Court Opinion

ID: 2729013
Source: CourtListenerOpinion
Date Created: 2014-09-08 21:38:16.024617+00
Date Added: 2024-06-11T09:53:16.314456
License: Public Domain

NO. COA13-344

                      NORTH CAROLINA COURT OF APPEALS

                           Filed: 4 March 2014

PREMIER, INC.,
     Plaintiff,

    v.                                    Mecklenburg County
                                          No. 11 CVS 1054
DAN PETERSON; OPTUM COMPUTING
SOLUTIONS, INC.; HITSCHLER-CERA,
LLC; DONALD BAUMAN; MICHAEL
HELD; THE HELD FAMILY LIMITED
PARTNERSHIP; ROBERT WAGNER;
ALEK BEYNENSON; I-GRANT
INVESTMENTS, LLC; JAMES MUNTER;
GAIL SHENK; STEVEN E. DAVIS;
CHARLES W. LEONARD, III and JOHN
DOES 1-10,
     Defendants.

    Appeal by defendants from order entered 11 December 2012 by

Judge Calvin E. Murphy in Mecklenburg County Superior Court.

Heard in the Court of Appeals 29 August 2013.

    Moore & Van Allen, PLLC, by J. Mark Wilson, Kathryn G.
    Cole, and Benjamin R. Huber, for plaintiff-appellee.

    Williams Mullen, by Christopher G. Browning,                  Jr.   and
    Garrick A. Sevilla, for defendants-appellants.

    DAVIS, Judge.

    Dr.      Dan   Peterson   (“Dr.     Peterson”);     Optum   Computing

Solutions,    Inc.;   Hitschler-Cera,   LLC;   Donald   Bauman;    Michael
                                          -2-
Held; the Held Family Limited Partnership; Robert Wagner; Alek

Beynenson; I-Grant Investments, LLC; James Munter; Gail Shenk;

Steven E. Davis; Charles W. Leonard, III; and John Does 1-10

(collectively      “Defendants”)        appeal      from    the     trial       court’s    11

December    2012       order   granting     summary         judgment       in    favor     of

Plaintiff   Premier,       Inc.    (“Premier”)         on   (1)     its    claim    for     a

declaratory judgment that it did not breach its contract with

Defendants;      and     (2)   Defendants’      counterclaims          for      breach     of

contract,       attorneys’     fees,    and     recovery       of    audit       expenses.

After careful review, we vacate the trial court’s order granting

summary judgment and remand for further proceedings.

                               Factual Background

      On   29    September      2006,    Premier       acquired        Cereplex,         Inc.

(“Cereplex”) by entering into a Stock Purchase Agreement (the

“Agreement”)       with    Defendants,        the      former       shareholders          and

stakeholders of Cereplex.           Cereplex developed and designed web-

based surveillance and analytic services to healthcare providers

through its software products, Setnet and PharmWatch.                               Setnet

was   designed      to    assist    healthcare         providers          in    detecting,

responding to, and preventing healthcare-associated infections

(“HAIs”).        HAIs    are   infections       that    patients       acquire      during

their course of treatment in a healthcare facility or setting.
                                                   -3-
The Setnet program provided various alerts, reports, and other

monitoring         and    surveillance             functions      regarding     the    possible

presence of HAIs in healthcare providers’ patient population.

    PharmWatch was a program designed to optimize treatment,

curb resistance to antibiotics, and prevent unnecessary use or

overuse       of    antibiotics.                 The       PharmWatch       product    provided

automated surveillance and monitoring by generating alerts to

notify    a    healthcare               provider      of    a   potential    problem    in   the

provision and dosage of antibiotics to a particular patient.

    After                acquiring              Cereplex,            Premier          developed

SafetySurveillor,                  a     successor         product    that      combined     the

functionalities               of       Setnet   and    PharmWatch       into    one    software

program.           SafetySurveillor,               like     its   predecessors,       generates

automated alerts to notify the user of potential problems that

require attention.                     SafetySurveillor’s key features relate to

its ability to (1) facilitate infection prevention by firing

alerts     to       infection              control         professionals       regarding     the

potential existence of clusters or outbreaks of HAIs; and (2)

provide configurable pharmacological-related alerts based on set

variables,         including            high-cost      medication,      drug    combinations,

length of therapy, lab results, and other factors.

