Opinion ID: 797240
Heading Depth: 2
Heading Rank: 2

Heading: additional claims on appeal

Text: 65 On appeal, Defendant challenges several of the district court's conclusions of law, alleging: (1) Plaintiffs' application for and acceptance of capital payments effectively modified the contract such that the stop loss claims would be subject to the DRG-based payment system; (2) Plaintiffs waived their rights to payment under the stop loss provision and decisively communicated . . . intent to waive by certifying, for purposes of capital payment, that those claims were subject to DRG-based payment, (Def.'s Br. at 38) Additionally, Defendant asserted defenses of equitable estoppel, failure to mitigate, and laches. 10 Finally, Defendant claims the district court abused its discretion in awarding prejudgment interest.
66 Defendant posits that Plaintiffs' application for and acceptance of capital payments effectively modified the contract. In Defendant's view, Plaintiffs demonstratively assented to modify the Agreement by certifying that the inpatient stop loss claims were subject to the DRG-based payment system. Moreover, Defendant contends that the capital payments themselves constitute consideration. The district court concluded that [t]he evidence did not reveal a meeting of the minds or an exchange of consideration necessary to support defendant's claim of modification. Baptist Physician II, 415 F.Supp.2d at 851. We review the district court's conclusions of law de novo. See Kalamazoo River Study Group, 355 F.3d at 589. In doing so, we uphold the district court's determination that the parties did not validly modify the Agreement. 67 Tennessee substantive law controls in the instant case, as it comes before us on diversity. In Tennessee, the parties to an existing contract can modify its terms at any time. Bonastia v. Berman Bros., Inc., 914 F.Supp. 1533, 1538 (W.D.Tenn.1995). However, an existing contract cannot be unilaterally modified. Balderacchi v. Ruth, 36 Tenn.App. 421, 256 S.W.2d 390, 391 (Tenn.Ct.App.1952). Rather, valid modification requires the same mutuality of assent and meeting of the minds as required to make a contract in the first instance. Id.; see also Prudential Sec., Inc. v. Mills, 944 F.Supp. 631, 635 (W.D.Tenn.1996). Additionally, consideration must be exchanged to effect modification of an existing contract. Boyd v. McCarty, 142 Tenn. 670, 222 S.W. 528, 529-30 (Tenn.1920). Importantly for our purpose today though, [p]erforming what was already promised in the original contract is not consideration to support a second contract. Dunlop Tire & Rubber Corp. v. Serv. Merch. Co., 667 S.W.2d 754, 758-59 (Tenn.Ct.App.1983) (citing Am. Fruit Growers, Inc. v. Hawkinson, 21 Tenn.App. 127, 106 S.W.2d 564 (Tenn.Ct. App.1937)). 68 To show mutual assent, Defendant relies on the certifications Plaintiffs submitted requesting capital payments. We cannot agree that the certifications manifest Plaintiffs' intent to modify the Agreement and forego payment under the stop loss provisions therein contained. As previously discussed at length, neither the statute, nor the implementing regulations, nor the policy manual preclude Plaintiffs, as preferred network providers, from requesting and receiving capital payments. This is so notwithstanding the operation of an Agreement establishing a negotiated rate of reimbursement for inpatient care which exceeds 100% of the DRG-rate. Although Defendant, and other MCS Contractors, can expressly provide that negotiated rates include costs otherwise additionally payable under the statute and regulations, such as capital costs, providers remain eligible to receive such additional payments upon request. See TRICARE/CHAMPUS Policy Manual, 6010.53-M, Ch. 6, Section 8 at III.B.4.d. ( available at J.A. 1057-58). 69 Defendant analogizes the instant case to Bonastia. There, a company hired the plaintiff as an account manager and by letter conveyed that plaintiff's annual salary will be $62,400 for the next two years. Bonastia, 914 F.Supp. at 1535. On his first day of work, the plaintiff signed a document acknowledging that he read and received the company's Employee Handbook and agrees to abide by the policies, procedures, and rules it contains. Id. The document continues, however, and clarifies that the Employee Handbook is not, and is not intended to be, a contract of employment, and that the plaintiff's employment is `at will.' Id. Nearly a year later, the plaintiff signed yet another copy of the acknowledgment form. Id. Less than two years after reporting to work, the company terminated the plaintiff, who then sued for breach of an employment contract. Id. at 1535-36. The court in Bonastia assumed that the company's letter constituted a binding two-year employment contract, but found the second acknowledgment form modified that contract to create an employment at-will arrangement. Id. at 1538-39. 