Court Opinion

ID: 3151482
Source: CourtListenerOpinion
Date Created: 2015-11-03 13:05:25.238406+00
Date Added: 2024-06-11T11:46:47.058892
License: Public Domain

IN THE COURT OF APPEALS OF NORTH CAROLINA

                                        No. COA15-127

                               Filed: 3 November 2015

Wake County, No. 14 CVS 4167

WAKEMED, Plaintiff,

             v.

SURGICAL CARE AFFILIATES, LLC, Defendant.

      Appeal by plaintiff from order entered 4 August 2014 by Judge Paul C.

Ridgeway in Wake County Superior Court.             Heard in the Court of Appeals

13 August 2015.

      Smith Moore Leatherwood LLP, by Matthew Nis Leerberg, William R. Forstner,
      and Maureen Demarest Murray, for plaintiff-appellant.

      Wyrick Robbins Yates & Ponton LLP, by Paul J. Puryear, Jr., Frank
      Kirschbaum, and Tobias Hampson, for defendant-appellee.

      McCULLOUGH, Judge.

      Plaintiff WakeMed appeals from an order of the trial court, granting defendant

Surgical Care Affiliates, LLC’s motion to dismiss pursuant to Rule 12(b)(6) of the

North Carolina Rules of Civil Procedure. Based on the reasons stated herein, we

reverse the order of the trial court.

                                   I.       Background

      On 17 April 2014, plaintiff (otherwise referred to as “owner”) filed a complaint

against defendant (otherwise referred to as “manager”) alleging a breach of contract

claim. Plaintiff alleged that on or about 1 April 2010, plaintiff and defendant entered
                   WAKEMED V. SURGICAL CARE AFFILIATES, LLC

                                   Opinion of the Court

into two contracts: Management Agreement WakeMed Cary Hospital Surgery

Department (“Cary Agreement”) and Management Agreement WakeMed North

Healthplex    Surgical    Department      (“North         Agreement”)   (collectively   the

“Agreements”). The Agreements provided that defendant would manage the surgical

departments at two of plaintiff’s facilities for a monthly fee, pursuant to the

applicable terms and conditions. The Agreements had an initial term of seven years

with successive renewals of three years.           Either party could terminate the

Agreements upon sixty days’ written notice for a material breach, with an

opportunity for the breaching party to cure within this period.

      The complaint alleged that defendant undertook several duties under the

Agreements, “including the express obligation to reduce the costs associated with

surgical procedures” at WakeMed. Defendant was required to comply with “Global

Performance Standards” (“GPS”) which were attached to the Agreements and

incorporated by reference as part of the binding contracts. The GPS provided as

follows:

             The following criteria shall be used to measure and
             evaluate the overall performance of the Manager in the
             Department:

                  (a)    Reduction of average total cost per case
                         adjusted for type of procedure by 5% or
                         greater    from     pre-Agreement     levels
                         (adjusted for inflation), which may include
                         reductions in supply costs per case and
                         reductions in labor costs per case.

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                                     Opinion of the Court

                     (b)   Improvement of perioperative processes
                           from pre-Agreement levels, including
                           turnaround     times,     publicly-reported
                           clinical measures and on-time case starts.
                     (c)   Achievement of reasonably acceptable
                           surgeon and patient satisfaction targets, as
                           measured by a third party vendor mutually
                           agreed upon by the Owner and the
                           Manager.

                The failure by the Manager to satisfy criterion (a) above, or
                both criteria (b) and (c) above, shall constitute a material
                breach for purposes of Article I, Section 6 of the Agreement.

       Pursuant to Article I, Section 6 of the Agreements, failure to satisfy the GPS

constituted a “material breach” of the Agreements. Plaintiff alleged that defendant

failed to achieve a 5% reduction in cost per case and instead, the average total cost

per case increased during the time defendant served as manager. Defendant also

“failed to maintain surgeon satisfaction, surgical volume diminished, operating room

turnover rate decreased, and staff departures and turnover increased, all of which

were caused by [defendant’s] actions and resulted in a significant loss of revenue for

[plaintiff.]”

       The complaint further alleged that as a result of defendant’s material breach,

plaintiff terminated the Agreements in 2011. On 10 June 2011, plaintiff provided

written notice of breach to defendant, explicitly identifying defendant’s failure to

satisfy the GPS. The notice of breach permitted defendant to cure the breach within

sixty days, but plaintiff alleged that defendant failed to do so. By a letter dated

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                    WAKEMED V. SURGICAL CARE AFFILIATES, LLC

                                   Opinion of the Court

31 August 2011, plaintiff and defendant mutually agreed that the Agreements had

been terminated effective 15 August 2011, “except for a brief period of continued

retention of a surgical department manager.” The 31 August 2011 letter expressly

reserved the right of plaintiff to seek legal and equitable relief against defendant

pursuant to Article I, Section 9 of the Agreements. As a result of defendant’s breach

of contract, plaintiff alleged that it was damaged in excess of $10,000.00.