    Pursuant             to    the       Agreement,        Defendants    were    entitled     to
                               -4-
receive an annual earnout payment (the “Earnout Amount”) from

Premier for five years following the date of the Agreement.   The

Earnout Amount provision of the Agreement states, in pertinent

part, as follows:

         (iii) Earnout.    On each of the dates that
         are the first five (5) anniversaries of the
         Closing Date, the Earnout Amount earned
         during the preceding twelve (12) months
         shall be determined by the Buyer in good
         faith (the “Yearly Earnout”). . . . “Earnout
         Amount” shall mean an amount equal to
         $12,500 for each Hospital Site where a
         Product Implementation occurs during the
         applicable 12-month period; excluding the
         first fifty (50) Hospital Sites where a
         Product Implementation occurs . . . . For
         the avoidance of doubt the first fifty (50)
         Hospital   Site   threshold   is    a   one-time
         threshold,    not    an    annual     threshold.
         "Hospital Site" shall mean an individual
         hospital, nursing home, care center or
         similar facility (and for the avoidance of
         doubt a single health care company or
         hospital group may consist of multiple
         Hospital Sites).      “Product Implementation”
         means   a   Hospital    Site   that    has   (A)
         subscribed to or licensed the Company's
         Setnet   or   PharmWatch    product    (or   any
         derivative thereof, successor product, or
         new product that substantially replaces the
         functionality of either product), whether
         such product is provided, sold or licensed
         (for a charge or at no charge, or provided
         on a stand-alone basis or bundled with other
         products and/or services) to the applicable
         Hospital Site by Company (or its successor
         in interest), any affiliate of the Company
         or any reseller authorized by the Company,
         and    (B)     completed     any      applicable
         implementation, configuration and testing of
                                       -5-
            the product so that the product is ready for
            production   use   by   the   Hospital   Site.
            Together with the delivery of each Yearly
            Earnout,   the   Buyer   shall   provide   the
            Sellers'   Representative   with   a   written
            report listing the names and addresses of
            the Hospital Sites covered by the applicable
            Yearly Earnout payment.

      The Agreement provided that Defendants were authorized to

conduct an annual audit to verify that Premier was paying out

the   correct     Earnout    Amount   to     Defendants.      Defendants   were

responsible for paying the expenses associated with the audit

unless the audit revealed that Premier had underpaid the Earnout

Amount by more than 5%.         If the applicable Earnout Amount was in

dispute, Premier would not have any obligation to pay the costs

and expenses of the audit “unless a final, nonappealable order

of a court or an arbitrator that is binding on [Premier] finds

that the Audit findings are correct.”

      From May     2010     to September 2010,      Dr. Peterson, the co-

founder     and    former     Chief   Executive     Officer     of   Cereplex,

conducted     a    pilot     audit    on     Defendants’   behalf    regarding

Premier’s compliance with the Agreement.             Dr. Peterson testified

by affidavit that in determining the appropriate Earnout Amount

that Defendants were due, his audit “reported on the occurrence

of single-event alerts as a simple and sure way to identify
                                             -6-
Product Implementations of SafetySurveillor1 for the Audit.”                               A

single-event           alert        refers      to     the        notification            the

SafetySurveillor             program    dispatches         to     infection           control

professionals or other designated medical personnel to identify

either (1) the potential presence of an HAI in a patient who was

discharged from a hospital and later sought medical attention

from another healthcare facility; or (2) a possible problem with

the antibiotic therapy prescribed to a patient.

       Dr. Peterson examined Premier’s databases and discovered

over 1,000 healthcare facilities from which an alert had been

fired.     His affidavit states that “[e]ach alert relates to an

individual patient and is specific to the facility at which that

patient    was     seen,      and   each     alert   was   sent    to     at    least    one

clinician who had chosen to be alerted about the event.”                                   He

also explained that in order for an alert to be fired from a

facility, the SafetySurveillor program must have acquired access

to the facility’s patient data.

