Court Opinion

ID: 887179
Source: CourtListenerOpinion
Date Created: 2013-06-05 04:22:53.103369+00
Date Added: 2024-06-11T13:16:16.461991
License: Public Domain

No. 05-020

               IN THE SUPREME COURT OF THE STATE OF MONTANA

                                           2005 MT 232

DAVID HARDY, individually, and as member/
owner of DOCHARDY.COM, LLC,

              Plaintiffs and Appellants,

         v.

VISION SERVICE PLAN, a California corporation,

              Defendant and Respondent.

APPEAL FROM:         District Court of the First Judicial District,
                     In and for the County of Lewis and Clark, Cause No. CDV-2003-285,
                     The Honorable Thomas C. Honzel, Judge presiding.

COUNSEL OF RECORD:

              For Appellants:

                     Joe Seifert, Keller, Reynolds, Drake, Johnson and Gillespie, Helena,
                     Montana

              For Respondent:

                     Raoul A. Renaud, Senior Counsel, Vision Service Plan, Rancho Cordova,
                     California

                     Mark D. Meyer, Ugrin, Alexander, Zadick & Ugrin, Great Falls, Montana

                                                   Submitted on Briefs: July 13, 2005

                                                              Decided: September 14, 2005

Filed:

                     __________________________________________
                                       Clerk
Justice Brian Morris delivered the Opinion of the Court.

¶1        Appellant David Hardy (Hardy) appeals from an order entered by the First Judicial

District Court, Lewis and Clark County, granting summary judgment in favor of Respondent

Vision Service Plan (VSP) on Hardy’s claims of breach of contract based on the implied

covenant of good faith and fair dealing and tortious interference with business relations. We

affirm.

¶2        We must determine whether the District Court properly granted VSP’s motion for

summary judgment after concluding that VSP had not breached its contract with Hardy and

had not caused tortious interference with his business relations.

                    PROCEDURAL AND FACTUAL BACKGROUND

¶3        Hardy is a licensed optometrist practicing in Helena, Montana. VSP is a California

nonprofit corporation that contracts with optometrists to provide prepaid vision care services

to groups and other beneficiaries of VSP plans.

¶4        Hardy enrolled as a VSP member in February 2000 when he signed a two-year

“Member Doctor Agreement” (VSP Agreement). The two-year VSP Agreement provided

for automatic renewal of his member status for successive terms of one year, unless

terminated by either party pursuant to its terms. Either party could terminate the relationship

under the terms of the VSP Agreement by giving 90 days written notice prior to cessation,

and VSP could terminate the agreement immediately if Hardy failed to comply with VSP’s

policies, rules, and procedures. VSP agreed to provide Hardy written notice of the reasons

for any adverse decision resulting in a change of his membership status. The VSP

Agreement also required that Hardy maintain majority ownership and complete control of

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all aspects of his practice, including his dispensary.

¶5     Unbeknownst to VSP, Hardy previously had entered into a franchise agreement with

Pearle Vision, Inc. (Pearle) in December 1999. The Pearle franchise agreement required

Hardy to “operate the Franchise Business in a manner that strictly adheres to [Pearle’s]

standards and policies,” including operating under prescribed hours; exclusively offering

Pearle-approved optical products; using designated Pearle promotional materials such as

fixtures, equipment and signs; paying Pearle 7% in royalties and 9% for advertising;

restricting any association with other optical businesses; and, when permitted by law,

following Pearle’s procedures for the practice of optometry.

¶6     VSP learned of Hardy’s Pearle franchise agreement in 2002. VSP determined that

Hardy’s Pearle franchise agreement contravened certain provisions of its VSP Agreement

and proceeded to terminate his membership. VSP specifically stated that Hardy no longer

met the criteria established for VSP membership in that “[o]wnership and control of a

Member Doctor’s practice, including dispensary, is essential for VSP membership,” and that

a member “shall have majority ownership and complete control of all aspects of his practice

including dispensary.”