      On 13 May 2014, defendant filed a motion to dismiss plaintiff’s complaint

based upon insufficiency of process and service of process, failure to state a claim

upon which relief can be granted, and in the alternative, for summary judgment on

the defense of the statute of limitations only pursuant to N.C. Gen. Stat. § 1A-1, Rules

12(b)(4), 12(b)(5), 12(b)(6), and Rule 56. Defendant argued that pursuant to Rule

12(b)(6), plaintiff failed to state a claim because the Agreements contained an

exclusive remedy of contract termination and plaintiff elected to exercise that

exclusive remedy in the termination of the Agreements. Defendant further argued

that it “did not guarantee that it would achieve any particular operating results for

plaintiff” and that plaintiff “explicitly agreed to indemnify and hold harmless

[defendant] from any claims arising out of [defendant’s] performance” under the

Agreements.

      A hearing on defendant’s motion was held at 24 July 2014 Civil Session of

Wake County Superior Court, the Honorable Paul Ridgeway presiding.                  On

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                                     Opinion of the Court

4 August 2014, the trial court entered an order granting defendant’s motion to

dismiss plaintiff’s complaint with prejudice on the theory that plaintiff’s claim is

“barred by the express language of the contract between the parties[.]”

         On 28 August 2014, plaintiff filed notice of appeal from the 4 August 2014

order.

                               II.     Standard of Review

         “In reviewing a trial court’s Rule 12(b)(6) dismissal, the appellate court must

inquire whether, as a matter of law, the allegations of the complaint, treated as true,

are sufficient to state a claim upon which relief may be granted under some legal

theory.” Newberne v. Dep’t. of Crime Control & Pub. Safety, 359 N.C. 782, 784, 618
S.E.2d 201, 203 (2005) (citation and quotation marks omitted).           “A complaint is

properly dismissed pursuant to Rule 12(b)(6) when (1) the complaint, on its face,

reveals that no law supports the plaintiff’s claim; (2) the complaint, on its face, reveals

an absence of facts sufficient to make a good claim; or (3) some fact disclosed in the

complaint necessarily defeats the plaintiff’s claim.” Blow v. DSM Pharms., Inc., 197
N.C. App. 586, 588, 678 S.E.2d 245, 248 (2009).

         “[W]e review the pleadings de novo to determine their legal sufficiency and to

determine whether the trial court’s ruling on the motion to dismiss was correct.”

Gilmore v. Gilmore, __ N.C. App. __, __, 748 S.E.2d 42, 45 (2013) (citation and

quotation marks omitted).

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                    WAKEMED V. SURGICAL CARE AFFILIATES, LLC

                                    Opinion of the Court

                                    III.   Discussion

        This appeal centers around the interpretation of a single sentence found within

the Agreements; specifically, the last sentence of Article XII, Section 2. Article XII of

both Agreements is entitled “Indemnification” and provides as follows, in pertinent

part:

              1.      The Manager does not hereby assume any of the
              obligations, liabilities or debts of the Owner, except as
              otherwise expressly provided herein, and shall not, by
              virtue of its performance hereunder, assume or become
              liable for any of such obligations, debts or liabilities of the
              Owner. The Owner hereby agrees to indemnify and hold
              the Manager, its affiliates and owners, and their respective
              officers, governors, directors, employees, agents, owners
              and affiliates (each a “Manager Indemnified Party”)
              harmless from and against any and all claims, actions,
              liabilities, losses, costs and expenses of any nature
              whatsoever, including reasonable attorneys’ fees and other
              costs of investigating and defending any such claim or
              action (a “Loss”), which may be asserted against any of the
              Manger Indemnified Parties, arising out of or related to (i)
              the operation of the Department (excluding the acts or
              omissions of any Employees in the course of providing
              services in the Department), the Hospital and the Owner,
              (ii) the acts or omissions of the Department, the Hospital
              and the Owner or its agents or employees, and (iii) the
              Manager’s performance of its duties hereunder during the
              term of this Agreement, but excluding any Loss arising as
              a result of the gross negligence or willful misconduct of the
              Manager.

