Opinion ID: 2516790
Heading Depth: 2
Heading Rank: 3

Heading: whether dr. hardy's contract is enforceable against successor boards of trustees

Text: ¶ 13 Dr. Hardy maintains the district court erred in concluding that his contract was voidable because it bound successor boards. [2] Relying on the governmental/proprietary test, Dr. Hardy argues that his contract for pathological services involves a proprietary function and therefore was enforceable against successor boards provided it is of a reasonable duration. We agree.
¶ 14 The factors on which courts have relied to distinguish between governmental and proprietary contracts strongly support the conclusion that Dr. Hardy's contract for pathological services involves a proprietary function. First, UBMC has not demonstrated that the services Dr. Hardy provides under the contract are indispensable to the proper functioning of government. County Council v. SHL Systemhouse Corp., 60 F.Supp.2d 456, 465 (E.D.Pa.1999). To the contrary, consistent with the view that Dr. Hardy's contract did not involve functions essential to governance, Duchesne County conveyed the hospital to a non-profit organization on July 3, 2000. ¶ 15 Moreover, under the terms of the contract, Dr. Hardy merely recommended, but did not have authority to set, policies related to UBMC's pathology laboratory. The board's retention of this policymaking discretion weighs heavily in favor of deeming the contract proprietary. See Rhode Island Student Loan Auth. v. NELS, Inc., 550 A.2d 624, 627 (R.I.1988) (concluding contract was proprietary because contracting party could neither exercise discretion nor set policy in performance of its duties). ¶ 16 Accordingly, we conclude that Dr. Hardy's contract involves a proprietary function.
¶ 17 Under the governmental/proprietary test, Dr. Hardy's proprietary contract is enforceable if its duration was reasonable at the time the parties executed the contract. Bair, 6 Utah 2d at 148, 307 P.2d at 902. Whether a contract's duration is reasonable depends on the circumstances of each case. See, e.g., id., 6 Utah 2d at 143, 148, 307 P.2d at 899, 903 (holding that a fifty-year sewage treatment contract was valid because its lengthy duration allowed city to obtain treatment facilities without undue delay and expense, and also facilitated long-term planning). Depending on the circumstances, a lengthy or indefinite contractual duration is not necessarily unreasonable. See id.; see also Salt Lake City, 22 Utah 2d at 42, 448 P.2d at 354 (validating contract that required city to provide free water to land as long as the land served as the state capitol grounds, noting that city derives continuing economic benefit from capitol's presence). ¶ 18 As the record has been inadequately developed on the issue of the reasonableness of the contract's duration, we remand to permit the district court to allow further development of the record and to then make this determination. On remand, as a preliminary matter, the district court should interpret the intended scope of the contract's just cause provision, [3] since the reasonableness of the contract's duration depends in large part on the amount of discretion this provision gives to successor boards. For example, if the just cause provision gives successor boards broad discretion to terminate Dr. Hardy (e.g., to improve patient care, for fiscal considerations), the contract is more likely to be of a reasonable duration than if the just cause provision permitted termination only for deficient job performance. In evaluating whether the duration is reasonable, the district court may also find it useful to compare Dr. Hardy's contract to the agreements UBMC typically enters into with medical professionals. For example, UBMC's bylaws concerning its medical staff suggest that UBMC routinely enters into agreements under which the only practical durational limit is a liberally-construed just cause provision. [4] The extent to which the durational limitations in Dr. Hardy's contract conform to UBMC's usual practices in similar situations may factor into the district court's reasonableness assessment. ¶ 19 If the district court determines that the contract's duration is reasonable, the contract is enforceable. The court should then determine whether the UBMC board had just cause to terminate Dr. Hardy. On the other hand, if the district court determines that the contract's duration is unreasonable, the court should not enforce the contract. ¶ 20 The dissent maintains that a term should be implied into Dr. Hardy's contract. In support of its argument, the dissent relies on canons of construction that have been developed to aid courts in discerning the parties' intent when a contract fails to specify a duration. We reject the dissent's position for several reasons. First, and most importantly, neither party has argued in their briefs in favor of implying a term. To