Opinion ID: 794393
Heading Depth: 3
Heading Rank: 2

Heading: The Implied-in-Fact Contract Claims

Text: 19 With regard to the claims of the hospitals without CHAs — Montefiore, the Hospital for Special Surgery, and Lennox Hill after June 8, 1995 — a different analysis applies. Both Horizon and these three hospitals seem to agree that their relationships were based on implied-in-fact contracts. However, the District Court considered the CHAs abrogated in their entirety and treated Horizon and all the Hospitals as if they were subject to implied-in-fact-contracts. We proceed to analyze the implied-in-fact contract claims insofar as they relate to the hospitals without CHAs. 20 Under New York law, the conduct of the parties may lead to the inference of a binding agreement: 21 A contract implied in fact may result as an inference from the facts and circumstances of the case, although not formally stated in words, and is derived from the presumed intention of the parties as indicated by their conduct. It is just as binding as an express contract arising from declared intention, since in the law there is no distinction between agreements made by words and those made by conduct. 22 Jemzura v. Jemzura, 36 N.Y.2d 496, 503-04, 369 N.Y.S.2d 400, 330 N.E.2d 414 (N.Y. 1975) (internal citations omitted). New Jersey law provides the same: [C]ontracts implied in fact are no different than express contracts, although they exhibit a different way or form of expressing assent than through statements or writings. Courts often find and enforce implied promises by interpretation of a promisor's word and conduct in light of the surrounding circumstances. Wanaque Borough Sewerage Auth. v. Twp. of W. Milford, 144 N.J. 564, 574, 677 A.2d 747, 752 (N.J.1996) (citing Restatement (Second) of Contracts §§ 4 cmt. a, 5 cmt. a (1979)). The terms of an implied-in-fact contract turn on the conduct of the parties. See Watts v. Columbia Artists Mgmt. Inc., 188 A.D.2d 799, 801, 591 N.Y.S.2d 234 (3d Dep't 1992) (citing Jemzura, 36 N.Y.2d at 503-04, 369 N.Y.S.2d 400, 330 N.E.2d 414). The conduct of the parties in this case demonstrates that the implied-in-fact contract terms called for reimbursement at the equivalent of the Standard Rate, inasmuch as payments were made and accepted without objection at that rate. 4 This Court also must look to the conduct of the parties to determine whether the implied-in-fact contract terms include either a limitation of action provision or a choice of law provision, as did the CHAs. On the Record before us, we cannot say that the parties' course of conduct provides any evidence of the adoption of such specific terms. This Court must therefore determine whether New York or New Jersey law applies to these claims and the effect of that law. 23
24 A federal court exercising diversity jurisdiction must apply the choice of law analysis of the forum state. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Gilbert v. Seton Hall Univ., 332 F.3d 105, 109 (2d Cir.2003). Here, the forum state is New York, as the action was properly venued in the United States District Court for the Eastern District of New York. We therefore apply New York choice of law analysis. 25 The New York Court of Appeals has held that the first step in any case presenting a potential choice of law issue is to determine whether there is an actual conflict between the laws of the jurisdictions involved. In re Allstate Ins. Co. (Stolarz), 81 N.Y.2d 219, 223, 597 N.Y.S.2d 904, 613 N.E.2d 936 (1993); see also Zurich Ins. v. Shearson Lehman Hutton, Inc., 84 N.Y.2d 309, 618 N.Y.S.2d 609, 642 N.E.2d 1065 (1994). In this case the answer to that inquiry clearly is yes. Under New York's NYPHRM, these hospitals were entitled to a greater rate of reimbursement from Horizon than under New Jersey law, which permitted Horizon to enter contracts to pay these hospitals at reduced rates. 26 The New York Court of Appeals has held, in contract cases, that the center of gravity or grouping of contacts analysis is to be applied in choice of law situations. Stolarz, 81 N.Y.2d at 226, 597 N.Y.S.2d 904, 613 N.E.2d 936 (1993). The center of gravity or grouping of contacts choice of law theory allows a court to consider a spectrum of significant contacts. Stolarz, 81 N.Y.2d at 225-26, 597 N.Y.S.2d 904, 613 N.E.2d 936. In Stolarz, the New York Court of Appeals listed several factors which should be considered in a conflict of law analysis in a contract case. These factors include the place of contracting, negotiation and performance; the location of the subject matter of the contract; and the domicile of the contracting parties. Id. at 227, 597 N.Y.S.2d 904, 613 N.E.2d 936 (citing Restatement (Second) of Conflict of Laws, § 188(2) (1971)). Given these factors, we determine that New York law should apply to these implied in-fact-contracts. The most significant contacts here were the rendering of hospital services in New York, the billing by the Hospitals in New York, and the New York domicile of all the Hospitals. law. We note moreover that New York has an important interest in maintaining the viability of hospitals in the state through the setting of appropriate rates. See Zurich Ins. Co., 84 N.Y.2d at 317, 618 N.Y.S.2d 609, 642 N.E.2d 1065 (The purpose of grouping contacts is to establish which State has `the most significant relationship to the transaction and the parties.' (quoting Restatement (Second) of Conflict of Laws § 188(1) (1971))). 27
