Court Opinion

ID: 4694674
Source: CourtListenerOpinion
Date Created: 2021-06-11 14:05:01.188779+00
Date Added: 2024-06-11T08:05:30.900269
License: Public Domain

IN THE SUPREME COURT OF IOWA
                               No. 20–0545

           Submitted February 17, 2021—Filed June 11, 2021

ROBERT F. COLWELL JR.,

      Appellee,

vs.

MCNA INSURANCE COMPANY and MANAGED CARE OF NORTH
AMERICA, INC. d/b/a MCNA DENTAL and MCNA DENTAL PLANS,

      Appellants.

      Appeal from the Iowa District Court for Pottawattamie County,

James Heckerman, Judge.

      The defendants appeal the district court’s ruling in favor of the

plaintiff finding breach of contract and breach of implied covenant of good

faith and fair dealing. AFFIRMED.

      McDermott, J., delivered the opinion of the court, in which all

justices joined.

      Rodney C. Dahlquist Jr. (argued), Sean M. Conway, and Anne M.

Breitkreutz of Dornan, Troia, Howard, Breitkreutz & Conway PC, LLO,

Omaha, Nebraska, for appellants.

      Rebecca A. Brommel (argued) of Dorsey & Whitney, LLP, Des Moines,

for appellee.
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McDERMOTT, Justice.

      The State of Iowa contracts with two outside entities to manage the

dental services provided to adult participants in Iowa’s Medicaid program.

These entities, referred to as “managed care organizations,” develop and

maintain a network of dentists throughout the state to provide treatment.

One such managed care organization, Managed Care of North America,

Inc. d/b/a MCNA Dental Plans, entered into a contract with Robert

Colwell, a dentist in Council Bluffs, to deliver dental services to Medicaid

participants as a member of MCNA’s network.
      Three years later, MCNA sent Colwell a letter giving “notice of non-

renewal” of the provider contract.        Colwell sued, seeking a temporary

injunction to prevent MCNA from terminating the provider contract until

a final ruling on the merits and asserting claims for breach of contract,

breach of the covenant of good faith and fair dealing, and intentional

interference with his business relationships with current and prospective

patients. The district court granted the temporary injunction request.

      After a bench trial, the district court ruled that the provider contract

didn’t allow MCNA to terminate Colwell through non-renewal of the

provider contract. It further held that MCNA couldn’t terminate Colwell

because doing so would have placed MCNA in breach of state and federal

laws that required MCNA to include all dentists who participated in Iowa’s

Medicaid provider network and to maintain certain coverage thresholds for

geographic areas.

      In this appeal, MCNA argues that the district court misconstrued

the contract by holding that the provider contract forbids non-renewal.

MCNA further argues that the district court misapplied the state and
federal laws, which it found compelled MCNA to continue to contract with

Colwell because of Colwell’s participation as a provider in the Medicaid
                                       3

program. And MCNA argues that the district court erred in holding that

MCNA’s list of approved dental providers in Colwell’s geographic area was

insufficient to satisfy MCNA’s coverage obligations without Colwell.

      This appeal requires us to decide whether MCNA properly ended the

provider contract, which renewed automatically for successive one-year

terms, by sending the notice of non-renewal. While the state and federal

laws that regulate the relationship between a managed care organization

such as MCNA and a network provider like Colwell might present

interesting areas of exploration, they’re secondary to Colwell’s breach of
contract claim. If MCNA wasn’t permitted under the provider contract to

terminate Colwell by non-renewal, then MCNA breached the contract, and

we need not explore other grounds that might sustain the district court’s

ruling. On this record, contract interpretation presents a question of law

for the court, and we review the district court’s ruling to correct legal error.

Iowa R. App. P. 6.907; see Krause v. Krause, 589 N.W.2d 721, 724 (Iowa

1999); see also Peak v. Adams, 799 N.W.2d 535, 543 (Iowa 2011)

(“Interpretation is reviewed as a legal issue unless it depended at the trial

level on extrinsic evidence.” (quoting Fashion Fabrics of Iowa, Inc. v. Retail

Invs. Corp., 266 N.W.2d 22, 25 (Iowa 1978))).