       The conclusion reached by Dr. Peterson from his audit was

that     Premier       had     provided      SafetySurveillor        to        over    1,000

facilities       yet    had     only   recognized      263      Hospital        Sites     for

1
   SafetySurveillor, the successor product of       Setnet and
PharmWatch, replaced those two software programs and was the
only relevant product for purposes of Product Implementation in
2010.
                                        -7-
purposes     of     the    Product     Implementation    provision    of   the

Agreement.        Based on Dr. Peterson’s audit, Defendants informed

Premier    that     they    intended    to    initiate   litigation   against

Premier for miscalculating the Earnout Amount and violating the

terms of the Agreement.

    On 19 January 2011, Premier filed an action in Mecklenburg

County Superior Court seeking a declaratory judgment that it had

not breached the Agreement.            On 27 April 2011, Defendants filed

an answer and counterclaims.             Defendants alleged that Premier

had, in fact, breached its contract with Defendants and sought

damages as well as the recovery of audit expenses and attorneys’

fees.     The matter was designated a complex business case and

assigned to the Honorable Calvin E. Murphy.

    On 29 July 2011, the trial court entered a case management

order giving the parties until 30 April 2012 to complete fact

discovery and until 31 July 2012 to complete all discovery.                 On

30 August 2011, approximately 40 days after the entry of the

case management order, Premier filed a motion for judgment on

the pleadings pursuant to Rule 12(c) of the North Carolina Rules

of Civil Procedure or, in the alternative, a motion for summary

judgment pursuant to Rule 56.

    The trial court conducted a hearing on 14 December 2011 and
                                             -8-
entered    its     order    and    opinion      on    11    December     2012    granting

summary judgment in Premier’s favor on its declaratory judgment

claim as well as           on Defendants’ counterclaims                 for breach of

contract,    attorneys’         fees,    and       recovery     of    audit     expenses.2

Defendants appealed to this Court.

                                        Analysis

      On an appeal from an order granting summary judgment, this

Court reviews the trial court’s decision de novo.                              Shroyer v.

Cty. of Mecklenburg, 154 N.C. App. 163, 167, 571 S.E.2d 849, 851

(2002).      Summary       judgment     is     appropriate       if    “the    pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that any party is

entitled to a judgment as a matter of law.”                          Dockery v. Quality

Plastic Custom Molding, Inc., 144 N.C. App. 419, 421, 547 S.E.2d

850, 852 (2001).

      In a contract dispute between two parties, the trial court

may interpret a plain and unambiguous contract as a matter of

law   if   there    are    no     genuine     issues       of   material      fact.   See

McKinnon v. CV Indus., Inc., 213 N.C. App. 328, 333, 713 S.E.2d

2
  The trial court granted summary judgment in favor of Defendants
on Premier’s claim for attorneys’ fees after concluding that
there was no statutory basis for an award of attorneys’ fees in
Premier’s favor.
                                      -9-
495,    500    (“Courts   may   enter    summary    judgment    in   contract

disputes because they have the power to interpret the terms of

contracts.”), disc. review denied, 365 N.C. 353, 718 S.E.2d 376

(2011); Metcalf v. Black Dog Realty, LLC, 200 N.C. App. 619,

633,   684    S.E.2d   709,   719   (2009)   (“[W]hen   the   language   of   a

contract is not ambiguous, no factual issue appears and only a

question of law which is appropriate for summary judgment is

presented to the court.”).

       “Whenever a court is called upon to interpret a contract

its primary purpose is to ascertain the intention of the parties

at the moment of its execution.”             Lane v. Scarborough, 284 N.C.

407, 409-10, 200 S.E.2d 622, 624 (1973).                In determining the

parties’ intent, the court must construe the contract “in a

manner that gives effect to all of its provisions, if the court

is reasonably able to do so.”            Johnston Cty. v. R.N. Rouse &

Co., 331 N.C. 88, 94, 414 S.E.2d 30, 34 (1992).