28 Horizon argues that, in the event this Court determines that New York law governs these contracts, the NYPHRM did not affect any right which had accrued prior to its enactment and, therefore, that Horizon's pre-NYPHRM contracts (whether express or implied-in-fact) were unaffected by the NYPHRM. The basis of this argument can be found in the session law enacting the NYPHRM. Section twenty-four of that session law (chapter two), dealing with effective dates and retroactivity of the NYPHRM, provides: This act shall not be construed to alter, change, affect, impair or defeat any rights, obligations, duties or interests accrued, incurred or conferred prior to the enactment of this act. 1988 N.Y. Sess. Laws 44 (McKinney). 29 The District Court rejected this argument, determining that the statutory language of the NYPHRM demonstrated that 30 [t]he legislature clearly intended to set the rates of payment from [the point of NYPHRM's enactment] forward and did not intend to exclude pre-existing contracts with foreign insurers from the statute. Rather, the legislature was simply trying to ensure that any costs that accrued prior to January 1, 1988 [the effective date of the rate provisions, see 1988 N.Y. Sess. Laws 44 (McKinney)] were not subject to the terms of the statute. Thus, [Horizon] is not exempt from the terms of the NYPHRM because of the Alteration [C]lause. 31 We agree with the rationale and conclusion of the District Court. Neither section twenty-four, nor any other provision of the NYPHRM, insulates these implied-in-fact contracts from the effects of the NYPHRM. 32
33 The District Court determined that the NYPHRM rate structure was not part of any implied-in-fact contract. First, the District Court noted that it had not been provided any authority . . . for the proposition that [a court] should read the rates of the statute into an implied[-in-fact] contract where both parties were clearly not performing according to the statute. Second, the District Court found that the NYPHRM clearly gave [the Hospitals] the right to demand higher rates of reimbursement, but it did not create a new implied[-in-fact] contract because the parties did not agree to the terms. The District Court therefore determined that the implied-in-fact contracts contained payment terms rendered illegal by the passage of [the] NYPHRM and analogized them to illegal contracts that could not be enforced by any party. 34 But this analogy is misplaced. The contracts at issue were not illegal in their subject matter or in their purpose. Cf. Stone v. Freeman, 298 N.Y. 268, 271, 82 N.E.2d 571 (N.Y.1948) (It is the settled law of this State (and probably of every other State) that a party to an illegal contract cannot ask a court of law to help him carry out his illegal object, nor can such a person plead or prove in any court a case in which he, as a basis for his claim, must show forth his illegal purpose. (citations omitted)). Instead, as with the CHAs, these are otherwise legitimate contracts that have been abrogated in part by a statute. In such cases, New York courts enforce those portions of the contracts that are not abrogated and apply the relevant statute to those abrogated portions. In Metropolitan Life Ins. Co. v. Conway, 252 N.Y. 449, 169 N.E. 642 (1930), for example, Chief Justice Cardozo, writing for the Court of Appeals, held that where an insurance policy rider was not approved by the New York Superintendent of Insurance, as required by New York Insurance Law, the rider is not invalid ipso facto unless in conflict with the provisions exacted by the statute. It is invalid even then to the extent of the conflict, and no farther. The statute reads itself into the contract, and displaces inconsistent terms.  Id. at 451-52, 169 N.E. 642 (emphasis added). Accordingly, the NYPHRM provides the relevant rates of reimbursement for these implied-in-fact contracts. 35
36 The District Court determined, as to the three hospitals not subject to a CHA, that summary judgment was unwarranted in regard to the claims that invoked the Foreign Blue Cross Exception. The District Court properly found contested issues of material fact regarding the extent to which Horizon used Empire as a payment agent, an element essential to a resolution of the Foreign Blue Cross Exception claims. See Fed.R.Civ.P. 56(c). We therefore must remand for further proceedings in relation to the implied-in-fact contract claims. We express here no opinion as to the District Court's conclusions as to the other two necessary elements of Horizon's eligibility for the Foreign Blue Cross Exception. 37