¶7     Hardy appealed VSP’s decision to terminate his member agreement through VSP’s

corporate administrative review process. VSP conducted two separate hearings during which

Hardy attempted to demonstrate that his Pearle franchise agreement failed to cede any aspect

of control over his practice to Pearle. Both VSP hearing panels, comprised of VSP corporate

officers and private optometrists, upheld the decision to terminate his agreement.

¶8     Hardy filed this action on May 14, 2003, alleging breach of contract based upon the

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implied covenant of good faith and fair dealing and tortious interference with business

relations arising from the termination of the VSP Agreement. VSP moved for summary

judgment contending that Hardy remained unable, as a matter of law, to establish either

claim.

¶9       The District Court held a hearing and granted summary judgment to VSP on the

grounds that Hardy did not have a justifiable expectation of a continued contractual

relationship with VSP as evidenced by the fact that either party could terminate the VSP

Agreement by giving the other party at least 90 days prior written notice. The court further

determined that Hardy’s Pearle franchise agreement violated his VSP Agreement and

therefore he reasonably could not expect to continue working under the VSP Agreement’s

terms. The court also rejected Hardy’s tortious interference claim on the grounds that VSP

had not terminated the VSP Agreement without justifiable cause. The court determined that

Hardy’s decision to enter a franchise agreement with Pearle provided just cause for VSP to

terminate the VSP Agreement. This appeal followed.

                               STANDARD OF REVIEW

¶10      We review a district court’s decision to grant summary judgment de novo, based on

the same criteria applied by the district court. Counterpoint, Inc. v. Essex Insurance

Company, 1998 MT 251, ¶ 7, 291 Mont. 189, ¶ 7, 967 P.2d 393, ¶ 7. We must determine

whether the court correctly found no genuine issue of material facts existed and whether it

applied the law correctly. Pablo v. Moore, 2000 MT 48, ¶ 12, 298 Mont. 393, ¶ 12, 995
P.2d 460, ¶ 12.

                                      DISCUSSION

                                             4
¶11    Hardy argues that the District Court incorrectly resolved a factual dispute on summary

judgment regarding his justifiable expectations over the continued contractual relationship

with VSP. VSP claims that either party could cancel the agreement without cause on 90

days prior written notice. Hardy maintains, however, that he expected the agreement to

renew automatically for successive terms of one year unless terminated by either party for

cause. Hardy contends that VSP could not terminate his contract without cause and, in fact,

had to supply written notice to him enumerating the reasons for any adverse decision

resulting in the change of his membership status.

¶12    Indeed, Hardy asserts that VSP’s written notice failed to assert that he was being

terminated without cause, but instead cited his alleged failure to maintain complete

ownership and control of all aspects of his practice as grounds for the termination. Hardy

argues he should have an opportunity to prove that the cause stated for his termination by

VSP remains false. In substance, then, Hardy alleges that VSP misrepresented–and the

District Court erroneously accepted–its reasons for terminating the agreement in its motion

for summary judgment.

¶13    Every contract contains a covenant of good faith and fair dealing. Story v. City of

Bozeman (1990), 242 Mont. 436, 450, 791 P.2d 767, 775. A breach of the covenant

constitutes a breach of the contract. Story, 242 Mont. at 450, 791 P.2d at 775. The implied

covenant of good faith and fair dealing requires honesty in fact and observance of reasonable

commercial standards of fair dealing in the trade. Section 28-1-211, MCA. We measure the

nature and extent of the obligations of good faith and fair dealing by the parties’ justifiable

expectations. Talley v. Flathead Valley Community College (1993), 259 Mont. 479, 489,

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857 P.2d 701, 707.