       The key language in the Agreement that lies at the heart of

this dispute states as follows:

              “Product Implementation” means a Hospital
              Site that has (A) subscribed to or licensed
              the Company's Setnet or PharmWatch product
              (or   any   derivative   thereof,    successor
              product, or new product that substantially
              replaces   the    functionality   of    either
              product), whether such product is provided,
              sold or licensed (for a charge or at no
                                        -10-
            charge, or provided on a stand-alone basis
            or   bundled  with   other  products  and/or
            services) to the applicable Hospital Site by
            Company (or its successor in interest), any
            affiliate of the Company or any reseller
            authorized by the Company . . . .

(Emphasis added.)

     The parties offer different views on how the italicized

language quoted above should be interpreted.                      Relying on the

“subscribed to or licensed” phrase, Premier contends that in

order for Product Implementation to occur, a Hospital Site must

affirmatively       take    steps     to      subscribe    to    or    license     the

SafetySurveillor product.            Based on this interpretation, Premier

claims    that     it    fully    satisfied      its    obligations      under     the

Agreement by making Earnout payments for 213 of the 263 Hospital

Sites    that    had     formal     written    subscription      agreements      with

Premier.3

     Defendants,            conversely,          assert         that       Premier’s

interpretation of Product Implementation is too narrow.                            They

argue    that    the     “whether    such     product     is   provided,    sold    or

licensed”       phrase    broadens     the    circumstances      under     which    an

annual Earnout payment can accrue.                As such, Defendants contend

3
  Pursuant to the Agreement, the first 50 Hospital Sites where
Product Implementation occurs are excluded when calculating the
appropriate Earnout Amount total.     Thus, payment was made for
only 213 of these 263 Hospital Sites.
                                             -11-
that    the    “subscribed         to   or    licensed”         component           of    Product

Implementation        is    satisfied        simply        by    virtue        of        Premier’s

provision of the SafetySurveillor product to a facility.                                       Based

on   this     reasoning,         Defendants       contend       that     Premier          was    not

entitled      to     summary       judgment       because       the      results          of     Dr.

Peterson’s audit — specifically the data showing the numerous

facilities from which single-event alerts were fired — indicated

that Premier had “provided” the SafetySurveillor program to over

1,000    facilities,        thereby      causing          Product      Implementation             to

occur regardless of whether those facilities had actually taken

steps to subscribe to or license the product.

       Premier responds by arguing that Defendants’ interpretation

of Product Implementation reads the “subscribed to or licensed”

language      out    of    the    Agreement.          Defendants’         interpretation,

according to Premier, treats the “subscribed to or licensed”

phrase as having been effectively superseded by the “whether

such product is provided, sold or licensed” phrase.

       In   its     order   and     opinion,        the    trial       court    agreed          with

Premier’s      interpretation           of    the     Agreement,          ruling          that     a

Hospital      Site    was    required        to   subscribe         to    or    license          the

product in order for Product Implementation to occur.                                The trial

court harmonized the “subscribed to or licensed” phrase with the
                                           -12-
“whether such product is provided, sold or licensed” phrase by

determining that        “while it does not matter who provides the

product to the Hospital Site or whether the Hospital Site is

charged, the Hospital Site still must subscribe to or license

the product in order for ‘Product Implementation’ to occur.”

(Emphasis added.)

       The trial court, therefore, rejected Defendants’ contention

that   they    would    be    entitled      to    an   Earnout       payment    any    time

SafetySurveillor        was    “merely       provided”     to        a    Hospital     Site

because       that     interpretation            “unreasonably           construes     the

otherwise unambiguous language of the contract that requires a

license or subscription.”                 Based on its interpretation of the

Product Implementation definition in the Agreement, the trial

court concluded that summary judgment in favor of Premier was

appropriate.

       We     agree    with         the     trial      court     that        Defendants’

interpretation would impermissibly read the phrase “subscribed

to or licensed” out of the Agreement.                   See Singleton v. Haywood

Elec. Membership Corp., 357 N.C. 623, 629, 588 S.E.2d 871, 875

(2003)      (explaining      that    when    interpreting        a       contract    “[t]he

various terms of the contract are to be harmoniously construed,

and if possible, every word and every provision is to be given
                                           -13-
effect” (citation and brackets omitted)).                     Defendants’ argument

hinges     on    the   notion       that   Product       Implementation    can    occur

simply by virtue of a facility’s receipt of the SafetySurveillor

product.        However, the unmistakable meaning of the language the

parties    agreed      upon    in    drafting      the    Agreement   is   that    some

affirmative act on the part of the Hospital Site is required.