      The   dispute    upon    which   this   case   turns   centers   on   the

interpretation of two sections of article X of the provider contract between

MCNA and Colwell. Article X is titled “TERM AND TERMINATION.” It

states:

            1. Term. This Agreement shall have an initial term of
      one (1) year commencing on the Effective Date. Thereafter,
      this Agreement shall automatically renew for terms of one (1)
      year each. Notwithstanding the foregoing, this Agreement
      may terminate in accordance with the Termination sections
      below.
                                     4
            2. Termination of Agreement. This Agreement may
      be terminated under any of the following circumstances:

            A. By either party upon ninety (90) days prior written
            notice;

            B. By either party upon thirty (30) days prior written
            notice if the other party is in material breach of this
            Agreement, except that such termination shall not take
            place if the breach is cured within the thirty (30) days
            following the written notice;

            C. Immediately upon written notice by MCNA if there is
            imminent harm to patient health, or fraud or
            malfeasance is suspected;

            D. Immediately upon written notice by either party if
            the other party becomes insolvent or has bankruptcy
            proceedings initiated against it;

            E. Immediately upon written notice by Provider if
            MCNA loses, relinquishes, or has materially affected its
            certificate of authority to operate as an administrative
            services organization; or

            F. Immediately upon written notice by MCNA if
            Provider fails to adhere to MCNA’s credentialing criteria,
            including, but not limited to, if Provider (1) loses,
            relinquishes, or has materially affected its license to
            provide Covered Services in the State, (2) fails to comply
            with the requirements set forth in this Agreement; or
            (3) is convicted of a criminal offense related to
            involvement in any Medicare, Medicaid or other
            government sponsored program or has been
            terminated, suspended, barred, voluntarily withdrawn
            as part of a settlement agreement, or otherwise
            excluded from any Medicare, Medicaid or other
            government sponsored program.

      The district court held that section 1 affords no opportunity to end

the contract with a notice of non-renewal and that MCNA otherwise failed

to establish any basis for termination under section 2.       MCNA offers

several arguments for why the district court’s interpretation is wrong.

      MCNA argues that the text of section 1 necessarily includes a right

of non-renewal because any other interpretation would make the first two
sentences ineffectual. Again, those sentences state: “This Agreement shall
                                      5

have an initial term of one (1) year commencing on the Effective Date.

Thereafter, this Agreement shall automatically renew for terms of one (1)

year each.”   If the contract really provides for a term that extends in

perpetuity, MCNA argues, then the repeated references to terms of one

year (both initial and renewal) would carry no meaning. The district court

held that the contract continues in perpetuity unless the parties exercise

one of the termination rights in section 2 of article X. If that’s so, MCNA

counters, then there would have been no reason to include a one-year term

at all.   Because the parties did in fact include a one-year term, its
argument continues, reference to it necessarily includes a right of non-

renewal before the next term begins separate from any of the termination

rights in section 2.

      In support of its textual interpretation, MCNA cites to an

unpublished court of appeals opinion that it says stands for the

proposition that a notice of non-renewal may end an agreement at the

conclusion of its stated term. See Beal v. I.G.F. Ins., Nos. 02–0361, 02–

0007, 2003 WL 556238 (Iowa Ct. App. Feb. 28, 2003). But whether a non-

renewal notice lawfully ended the contract wasn’t pertinent to the court’s

resolution of Beal. And in any event, the contract in Beal differed in a

critical respect from the one in this case, noted in italics here:

      This Agreement shall commence as of May 1, 1997 and shall
      continue in effect until April 30, 2000, provided, however, that
      the term of this Agreement shall automatically be extended
      without further action of either party for additional one year
      periods unless, not later than six months prior to the end of the
      then effective term, either the Company or the Employee shall
      have given written notice that such party does not intend to
      extend this Agreement.

Id. (emphasis added and original emphasis omitted).         Nothing like the
italicized portion of the contract from Beal that describes a non-renewal
                                     6

right (let alone a process for exercising it) appears in MCNA’s provider

contract with Colwell.

      Colwell points us to a different case that our court decided, Martin

v. Waterloo Community School District, 518 N.W.2d 381 (Iowa 1994), for the

proposition that when a contract includes an automatic-renewal provision,

it continues until terminated without any right of non-renewal. The case

turned on the interpretation of two versions of the same statute: a 1991

version and an amended 1993 version. Id. at 382–83. The 1991 version

stated:

      [A]n administrator’s contract shall remain in force and effect
      for the period stated in the contract. The contract shall be
      automatically continued in force and effect for one year
      beyond the end of its term, except as modified or terminated
      by mutual agreement of the board of directors and the
      administrator, or until terminated as hereinafter provided.