70 Bonastia is not on point. Defendant likens Plaintiffs' capital payment certifications to the acknowledgment form in Bonastia. The acknowledgment form indicates an agreement to comply with the policies and procedures of the Employee Handbook. The capital payment certifications, however, do not reference the regulations, policies, or procedures governing TRICARE/CHAMPUS and, even if they did, those regulations and policies comprise a complex federal regulatory scheme devoid of a definition of DRG-based payment. Ambiguously, the phrase units subject to DRG-based payment appears at two places in the certification forms — both under inpatient days and under total TRICARE/CHAMPUS inpatient days. ( See J.A. at 1343) What is more, the information certified must comport with information submitted in the hospital's Medicare cost report and DRG-based payment is a phrase with its origins under the Medicare program. Thus, unlike the rather straightforward acknowledgment form in Bonastia, the signature of which could appropriately be taken to manifest intent, Plaintiffs' certifications for capital payment in the case at hand cannot be employed to demonstrate Plaintiffs' intent. 71 At any rate, Defendant cannot show valid consideration. The Agreement did not strip Plaintiffs of their entitlement to capital payment, even for the stop loss claims. In making capital payments to Plaintiffs, Defendant's government benefits administrator merely performed consistently with a pre-existing duty under the Agreement and the applicable regulations. See Dunlop Tire & Rubber Corp., 667 S.W.2d at 758-59. Additionally, under the TRICARE/CHAMPUS regulations and policies, Defendant's government benefits administrator made capital payments independently of Plaintiffs' regularly submitted claims for reimbursement under the Agreement. These constitute pass-through payments and, accordingly, although Plaintiffs submitted their capital payment requests to Defendant's government benefits administrator, the payments themselves flow directly from the federal government. See 32 C.F.R. § 199.14(a)(1)(iii)(G)(3) ( CHAMPUS shall reimburse the hospital its share of actual capital costs.) (emphasis added); see also General Accounting Office, Defense Health Program (DHP), B-287619, (July 5, 2001), http://redbook.gao.gov/17/fl0083859.php (For payment of pass through costs, the contractor provides information to DOD to seek approval for payment. If DOD approves payment, the contractor is notified to pay the claim.). Thus, Defendant's claim of modification falls on two swords. We affirm the district court on this claim.
72 Defendant asserts that Plaintiffs waived their right to receive stop loss payments. To support this claim, Defendant states that, in early 1999, Plaintiffs knew of the stop loss underpayment and of Defendant's actions in capping those claims at 100% of the DRG-rate and, yet, did not terminate the Agreement. Defendant further relies on Plaintiffs' capital payment certifications as evidence of intent to waive. In fact, on more than one occasion, Defendant goes so far as to classify Plaintiffs' submission of capital payment requests as unequivocal and decisive acts. (Def.'s Br. at 35, 37) The district court concluded, as a matter of law, that Plaintiffs did not intentionally and knowingly waive[] their rights to receive payments pursuant to the stop loss provisions, nor did Plaintiffs manifest any such intent. Baptist Physician II, 415 F.Supp.2d at 851. Reviewing this issue de novo, see Kalamazoo River Study Group, 355 F.3d at 589, we agree with the district court that Plaintiffs did not waive their right to payment under the stop loss provisions. 73 Waiver is the knowing and intentional relinquishment or abandonment of a known right. Gitter v. Tenn. Farmers Mut. Ins. Co., 60 Tenn.App. 698, 450 S.W.2d 780, 784 (Tenn.Ct.App.1969); Faught v. Estate of Faught, 730 S.W.2d 323, 325 (Tenn.1987). There can, therefore, be no effective waiver of rights where a party either does not know its rights or fails to fully understand those rights. Faught, 730 S.W.2d at 326. Put another way, intent to waive is required. Waiver may be proved by express declaration; or by acts and declarations manifesting an intent and purpose not to claim the supposed advantage; or by a course of acts and conduct. Reed v. Wash. County Bd. of Educ., 756 S.W.2d 250, 255 (Tenn.1988); see also Faught, 730 S.W.2d. at 326; Gitter, 450 S.W.2d at 784. Where a party seeks to prove waiver by course of conduct, there must be clear, unequivocal and decisive acts of the party or an act which shows determination not to have the benefit intended in order to constitute a waiver. Gitter, 450 S.W.2d at 784 (citing Webb v. Bd. of Trs. of Webb Sch., 38 Tenn. App. 173, 271 S.W.2d 6, 19 (1954)). 74 Plaintiffs did not knowingly relinquish their rights to reimbursement. At the time Plaintiffs entered into the Agreement, Plaintiffs lacked the resources necessary to adequately monitor third party payor compliance with agreed-upon contract terms and, thus, to identify underpayments. To more closely track payments, Plaintiffs acquired new payment tracking software (PCMS) and hired a contract analyst whose primary task was to monitor payments. Plaintiffs loaded their contract with Defendant into the PCMS system in November 1998 and, in early 1999, Plaintiffs learned — through Hodge, its contract analyst — that Defendant had been reimbursing stop loss claims at an amount lower than the stop loss amounts. 