Defendants simply cannot escape the fact that the definition of

Product Implementation makes clear that it is the Hospital Site

that must        “subscribe[] to or license[]” the product.                       Thus,

contrary        to   Defendants’       proffered        interpretation,    the     mere

receipt of SafetySurveillor by a facility is, standing alone,

insufficient to trigger an Earnout payment under the Agreement.

      However, our adoption of this interpretation of the Product

Implementation definition does not resolve the case.                        To hold,

as we do, that a Hospital Site must subscribe to or license the

product in order for Product Implementation to occur is to raise

the   question         of     whether      the     additional     facilities       that

Defendants contend qualify as Hospital Sites at which Product

Implementation         has     occurred      have,       in   fact,   affirmatively

undertaken steps to subscribe to or license the SafetySurveillor

product.

      It    is       well    established         that    in   construing    contract
                                        -14-
provisions, “[w]here a contract defines a term, that definition

is to be used.         If no definition is given, non-technical words

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

context clearly indicates another meaning was intended.”                         Reaves

v. Hayes, 174 N.C. App. 341, 345, 620 S.E.2d 726, 729 (2005)

(citation and quotation marks omitted).                 As neither “subscribed”

nor “licensed” is defined in the Agreement, it is appropriate to

examine the ordinary and plain meaning of these terms.

     “Subscribe”       means    “to    agree    to    receive       and    pay   for   a

periodical, service, etc.”             Webster’s New World Dictionary 588

(1995).     The most applicable dictionary definition of the word

“license”    is    “official     or    legal    permission      to    do    or   own   a

specified thing.”        American Heritage College Dictionary 782 (3d

ed. 1993).        Both definitions connote an affirmative act by the

recipient prior to receipt of the product or service — be it the

act of agreeing to receive the product or service or the act of

obtaining permission to use the product or service.                          Applying

these     definitions      here,       we   believe      that        the    Agreement

contemplates       a   mutual    arrangement         between    Premier      and    the

Hospital     Site      whereby        Premier     agrees       to     provide       the

SafetySurveillor product and the Hospital Site agrees to accept
                                       -15-
it and utilize its services.4

      While the trial court correctly interpreted the Agreement

as requiring the Hospital Site to take some action to subscribe

to or license SafetySurveillor, we cannot agree with the trial

court’s conclusion that summary judgment was appropriate at this

stage    in   the    litigation.         Defendants          submitted          evidence,

consisting     primarily    of     the        affidavit       of        Dr.     Peterson,

suggesting that      Premier provided SafetySurveillor to                        numerous

additional     facilities        (beyond        the     263        Hospital           Sites

acknowledged    by    Premier    in     its    calculation         of     the        Earnout

Amount) for which no payment was made.                Premier does not dispute

Defendants’    contention       that     alerts       were    fired           from    these

facilities but claims that (1) there is no evidence that any of

the     facilities   identified        have    subscribed          to     or     licensed

SafetySurveillor; and (2) evidence of the firing of alerts is

not relevant to the issue of whether a facility has subscribed

to or licensed SafetySurveillor.

      While we have rejected Defendants’ contention that evidence

4
  However, because the Agreement expressly states that an Earnout
payment can be triggered — assuming the other requirements are
met — regardless of whether the product is provided “for a
charge or at no charge,” payment by the Hospital Site is not
required.    Similarly, an Earnout payment can be triggered
whether SafetySurveillor is offered on a stand-alone basis or as
part of a bundle of other products and services.
                                       -16-
of Premier’s mere provision of the SafetySurveillor product to

facilities,      without      more,     automatically       triggers      Product

Implementation, we believe that such evidence (as shown by the

firing of alerts) and the circumstances under which the product

came to be received by these facilities is probative of the

issue of whether the facilities did, in fact, meet the criteria

for Product Implementation.            However, as presently constituted,

the record is devoid of specific evidence on this issue.                  It may

or may not ultimately be determined that additional facilities

beyond the 263 acknowledged by Premier qualify as Hospital Sites

as to which Product Implementation has occurred; however, on the

present record, we have no way of knowing the answer to this

question.