              2.     The Manager hereby agrees to indemnify and hold
              harmless the Owner and its members, officers, governors,
              directors, employees, agents, and affiliates (each an
              “Owner Indemnified Party”) from and against any and all
              Loss which may be asserted against an Owner Indemnified

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                    WAKEMED V. SURGICAL CARE AFFILIATES, LLC

                                   Opinion of the Court

             Party as a result of the gross negligence or willful
             misconduct of the Manager or its agents or employees in
             connection with the performance by the Manager of its
             duties hereunder. In no event shall the Manager be liable
             under this Agreement for any act of professional
             malpractice committed by any Medical Staff Physician, or
             other member of the Department’s Medical Staff. This
             Article XII Section 2 shall constitute the sole
             obligation of the Manager with respect to any Loss
             and any claims arising out of this Agreement, the
             services provided by the Manager and/or the
             relationship created hereby, whether such claim is
             based in contract, tort, fraud or otherwise.

(emphasis added).

      “[T]he goal of construction is to arrive at the intent of the parties when the

[contract] was [written.]” Reaves v. Hayes, 174 N.C. App. 341, 345, 620 S.E.2d 726,

729 (2005) (citation and quotation marks omitted). “[O]ur courts adhere to the central

principle of contract interpretation that [t]he various terms of the [contract] are to be

harmoniously construed, and if possible, every word and every provision is to be given

effect.” In re Foreclosure of a Deed of Trust, 210 N.C. App. 409, 415, 708 S.E.2d 174,

178 (2011) (citation and quotation marks omitted). “It is presumed that each part of

the contract means something.” Brown v. Lumbermens Mut. Casualty Co., 326 N.C.
387, 393, 390 S.E.2d 150, 153 (1990) (citation omitted).

      “A contract that is plain and unambiguous on its face will be interpreted by the

court as a matter of law. When an agreement is ambiguous and the intention of the

parties is unclear, however, interpretation of the contract is for the jury.” Commscope

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                    WAKEMED V. SURGICAL CARE AFFILIATES, LLC

                                   Opinion of the Court

Credit Union v. Butler & Burke, LLP, __ N.C. App. __, __, 764 S.E.2d 642, 651 (2014)

(citation omitted). “An ambiguity exists in a contract when either the meaning of

words or the effect of provisions is uncertain or capable of several reasonable

interpretations.” Variety Wholesalers, Inc. v. Salem Logistics Traffic Servs., LLC, 365
N.C. 520, 525, 723 S.E.2d 744, 748 (2012) (citation omitted). “The fact that a dispute

has arisen as to the parties’ interpretation of the contract is some indication that the

language of the contract is, at best, ambiguous.” Dockery v. Quality Plastic Custom

Molding, Inc., 144 N.C. App. 419, 422, 547 S.E.2d 850, 852 (2001) (citation omitted).

      In the current case, the clause at issue is found within Article XII, entitled

“Indemnification.” Where a contract does not define a term used, “non-technical

words are to be given their meaning in ordinary speech, unless the context clearly

indicates another meaning was intended.” Reaves, 174 N.C. App. at 345, 620 S.E.2d

at 729 (citation omitted).       Here, the Agreements do not define the term

“indemnification.” “Ordinarily, indemnity connotes liability for derivative fault. In

indemnity contracts the engagement is to make good and save another harmless from

loss on some obligation which he has incurred or is about to incur to a third party[.]”

Dixie Container Corp. v. Dale, 273 N.C. 624, 628, 160 S.E.2d 708, 711 (1968) (citation

omitted). “The court must construe the contract ‘as a whole’ and an indemnity

provision ‘must be appraised in relation to all other provisions.’ ” Schenkel & Shultz,

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                      WAKEMED V. SURGICAL CARE AFFILIATES, LLC

                                  Opinion of the Court

Inc. v. Hermon F. Fox & Assocs., P.C., 362 N.C. 269, 273, 658 S.E.2d 918, 921 (2008)

(citation omitted).

      On appeal, plaintiff argues that the trial court erred by concluding that

plaintiff’s claim is “barred by the express language of the contract between the

parties[.]” Plaintiff asserts that the trial court misread the disputed clause as an

unambiguous exculpatory clause when rather, it is an ordinary indemnity provision,

“further explaining the circumstances in which [defendant] would be obligated to

indemnify [plaintiff] against third-party claims.” Plaintiff contends that Section 1 of

Article XII sets forth circumstances where plaintiff would indemnify defendant for

third party claims made against defendant, even indemnifying defendant from claims

made against defendant by third parties to the extent they arose from defendant’s

mere negligence. On the other hand, plaintiff interprets Section 2 of Article XII as

setting forth circumstances where defendant would indemnify plaintiff for third party

claims against plaintiff arising from defendant’s gross negligence or willful

misconduct. Furthermore, plaintiff reads Section 2 as the parties agreeing that

defendant would not “be liable under this Agreement for any act of professional

malpractice committed by any Medical Staff Physician, or other member of the

Department’s Medical Staff.”