¶14       In Farris v. Hutchinson (1992), 254 Mont. 334, 838 P.2d 374, we considered on a

motion to dismiss whether an employer breached the covenant of good faith and fair dealing

where it failed to renew an employee’s one-year employment contract pursuant to a non-

renewal provision in the agreement. We held that the employee could prove no set of facts

in support of her implied covenant claim where the employer had terminated the employee,

without cause, under an express provision of the contract. Farris, 254 Mont. at 339-40, 838

P.2d at 377. We also cited to our decision in Prout v. Sears, Robuck and Company (1989),

236 Mont. 152, 772 P.2d 288, where we allowed prospectively an employer to terminate an

employee without cause under the terms of the agreement, but noted that if a termination had

been for cause, the employee must have an opportunity to prove that the stated cause was

false. Farris, 254 Mont. at 339, 838 P.2d at 377. We concluded, however, that the eventual

determination of any factual issues regarding cause did not and would not contradict the

express wording of the agreement where the employer gave no stated cause for the

termination pursuant to an express contractual provision. Farris, 254 Mont. at 339, 838 P.2d

at 377.

¶15       Here the District Court correctly determined that Hardy did not have a justifiable

expectation of a continued contractual relationship with VSP as evidenced by the fact that

either party could terminate the VSP Agreement by giving the other party at least 90 days

prior written notice. The terms of the VSP Agreement permitted either party to conclude the

affiliation for any reason or VSP could terminate the contract if Hardy breached its policies,

rules, or procedures.

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¶16    We interpret the language of contractual provisions according to their plain, ordinary

meaning, Schwend v. Schwend, 1999 MT 194, ¶ 39, 295 Mont. 384, ¶ 39, 983 P.2d 988, ¶

39, and under these express terms it remains difficult to imagine any contracting party

maintaining a justifiable expectation of an indefinitely continuing contractual relationship.

The covenant of good faith cannot be read to prohibit a party from doing that which the

agreement expressly permits. Farris, 254 Mont. at 339, 838 P.2d at 377.

¶17    The VSP Agreement at issue here remains, as a matter of law, unambiguous. We

apply the contract language as written when it remains unambiguous and not subject to two

different interpretations. Carelli v. Hall (1996), 279 Mont. 202, 209, 926 P.2d 756, 761.

We need look no further than the contract language to conclude that Hardy’s actions in

entering into the franchise agreement with Pearle contravened VSP’s explicit dominion

conditions where the Pearle franchise agreement required him to cede control over aspects

of his practice. Hardy reasonably cannot expect the VSP Agreement to continue when he

failed to comply with a condition of membership. No facts exist that suggest VSP

terminated Hardy for any reason other than his failure to comply with the Agreement’s

condition. As such, we conclude that Hardy cannot maintain any justifiable expectations

regarding his continued contractual relationship with VSP. Talley, 259 Mont. at 489, 857

P.2d at 707.

¶18    Hardy also argues that the District Court incorrectly determined that VSP retained

justifiable cause to terminate the Agreement and therefore did not tortiously interfere with

business relations when it discontinued Hardy’s membership. In order to establish a prima

facie case of tortious interference with contractual or business relations, the plaintiff must

                                              7
establish the defendant’s acts: 1) were intentional and willful; 2) were calculated to cause

damage to the plaintiff in his or her business; 3) were done with the unlawful purpose of

causing damage or loss, without right or justifiable cause on the part of the actor; and 4) that

actual damages and loss resulted. Grenfell v. Anderson, 2002 MT 225, ¶ 64, 311 Mont. 385,

¶ 64, 56 P.3d 326, ¶ 64.

¶19    Hardy contends that the court erroneously concluded that he had violated a condition

of the Agreement requiring that he maintain complete control over all aspects of his practice.

Hardy maintains that the contract term “control” does not necessarily encompass the “right

to control” and asserts that Pearle did not enforce the conditions of the franchise agreement.

Hardy argues that promoting the economic interests of independent practitioners associated

exclusively with VSP provided the real reason for terminating his agreement and not, as VSP

suggested, his failure to maintain control over his dispensary. Hardy asserts that VSP

intentionally caused damages without justifiable reason when it undertook a campaign to

discourage current and prospective patients from patronizing his dispensary.