38 Horizon argues that, assuming it breached its contracts by not paying at the Self-Pay Rate, any breach has been waived by the Hospitals because they accepted the payments that it made without objecting or reserving any rights. 5 A breach of contract may be waived by the non-breaching party. See New York Tel. Co. v. Jamestown Tel. Corp., 282 N.Y. 365, 372, 26 N.E.2d 295 (N.Y.1940). See generally 22A N.Y. Jur.2d Contracts §§ 369, 430 (1996). The New York Court of Appeals has held that waiver of a contract right is the voluntary abandonment or relinquishment of a known [contract] right. It is essentially a matter of intent which must be proved. Jefpaul Garage Corp. v. Presbyterian Hosp., 61 N.Y.2d 442, 446, 474 N.Y.S.2d 458, 462 N.E.2d 1176 (1984) (citations omitted); Nassau Trust Co. v. Montrose Concrete Products Corp., 56 N.Y.2d 175, 184, 451 N.Y.S.2d 663, 436 N.E.2d 1265 (1982) ([W]aiver requires . . . the voluntary and intentional abandonment of a known [contract] right which, but for the waiver, would have been enforceable. (citation omitted)); see also Champion Spark Plug Co. v. Automobile Sundries Co., 273 F. 74, 79-80 (2d Cir.1921) (Waiver [of a contract right] depends upon the intention of the party who is charged with the waiver. It is an intentional abandonment or relinquishment of a known right or advantage.). 39 Because waiver of a contract right must be proved to be intentional, the defense of waiver requires a clear manifestation of an intent by plaintiff to relinquish her known right and mere silence, oversight or thoughtlessness in failing to object to a breach of the contract will not support a finding of waiver. Courtney-Clarke v. Rizzoli Intern. Publications, Inc., 251 A.D.2d 13, 676 N.Y.S.2d 529 (1st Dep't 1998); see also Champion Spark Plug Co., 273 F. at 79 (Oversight, carelessness, or thoughtlessness will not create a waiver. There must appear to be an intention to relinquish the right or advantage, and it must be proved.). [T]he intent to waive is usually a question of fact . . . . Jefpaul Garage Corp., 61 N.Y.2d at 448, 474 N.Y.S.2d 458, 462 N.E.2d 1176; see also Champion Spark Plug Co., 273 F. at 80 (So much depends upon the intention of the parties that, where such intent is disputed, it necessarily becomes a question for the determination of a jury.). 40 The Hospitals first argue that, no matter their intent, the doctrine of waiver is inapplicable here because the statutorily mandated rate under NYPHRM was not subject to waiver by the Hospitals. The Hospitals recognize, as they must, that any statutory or constitutional right ordinarily may be waived. However, the Hospitals point to the broad spectrum of public policies underlying NYPHRM's enactment and argue that it was not in the power of the Hospitals to frustrate the will of the Legislature either expressly or impliedly or through an alleged waiver or acquiescence. See Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, 707, 65 S.Ct. 895, 89 L.Ed. 1296 (1945) (Neither petitioner nor respondent suggests that the right to the basic statutory minimum wage could be waived by any employee subject to the [Fair Labor Standards] Act. No one can doubt but that to allow waiver of statutory wages by agreement would nullify the purposes of the Act.); see also Garofalo v. Empire Blue Cross and Blue Shield, 67 F.Supp.2d 343, 347-48 (S.D.N.Y.1999) (finding that the NYPHRM gives the insurer no discretion to vary this methodology, nor to contract around it). 41 The hospitals next argue that, in any event, no waiver can be found under the facts of this case. On the Record before us, there has been no express waiver of the hospitals' rights to greater recompense. There has, of course, been evidence that the hospitals never previously objected to the rate of reimbursement they were receiving, see supra note 4, but we cannot determine that this failure to object, as a matter of law, effects a waiver. See Jefpaul Garage Corp., 61 N.Y.2d at 448, 474 N.Y.S.2d 458, 462 N.E.2d 1176 ([T]he intent to waive is usually a question of fact . . . .); Courtney-Clarke, 251 A.D.2d at 13, 676 N.Y.S.2d 529 (The requisite clear manifestation of an intent by plaintiff to relinquish her known right to the royalty rate in the publishing agreement is not inferable, under the circumstances, from her mere silence, oversight or thoughtlessness in failing to object to the lower royalty rate she had been receiving, and thus the defense of waiver was properly dismissed. (citation omitted)); see also Champion Spark Plug Co., 273 F. at 79-80 (holding that waiver of a contract right is generally a question for the jury). Accordingly, and in view of the posture in which this issue comes to us, we must remand to the District Court to resolve issues related to the defense of waiver in the first instance. 42
43 New York law provides a six-year statute of limitations period for implied-in-fact contract claims. N.Y. C.P.L.R. § 213(2). As previously noted, this action sought recovery for claims accrued between January 1, 1991, and December 31, 1996. The initial Complaint was not filed until July 7, 1998, so at least some of these claims are barred by the statute of limitations. Moreover, the Hospital for Special Surgery was not added as a plaintiff until a later date still. Accordingly, on remand, the District Court will have to determine, in the first instance, which claims are timely and which are not.