75 Plaintiffs' contract analyst began conversations with Defendant in February 1999 to secure full payment of the stop loss claims. On July 22, 1999, she wrote to Defendant's government benefits administrator demanding full payment of the stop loss claims. Plaintiffs never communicated an intent to waive Plaintiffs' rights under the Agreement, nor did Plaintiffs intend to waive those rights. By letter dated February 5, 2001, Defendant ultimately terminated the Agreement with Plaintiffs because they had reached an impasse on the amount due under the stop loss provisions. Additionally, Plaintiffs' request and receipt of capital payments cannot be deemed clear, unequivocal and decisive acts . . . which show[] determination not to have the benefit intended. See Gitter, 450 S.W.2d at 784. Our exploration of the regulatory scheme underlying the TRICARE/CHAMPUS program prove as much. Consequently, we find that Plaintiffs did not waive their rights under the Agreement. 11 76
77 The district court concluded that the doctrine of laches did not bar Plaintiffs' claim since Plaintiffs took action to obtain full reimbursement upon learning of the underpayment and filed suit when [it] felt it had exhausted all options of receiving payment. Baptist Physician II, 415 F.Supp.2d at 852. Additionally, the district court determined that, after learning of the breach, Plaintiffs did not fail to mitigate damages. Defendant challenges these conclusions. Again, we review de novo, see Kalamazoo River Study Group, 355 F.3d at 589, and Defendant's claims fail. 78 [E]quitable defenses may bar purely legal claims. M.J. Jansen v. Clayton, 816 S.W.2d 49, 52 (Tenn.Ct.App.1991). To successfully invoke the doctrine of laches, a defendant must show an inexcusably long delay in commencing the action which causes prejudice to the other party, and mere delay will not suffice. Patton v. Bearden, 8 F.3d 343, 347 (6th Cir.1993) (internal citations omitted); see also M.J. Jansen, 816 S.W.2d at 51. A finding of sufficient prejudice frequently follows from the death of witnesses[,] . . . the loss of evidence, M.J. Jansen, 816 S.W.2d at 52 (collecting cases), or failure of memory resulting in obscuration of facts which render uncertain the ascertainment of truth, and make it impossible for the court to pronounce a decree with confidence. Brown v. Ogle, 46 S.W.3d 721, 727 (Tenn. Ct.App.2000). 79 Laches does not bar Plaintiffs' claim. Plaintiffs timely filed this suit within the applicable statute of limitations. See Tenn.Code Ann. § 28-3-109 (six-year statute of limitations). Moreover, Plaintiffs filed suit in December 2001 — ten months after Defendant notified Plaintiffs of its intent to terminate the Agreement following impasse, seven months after the effective termination date, and approximately two years and ten months following discovery of the underpayments. Up until February 1999, Plaintiffs did not know that Defendant was reimbursing its stop loss claims at below the agreed-upon rate. At that time, Plaintiffs' contract analyst began conversations with Defendant to secure full payment of the stop loss claims. On July 22, 1999, the analyst wrote to Defendant's claims administrator demanding full payment of the stop loss claims. This delay does not rise to the level of inexcusably long. Further, Defendant has not shown that it suffered prejudice in the form of lost evidence, deceased witnesses, or failed memory sufficient to impede the truth-finding process. See M.J. Jansen, 816 S.W.2d at 52; Brown, 46 S.W.3d at 727. 80 Neither can Defendant succeed on its claim of failure to mitigate. The party alleging breach of contract has a legal duty to exercise reasonable and ordinary care under the[] circumstances to prevent and diminish the damages. ACG, Inc. v. Se. Elevator, Inc., 912 S.W.2d 163, 169 (Tenn.Ct.App.1995). Although the injured party must take reasonable and ordinary steps to mitigate, [o]ne is not required . . . to make extraordinary efforts. Id. (citing Arkansas River Packet Co. v. Hobbs, 105 Tenn. 29, 58 S.W. 278, 282 (Tenn.1900)). Plaintiffs acted with reasonable and ordinary care by informing Defendant promptly upon discovery that, in their view, Defendant was in breach of the Agreement's stop loss provisions. Plaintiffs pressed their view in a subsequent letter and phone call with Defendant. Defendant concedes in its brief that it terminated the Agreement with Plaintiffs in February 2001 because [Plaintiffs] insisted on being paid the full stop loss, and in excess of DRG. (Def.'s Br. at 21) Defendant knew of this insistence long before February 2001. Plaintiffs were not required to make extraordinary efforts to further clarify their position for Defendant's benefit. See ACG, Inc., 912 S.W.2d at 169. Consequently, we find that the district court correctly ruled that the defense of laches does not bar Plaintiffs' claim, and that Plaintiffs took reasonable steps to mitigate.