¶20    We again interpret the language of contractual provisions according to their plain,

ordinary meaning. Schwend, ¶ 39. The VSP Agreement required that Hardy maintain

majority ownership and complete control of all aspects of his practice, including his

dispensary. Specifically, the VSP Agreement required that the control of all professional eye

care services, including dispensing, remained delegated solely to the VSP member doctor.

The Pearle franchise agreement concomitantly required that Hardy strictly adhere to its

standards and policies including business methods, promotional and marketing programs

and, in certain circumstances, procedures for the practice of optometry.

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¶21    We again apply the contract language as written when it remains unambiguous and

not subject to two different interpretations. Carelli, 279 Mont. at 209, 926 P.2d at 761. The

VSP Agreement at issue here remains unambiguous as a matter of law considering Hardy’s

actions in entering into the franchise agreement with Pearle conflicted with the plain

language of the VSP Agreement that he retain control of all aspects of his practice. Thus,

VSP maintained justifiable cause to terminate its agreement with Hardy when he enrolled

as a Pearle franchisee and therefore, Hardy’s claim for interference proves unpersuasive.

Grenfell, ¶ 64.

¶22    The Dissent adopts and promotes Hardy’s proposition that VSP terminated his

agreement under the guise of the dominion conditions while covertly orchestrating a

systematic purge of Pearle franchisees from its ranks in order to protect private optometrists.

Dissent, ¶¶ 35-37. VSP’s putative subterfuge aside, Hardy’s VSP Agreement contained

conditions requiring complete control over his practice. Hardy agreed to the conditions and

failed to comply, seeking instead the benefits of both a private practice and franchisee label.

Hardy brought a breach of contract suit based on the implied covenant of good faith and fair

dealing and the decision today rests squarely on legal bedrock. See Grenfell, ¶ 64; Farris,

254 Mont. at 339, 838 P.2d at 377.

¶23    The Dissent also approves Hardy’s contention that VSP willfully harmed his business

after terminating the VSP Agreement. Dissent, ¶ 45. A reading of Hardy’s complaint,

affidavit and briefs, however, fails to illuminate which actions, if any, VSP unlawfully

engaged to cause damage to Hardy’s business. Indeed, the Dissent also fails to cite to any

matter in the record in support of this contention.

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¶24    We thus conclude that the District Court properly granted VSP’s motion for summary

judgment after finding that VSP did not breach its contract with Hardy and did not cause

tortious interference with his business relations.

¶25    Affirmed.

                                           /S/ BRIAN MORRIS

We Concur:

/S/ KARLA M. GRAY
/S/ W. WILLIAM LEAPHART
/S/ JOHN WARNER

                                              10
Justice James C. Nelson dissents.

¶26    I dissent from the Court’s decision.

¶27    First, all of our discussion of VSP’s ability to terminate the agreement on 90 days

notice without cause--a topic to which VSP also devotes substantial ink in its briefs--is

irrelevant. VSP did not terminate Hardy’s membership on this basis, but rather, it did so

under the provision of the agreement that required good cause. Like VSP’s arguments on

appeal, the Court’s attempt to seamlessly weave the two bases together, one theory

supporting the other in a sort of legal symbiosis, simply muddles what is actually at issue

here--whether there were genuine issues of material fact which precluded summary judgment

on Hardy’s claim that he was not in violation of the agreement when his membership was

terminated.

¶28    A review of the record reveals that there were genuine issues of material fact on this

issue; that Hardy was entitled to have these issues resolved by a jury; and that the District

Court’s short-circuiting of the trial process and our affirmance of that improperly denies

Hardy his day in court.

¶29    Hardy’s defense of VSP’s summary judgment motion clearly demonstrated the

existence of these genuine issues of material fact.