Id. at 382 (emphasis added and original emphases omitted) (quoting Iowa

Code § 279.24 (1991)). We determined that this version gave the school

district a right of non-renewal after the “one year beyond” had ended. Id.

at 383.

      But we analyzed the 1991 version in light of amendments reflected

in the 1993 version of the same statute. The amended 1993 version stated:

      The contract shall be automatically continued in force and
      effect for additional one-year periods beyond the end of its
      original term, except and until the contract is modified or
      terminated by mutual agreement of the board of directors and
      the administrator, or until terminated as provided by this
      section.

Id. (quoting 1993 Iowa Acts ch. 32, § 3 (codified at Iowa Code § 279.24

(1993 Supp.))). Substituting the italicized words in the amendment “for

additional one-year periods beyond the end of its original term” in place of
“for one year beyond the end of its term” materially changed the statute’s

meaning    such   that,   under   the    amended   version,   the   contract
                                     7

automatically renewed for one-year periods until the parties mutually

terminated the contract or exercised the termination procedures. Id. at

383. We determined that the school district had a right of non-renewal

after the first (and only) one-year renewal term under the 1991 version,

but had no right of non-renewal under the 1993 version because of its

unlimited automatic renewals.      Id.   While not directly on point, our

analysis in Martin illuminates certain facets of the case before us.

      The first sentence of article X, section 1 provides an initial term of

one year.   The second sentence provides that the term automatically
renews every year thereafter without limitation. The third sentence then

states: “Notwithstanding the foregoing, this Agreement may terminate in

accordance with the Termination sections below.”           We read these

sentences as providing a contract with continuous one-year terms, but in

spite of this, the parties agreed on the manner in which they might end

the contract, which they set forth in the ensuing paragraphs under the

“Termination” heading. The parties agreed on their options to end the

contract in the termination provisions of section 2; they included no option

of “non-renewal.”

      We attempt to interpret every word and every provision of a contract

to give it effect, if possible. See Fed. Land Bank of Omaha v. Bollin, 408

N.W.2d 56, 60 (Iowa 1987) (en banc). MCNA argues that the references to

one-year terms in the first two sentences have no effect and become

surplus language if we don’t infer a right of non-renewal. But the third

sentence with its opening clause—“Notwithstanding the foregoing”—seems

to address this point. Contrary to MCNA’s claim that the one-year terms

are ignored, the clause suggests that in spite of them something else (here,
termination rights) influences their operation.        Reading the word

“notwithstanding” literally, “the foregoing” (the automatically renewed one-
                                      8

year term) does not “withstand” the termination rights the parties may

exercise. A fair reading of the full section in this manner renders no part

surplusage because it recognizes both the contract’s automatic renewal

and the parties’ agreed methods for ending their contractual relationship.

Among these methods, the parties included a right to terminate the

contract by either party upon ninety days’ written notice—a seemingly

broad right not limited to any period connected to the contract’s renewal

date.

        MCNA points to other parts of the provider contract that it contends
support its interpretation.      The heading of article X, “TERM AND

TERMINATION,” MCNA urges, supports the notion that sections 1 and 2

must relate to different subjects with distinct rights. MCNA highlights the

“AND” as doing important work and asks us to read the heading as

contemplating two different concepts: the specific duration of the contract

and, separately, enumerated events that permit termination at any point

during the contract term. But MCNA ignores that the provider contract

itself describes how its headings are to be used to interpret the contract’s

actual terms.     Article XI, section 4 states that section headings “are

inserted merely for the purpose of convenience and do not, expressly or by

implication, limit, define, or extend the specific terms of the section so

designated.” We hold the parties to their own contract and won’t employ

headings as interpretive material where the parties expressly agreed they

couldn’t be used for that purpose.

        MCNA further argues that the absence of a contract term prohibiting

non-renewal must be read to support a right to end the contract via non-

renewal. In other words, had the parties intended to bar one another from
exercising non-renewal of the contract, then the provider contract (or its

incorporated documents) would have stated as much. We will imply a
                                     9

contract term where it arises from the language used in the contract. See

Alta Vista Properties, LLC v. Mauer Vision Ctr., PC, 855 N.W.2d 722, 727

(Iowa 2014). But in this case, we can imply no right of non-renewal in

light of the express manner in which the parties specified their termination

rights. The third sentence quoted above does not state that the provider

contract “may also terminate in accordance with the Termination sections

below”—it sets forth the means of ending in straightforward fashion: via

“the Termination sections below.” It’s one thing to read silence as perhaps

neutral on this subject; it’s something else to read it as supporting an
affirmative non-renewal right.