81 Defendant further argues that the district court abused its discretion in awarding prejudgment interest because [u]p to the day of trial the number and amount of stop loss claims was contested. (Def.'s Br. at 46) The district court awarded prejudgment interest at a rate of ten percent per annum from the date that payment was actually posted on each inpatient claim improperly reimbursed. Baptist Physician II, 415 F.Supp.2d at 853. In so doing, the district court observed that Plaintiffs ha[d] remained without the use of the money and [Defendant] could have entirely avoided the dispute . . . had it simply disclosed to [Plaintiffs] prior to signing the Agreement that it had no intention of paying more than CHAMPUS DRG on those claims. Id. On review, challenges to the district court's award of prejudgment interest 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); see also Daily v. Gusto Records, Inc., 14 Fed.Appx. 579, 591 (6th Cir.2001) (noting that state law determines the appropriate standard of review). We find no abuse of discretion. 82 Where consistent with principles of justice and equity, Tennessee Code provides for the award of prejudgment interest at a rate not to exceed ten percent per annum. Tenn.Code Ann. § 47-14-123. First and foremost, principles of equity guide trial courts in exercising their discretion to award prejudgment interest. Myint, 970 S.W.2d at 927; see also Otis v. Cambridge Mut. Fire Ins. Co., 850 S.W.2d 439, 447 (Tenn.1992). Second, a trial court will more readily award prejudgment interest when the amount of the obligation is certain, or can be ascertained by proper accounting. Myint, 970 S.W.2d at 927 (citing Mitchell v. Mitchell, 876 S.W.2d 830, 832 (Tenn.1994)). Third, interest is allowed when the existence of the obligation itself is not disputed on reasonable grounds. Id. While useful as guideposts, the Tennessee Supreme Court has observed that these criteria have not been used to deny prejudgment interest in every case where the defendant reasonably disputed the existence or amount of an obligation. Id. 83 The district court did not abuse its discretion in awarding prejudgment interest. First, the award is consistent with principles of equity. Defendant entered into the Agreement knowing full well it had no intention of ever paying over 100% of the CHAMPUS DRG-rate on the stop loss claims. Defendant deliberately failed to reimburse Plaintiffs according to the stop loss provisions, and thereby deprived Plaintiffs of the use of the difference in reimbursement. Second, the parties stipulated to the accuracy, and admissibility of a list detailing the inpatient claims at issue in the case. (J.A. at 1568, 1570-74) Thus, the amount of the obligation could be readily ascertained by proper accounting. See Myint, 970 S.W.2d at 927. Finally, although Defendant disputed Plaintiffs' claim of breach, it did not reasonably dispute the claim in light of its intent from the start of the Agreement not to honor the stop loss reimbursement provisions contained therein. Accordingly, we find the district court did not abuse its discretion in awarding prejudgment interest.
84 At the outset, Defendant's brief contemplates challenges to the district court's conclusions on Defendant's equitable estoppel claim and its counterclaim. However, Defendant's brief is notably devoid of any developed argumentation on these issues. Accordingly, Defendant has waived these challenges. See Moore, 458 F.3d at 448; Indeck Energy Servs., Inc., 250 F.3d at 979.