    In   its     complaint,    Premier    summarized       the   relief   it   was

seeking as follows:

              30. Plaintiff is entitled to a judgment
              declaring that it has not violated any
              purported rights of Defendants pursuant to
              the Stock Purchase Agreement or otherwise
              under federal, state or common law, and is
              not liable to Defendants for any claims,
              including any claims concerning the parties’
              respective rights or obligations pursuant to
              the Stock Purchase Agreement. . . .

As the party seeking summary judgment, Premier bore “the initial

burden   of    demonstrating     the    absence   of   a    genuine    issue   of
                                           -17-
material fact” as to whether it had fully satisfied its payment

obligations under the Agreement.                  Austin Maint. & Constr., Inc.

v. Crowder Constr. Co., ___ N.C. App. ___, ___, 742 S.E.2d 535,

540 (2012) (citation and quotation marks omitted).

       The trial court appears to have reasoned that Premier met

this burden because (1) Product Implementation could only occur

when a Hospital Site entered into a formal written agreement

with   Premier;        and    (2)   neither   party       produced    evidence      “that

refutes      the    fact     that   [Premier]      paid    Defendant[s]       for   each

Hospital      Site     that    subscribed     to    or     licensed    the    product”

through a formal, written subscription or licensing agreement.

However, as explained above, while the Agreement requires some

affirmative act by a Hospital Site to subscribe to or license

the SafetySurveillor product in order for Product Implementation

to occur, the Agreement does not specifically require a formal,

written agreement between Premier and the Hospital Site.                              The

fact    that       Product     Implementation       can     occur    even    when    the

SafetySurveillor product is provided to the Hospital Site at no

cost suggests that a more informal process may, in fact, have

existed.

       The     trial       court    also    concluded       that     Dr.     Peterson’s

affidavit       constituted         parol     evidence       that     attempted       to
                                           -18-
impermissibly add to or revise the unambiguous language of the

Agreement.     We agree that Dr. Peterson’s affidavit about the

parties’ intent when negotiating the Agreement should not be

allowed to alter the contractual terms that the parties agreed

upon as contained in the four corners of the Agreement; however,

as explained above, we believe that Dr. Peterson’s affidavit

contained     evidence         probative       on   the     issue      of    whether   the

additional     facilities           referenced         in   his     audit      may     have

subscribed     to     or       licensed    SafetySurveillor.                 Accordingly,

further     factual    development             is   necessary       to      explore    what

affirmative    acts        —   if   any    —    were    taken     by     the   facilities

identified by Defendants to obtain the SafetySurveillor product

so that any such acts can be evaluated in accordance with our

interpretation of the “subscribed to or licensed” language in

the Agreement.

    For these reasons, we conclude that this matter must be

remanded to the trial court for a fuller development of the

factual record.       While we do not foreclose the possibility that

summary judgment may ultimately be appropriate in this matter,

we believe that such a determination cannot properly be made at

the present time in light of the incomplete factual record that

currently exists.          See Ussery v. Taylor, 156 N.C. App. 684, 686,
                                   -19-
577 S.E.2d 159, 161 (2003) (reversing premature entry of summary

judgment   and   remanding   to   give    parties   “the   opportunity   to

further develop the facts”).       Because we are vacating the entry

of summary judgment and remanding for further proceedings, we

also vacate the trial court’s rulings on both parties’ claims

for attorneys’ fees.    We express no opinion as to whether either

party may be entitled to attorneys’ fees once the trial court

has rendered a final judgment in this action on remand.

                              Conclusion

    For the reasons stated above, we vacate the trial court’s

order and opinion and remand for further proceedings consistent

with this opinion.

    VACATED AND REMANDED.

    Judges CALABRIA and STROUD concur.