      And on this subject too, we note that our cases generally show

contracts with a non-renewal right to prescribe a deadline by which notice

must be provided to effectuate the non-renewal.       See, e.g., Gansen v.

Gansen, 874 N.W.2d 617, 618 (Iowa 2016) (requiring notice of non-renewal

180 days before the contract term ended); Petty v. Faith Bible Christian

Outreach Ctr., Inc., 584 N.W.2d 303, 306 (Iowa 1998) (60 days’ notice);

Batcheller v. Iowa State Highway Comm’n, 251 Iowa 364, 367, 101 N.W.2d

30, 32 (1960) (60 days’ notice); Culavin v. Nw. Bell Tel. Co., 224 Iowa 813,

814, 276 N.W. 621, 622 (1937) (30 days’ notice). For practical reasons, a

non-renewal deadline gives the party receiving notice of non-renewal time

to adjust their plans accordingly. If we assume, as MCNA urges, that the

provider contract contains a non-renewal right separate from the

termination procedures, this contract would present an anomaly for

including no notice of non-renewal deadline. Could the provider effectuate

non-renewal by providing MCNA notice at 11:59 p.m. the night before the

automatic-renewal date? We struggle to think that MCNA intended its
standard contracts to allow providers to cancel so suddenly, especially
                                      10

considering MCNA’s separate obligation under its contract with the State

to maintain certain geographic-coverage thresholds.

      MCNA points to a different section in the provider contract that it

contends clarifies the right of non-renewal. Article III, section 12 (titled

“Disparagement Prohibition”) sets forth Colwell’s agreement not to

disparage MCNA and states in part: “Provider agrees not to disparage

Payor or MCNA in any manner during the term of this Agreement or in

connection with any expiration, termination or non-renewal of this

Agreement.” MCNA points out the separate references to “termination”
and “non-renewal” and argues that the provider contract would not have

referred to “non-renewal” in article III if such a right didn’t exist in article

X.

      This sentence may initially appear to be incongruent with article X,

section 1, but not solely for reasons that aid MCNA’s interpretation. Along

with “termination” and “non-renewal,” it refers to “expiration” of the

provider contract. Yet with its automatic-renewal provision, the contract

provides for no means of “expiration.” This suggests that the word that

immediately    precedes    the   listing   of   “expiration,   non-renewal   or

termination”—any—may reasonably be read here as a modifier to mean

“as applicable.” Section 12’s purpose is to ensure that the provider doesn’t

disparage MCNA regardless of how the contract ended.             But it doesn’t

mean, without more, that the contract actually provides a right to end the

contract using each listed method.

      MCNA further argues that its separate contract with the State

requires a right of non-renewal on public-policy grounds. Pointing to its

duty to control costs and maintain quality services, MCNA argues that
without a non-renewal right, it could be handcuffed to continuing with

duplicative providers, which might drive up administrative costs. As an
                                    11

initial matter, the record doesn’t show how having extra providers in a

network, without more, results in additional administrative costs.

Dentists are reimbursed based on services provided, not based on their

status as members in a network.       There’s seemingly little risk of cost

duplication for providing to the same patient the same procedure that

another dentist already performed. And as discussed above, without a

deadline to provide notice of non-renewal, permitting termination only

through the termination provisions potentially protects MCNA from costs

that may be incurred in scampering to find a new provider to plug a hole
in its network when a current provider decides not to renew at the last

minute. We are not persuaded that a sufficient public-policy rationale

exists to rewrite the parties’ contract and grant MCNA a non-renewal right.

      The district court, having examined the provider contract and

determined MCNA possessed no right to terminate by non-renewal, next

examined whether MCNA’s actions nonetheless met the termination

requirements in article X, section 2. But MCNA has made clear—both in

its briefing and at oral argument in this case—that it did not terminate

under any provision in section 2 and thus makes no claim to have

exercised a right of termination separate from its claimed right of non-

renewal.

      Because we now affirm the district court’s ruling on Colwell’s breach

of contract claim against MCNA on the grounds stated above, and because

that holding is determinative of this appeal, we need not address the other

grounds of breach that the district court found in its ruling.

      AFFIRMED.