the contrary, both parties maintain that the contract should be evaluated as an indefinite-length contract whose duration is limited only by the just cause provision. [5] In effect, then, the parties have implicitly stipulated that the contract has an indefinite term. [6] Implying a term would therefore result in a contract that is contrary to the intent of either party and violate the preeminent goal of contractual interpretation (i.e., to give effect to the intent of the parties). Buehner Block Co. v. UWC Assocs., 752 P.2d 892, 895 (Utah 1988). Accordingly, because the parties agree that the contract should be treated as an indefinite-length contract, there is no need to rely on canons of construction for resolving ambiguities over whether the parties intended the contract be of indefinite duration. [7] ¶ 21 Second, conspicuously absent from the dissent's analysis is any citation to Utah precedent that supports its position. Contrary to the dissent's position, when a contract for employment or personal services does not recite a fixed term, the law in Utah does not call for the judicial reformation of the contract to impose a term, especially where, as here, neither party disputes the contract was of indefinite duration. Indeed, in a case in which we traced the historical development of the law associated with employment contracts, we specifically noted that courts long ago repudiated a common law rule under which a term was implied when an employment contract did not specify a duration. Berube v. Fashion Centre, Ltd., 771 P.2d 1033, 1040-41 (Utah 1989). [8] In its place, courts in Utah and elsewhere adopted the at-will employment rule, under which employment contracts that did not specify a duration were generally presumed to be terminable at will. Id. at 1041. In time, Utah recognized an exception under which an employee could rebut the at-will presumption associated with indefinite-length contracts by showing the parties intended the contract be terminable for cause. Johnson, 818 P.2d at 1000-01 & n. 9; see also Brehany v. Nordstrom, Inc., 812 P.2d 49, 54 (Utah 1991). Significantly, nothing in Johnson, Brehany, or Berube suggests that a court should sua sponte impose a term on an indefinite-length employment contract that provides for termination for cause. ¶ 22 Applying Utah precedent to Dr. Hardy's contract confirms our view that a term should not be read into the contract. First, because Dr. Hardy's contract does not specify a duration, under Utah law we initially presume it is of indefinite duration but terminable at will. Berube, 771 P.2d at 1040-41. We do not apply the long-since rejected rule that previously required the implication of a term. Id. Second, we consider whether any of the exceptions to the at-will rule applies. In this regard, we note that the parties expressly provided the contract was terminable for just cause. We further note that the parties agree in their appellate briefs that the contract is of indefinite length and terminable only for just cause. Accordingly, we conclude that the at-will presumption has been rebutted and Dr. Hardy's indefinite-length contract is terminable for just cause. Johnson, 818 P.2d at 1000-01 & n. 9; see also Brehany, 812 P.2d at 54. [9] ¶ 23 Finally, we disagree with the dissent's contention that the imposition of a term is justified as a means of easing the calculation of prospective damages. [10] The dissent itself concedes that parties can contract for an indefinite term. In making this concession, the dissent implicitly acknowledges that, to give effect to the parties' intent, courts inevitably and routinely need to determine damages associated with a breach of an indefinite employment contract. In making such determinations, courts have relied on various factors in addressing the kinds of concerns raised by the dissent: While a district court has considerable experience in calculating future earnings, some basis must appear in the record for such an award. Some of the factors which district courts have employed to alleviate the speculative nature of future damage awards include an employee's duty to mitigate, the availability of employment opportunities, the period within which one by reasonable efforts may be re-employed, the employee's work and life expectancy, the discount tables to determine the present value of future damages and other factors that are pertinent on prospective damage awards. Shore v. Fed. Express Corp., 777 F.2d 1155, 1160 (6th Cir.1985) (quoting Koyen v. Consol. Edison Co., 560 F.Supp. 1161, 1168-69 (S.D.N.Y.1983)). It is not difficult to determine the . . . factors that are pertinent on prospective damage awards. Koyen, 560 F.Supp. at 1168-69. Regardless, while the determination of damages presents challenges, so would the determination of a reasonable duration, especially when both parties on appeal appear resistant to the imposition of a term.