¶30    In granting VSP’s motion for summary judgment, the court held:

              Condition E of the Member Doctor Agreement requires Hardy to
       maintain complete control of his practice. However, Hardy’s franchise
       agreement requires him to surrender control of many aspects of his practice to
       Pearle Vision.

The court failed to acknowledge Hardy’s affidavit which stated:

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              While I conduct business utilizing Pearle Vision advertising and
      marketing assistance, I own and fully control my practice and dispensary.
      I am strictly required, under my Pearle Vision franchise agreement, to “make
      it clear that [I am] an independent contractor and not in any way an agent,
      employee, partner or joint venturer” with Pearle. While my franchise
      agreement requires me to adhere to standards of quality and good practice, I
      am solely financially and professionally responsible for my work. Although
      VSP asserts that Pearle exerts “control” over my practice, it never has in fact.
      Moreover, every optical dispensary which carries national lines of eyewear is
      subject to restrictions and standards for inventory, marketing and such things
      as lense fabrication and installation. This certainly includes dispensaries
      owned by VSP member doctors in good standing. [First emphasis added.]

¶31   In regard to the matter of control, VSP’s designated corporate representative, Cheryl

Johnson, testified on deposition that the member doctor agreement had been construed by

VSP’s quality assurance committee. Johnson testified:

      Q. MR. SEIFERT: Returning now to your Declaration, Exhibit 10, I would
      like to continue on and ask you some things about that document.
              Paragraph 12, which appears on page 6 at the top of page 6, towards the
      end of that paragraph it recites, “In 1993, the Quality Assurance Committee
      of the Board passed a motion noting that ‘VSP’s use of the language ‘control
      and ownership’ are synonymous.’”
              What does that mean?

      A. It means that the language control and ownership mean the same thing.

      Q. So if you own, you control?

      A. For this purpose.

      Q. And by “this purpose” what do you mean?

      A. Our Member Doctor Agreement and our office standards.

                                            12
¶32    While the District Court, and our Opinion, conclude that Hardy “ceded” aspects of

control of his practice to Pearle under his franchise agreement, Johnson’s testimony

established compliance with the “control” requirement. It was uncontradicted that Hardy

owned his own practice and, thus, under VSP’s own criteria, also controlled it.

¶33    Johnson also testified that the “complete control” defined by VSP’s Motion for

Summary Judgment exists nowhere, in fact, in VSP’s member network. She testified that

VSP member doctors are required to purchase and market VSP’s own line of Altair eyewear.

Thus, if VSP regards Pearle’s marketing standards as “control” it must itself agree that every

VSP doctor required to sell Altair eyewear also lacks “complete control” and, thereby, are

in violation of the VSP franchise agreement, Condition E.

¶34    Furthermore, Johnson admitted in her deposition that other VSP franchisees carry

lines of merchandise or eyewear that are accompanied by restrictions on the method and

manner in which they are advertised, displayed and marketed. Johnson’s deposition reveals

that while she tried to avoid the issue every way possible, VSP’s concept of “complete

control” depends totally upon who VSP wants to apply the requirement against and under

what circumstances.

¶35    Finally, in defense against VSP’s Motion for Summary Judgment, Hardy

demonstrated that hundreds of other Pearle and so called “chain” providers were allowed to

retain VSP membership when he was not; that he did not violate Condition E; that there was

insufficient evidence supporting VSP’s claim that Condition E was to protect against

“suspect” quality of care provided by “chains;” that VSP has never before terminated the

panel membership of a doctor on grounds that it could do so “without cause” or “for any

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reason;” and that while VSP’s claim that Hardy lacked “control” over his practice, referring

to “suspect” standards of care and violation of Condition E, VSP’s real motive was to serve

the economic, competitive interests of its so called “independent practitioners” by excluding

“chain” doctors from its dominate national network. Indeed, VSP’s company periodicals

demonstrated management’s concern over loss of “market share” to “chains” and that

Condition E was really created to “competitively assist” its “private” member doctors.