      More importantly, plaintiff argues that defendant’s express agreement to

indemnify plaintiff against third party claims arising from defendant’s gross

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                     WAKEMED V. SURGICAL CARE AFFILIATES, LLC

                                   Opinion of the Court

negligence and willful misconduct “is not the only way” in which defendant would be

obligated to indemnify plaintiff against third party claims. Plaintiff suggests that

indemnification obligations, regardless of defendant’s contractual indemnity

obligations, could arise in one of three ways – express contract, contract implied-in-

fact, or through equitable concepts arising from the tort theory of indemnity. Plaintiff

states as follows:

             For example, [defendant] promised to “[a]ssist Owner in
             negotiating or retaining contractual relationships for
             anesthesiology, radiology and pathology services, as
             appropriate” and to “[a]rrange for the purchase or lease by
             the Owner of all supplies and equipment.” . . . The
             circumstances relating to [defendant’s] negotiation of such
             contracts on behalf of [plaintiff] could, under appropriate
             facts, create a contract to indemnify implied-in-fact.
             Similarly, if [plaintiff] was secondarily or derivatively
             liable for any torts committed by [defendant] (e.g., in a
             lawsuit against [plaintiff] filed by, or relating to the actions
             of, an employee under [defendant’s] supervision and
             control), [plaintiff] could have a common law right to
             indemnification under a contract implied-in-law of
             primary/secondary liability.

Accordingly, plaintiff interprets the challenged clause as a “catch-all” provision “to

foreclose any such possible indemnification obligations for [defendant] . . . other than

those expressly delineated.” Plaintiff argues that the “catch-all” provision relieves

defendant of any other obligation to indemnify plaintiff whether arising in contract,

in tort, or otherwise.

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                    WAKEMED V. SURGICAL CARE AFFILIATES, LLC

                                   Opinion of the Court

      In contention with plaintiff’s interpretation, defendant argues that the clause

constitutes a clear and unambiguous, blended indemnity and exculpatory clause that

limits defendant’s liability under the Agreements. Defendant agrees with plaintiff’s

contention inasmuch as the last sentence in Section 2 of Article XII is a “catch-all” to

the indemnity provision, protecting defendant from extra-contractual circumstances

in which defendant is required to indemnify plaintiff. However, defendant argues

that the “plain language of the provision makes clear its application spans beyond

indemnity.” Defendant contends as follows:

             it states that the indemnity obligations of [defendant] are
             the sole obligation of [defendant] with respect to “any
             claims arising out of this Agreement . . . whether such
             claim is based in contract, tort, fraud or otherwise.” This
             language is unmistakably broader than an indemnity
             provision focused on protecting a party against “extra-
             contractual circumstances,” and contrary to [plaintiff’s]
             argument, speaks directly to contractual circumstances.

      Furthermore, defendant argues that reading the clause at issue, in conjunction

with Article XIII (entitled “Miscellaneous”), Section 9 of the Agreements, references

claims between the parties. Article XIII, Section 9 provides as follows:

             The terms and provisions of this Agreement are intended
             solely for the benefit of the parties hereto and their
             respective permitted successors or assigns, and it is not the
             intention of the parties to confer third-party beneficiary
             rights upon any other person or entity.

Lastly, defendant argues that the title of Article XII, “Indemnification,” does not limit

the application of the clause at issue to indemnification only. Defendant directs our

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                                  Opinion of the Court

attention to Article XIII, Section 5 which states that “[t]he headings used in this

Agreement have been inserted for convenience and do not constitute provisions to be

construed or interpreted in connection with this Agreement.”

      After careful review, we conclude that both plaintiff and defendant’s

interpretations of the language of the Agreements are reasonable. See Dockery, 144
N.C. App. at 422, 547 S.E.2d at 852 (stating that “[a]mbiguity exists where the

contract’s language is reasonably susceptible to either of the interpretations asserted

by the parties”). Because the language of the provision creates an ambiguity as to

the true intention of the parties, interpretation of an ambiguous contract is best left

to the trier of fact.   Therefore, we hold that the trial court erred by granting

defendant’s 12(b)(6) motion to dismiss and reverse the trial court’s order.

                                  IV.    Conclusion

      The trial court’s order granting defendant’s Rule 12(b)(6) motion to dismiss is

reversed.

      REVERSED.

      Judges STROUD and INMAN concur.

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