly, we affirm the judgment of the district court.

Appellate Case: 05-1103 Page: 8 Date Filed: 12/29/2005 Entry ID: 1991073
-9-

III. CONCLUSION

We conclude that the district court did not err in granting judgment to Disney

and Bingham on Genesee’s third-party indemnification claim. Therefore, we affirm

the judgment of the district court.

______________________________

Appellate Case: 05-1103 Page: 9 Date Filed: 12/29/2005 Entry ID: 1991073