¶36    In this latter regard, Johnson testified on deposition:

       Q. MR. SEIFERT: Is another motivation of VSP for utilizing Condition E to
       competitively assist its independent providers?

       A. I don’t know that I would use the word competitively assist, but given that
       is the network that VSP has and we are promoting that network, that’s the
       purpose.

       Q. Would it be accurate to say that one of its purposes, and by it I am
       referring to Condition E, is to facilitate the economic or business success of
       its independent providers?

       A. Yes.

¶37    Hardy demonstrated that VSP knowingly allows, under various pretexts,

approximately 235 “chain” doctors to be VSP members. Notwithstanding, in Hardy’s case,

VSP eliminated his membership because he lacked “complete control” over his practice.

¶38    At ¶ 14 of our Opinion, the Court cites Farris v. Hutchinson (1992), 254 Mont. 334,

838 P.2d 374, conceding, as it must, that where the employer terminates an employee for

cause, the employee must have an opportunity to prove that the stated cause was false.

Indeed, we relied upon Stark v. Circle K Corp. (1988), 230 Mont. 468, 751 P.2d 162, and

Prout v. Sears, Roebuck and Co. (1989), 236 Mont. 152, 772 P.2d 288, noting that in both

                                              14
cases the discharges were for cause and that it was, therefore, for the jury to decide the

factual issue of whether the stated reasons were true or not. Farris, 254 Mont. at 339, 838

P.2d at 377. That is precisely the situation presented here. The termination of Hardy’s

membership was for cause stated--his lack of control over his practice. VSP’s and our

attempts to muddy the water to the contrary, Hardy was not discharged under the without-

cause provisions of the membership agreement.

¶39    Hardy put more than sufficient evidence before the court in his defense against VSP’s

Motion for Summary Judgment to establish that there are genuine issues of material fact as

to the real reason why VSP terminated his membership for cause. It is up to the jury, not the

trial court, nor this Court on appeal, to adjudicate the validity of those reasons or to

determine questions of good faith at issue in this cause. Those are questions for the jury.

¶40    Our decision here ignores Farris, Stark and Prout and denies Hardy his rightful day

in court.

¶41    I would reverse the District Court’s Order granting VSP’s Motion for Summary

Judgment and would remand for trial.

¶42    I dissent from our failure to do so.

                                              /S/ JAMES C. NELSON

Justice Patricia O. Cotter joins in the dissent of Justice James C. Nelson.

                                              /S/ PATRICIA O. COTTER

Justice Patricia O. Cotter dissents.

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¶43    I join in Justice Nelson’s dissent. I also offer the following additional grounds for

disagreement with the Court’s Opinion.

¶44    I disagree with the Court’s conclusion that Hardy’s claim for interference with

contract fails. For the same reasons set forth in Justice Nelson’s dissent, the question of

whether VSP interfered with Hardy’s contracts with his patients with the intent and

calculation to cause him damage is a question of fact.

¶45    The Court fails to acknowledge Hardy’s contention that, after VSP terminated his

contract, it proceeded to advise his patients that they should discontinue seeing him, and see

instead a VSP-member competitor. According to Hardy, VSP also refused to disclose to

Hardy or his staff how those who might wish to continue as Hardy’s patients could continue

to receive VSP benefits. As a result, Hardy claims damages from lost business in the

millions. Such a claim, if proven, would demonstrate interference with business relations

that post-dates and is arguably severable from the breach of contract claim. This being so,

the interference with business relations claim does not depend for its existence on the

viability of the breach of contract claim. The District Court erred in tying the two claims

together, and this Court has, in my judgment, perpetuated that error. For this reason, I would

reverse the entry of summary judgment on the claim for interference with business relations,

in addition to reversing the entry of summary judgment on the breach of contract claim. I

dissent from our refusal to do so.

                                                                 /S/ PATRICIA O. COTTER

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