Court Opinion

ID: 4305321
Source: CourtListenerOpinion
Date Created: 2018-08-20 15:06:06.638117+00
Date Added: 2024-06-11T14:36:22.956264
License: Public Domain

MEMORANDUM DECISION
Pursuant to Ind. Appellate Rule 65(D),
this Memorandum Decision shall not be                                      FILED
regarded as precedent or cited before any                             Aug 20 2018, 8:57 am

court except for the purpose of establishing                               CLERK
                                                                       Indiana Supreme Court
the defense of res judicata, collateral                                   Court of Appeals
                                                                            and Tax Court
estoppel, or the law of the case.

ATTORNEYS FOR APPELLANT                                  ATTORNEY FOR APPELLEE
Rodney L. Scott                                          Brian F. Haara
Tricia Kirkby Hofmann                                    Tachau Meek PLC
Waters, Tyler, Hofmann & Scott, LLC                      Louisville, Kentucky
New Albany, Indiana

                                           IN THE
    COURT OF APPEALS OF INDIANA

Floyd Memorial Hospital and                              August 20, 2018
Health Services,                                         Court of Appeals Case No.
Appellant-Defendant                                      18A-PL-46
                                                         Interlocutory Appeal from the
        v.                                               Harrison Circuit Court
                                                         The Honorable Frank Newkirk,
Harrison County Hospital,                                Jr., Special Judge
Appellee-Plaintiff.                                      Trial Court Cause No.
                                                         31C01-1301-PL-01

Bradford, Judge.

Court of Appeals of Indiana | Memorandum Decision 18A-PL-46 | August 20, 2018                  Page 1 of 13
                                          Case Summary
[1]   In 2004, Harrison County Hospital (“HCH”) and Floyd Memorial Hospital &

      Health Services (“Floyd”) entered into a joint venture, Harrison-Floyd Health

      Services LLC (the “LLC”), to rent space for different practices in Harrison

      County, Indiana. The operating agreement (the “Operating Agreement”) also

      provided that Floyd would offer HCH a right of first refusal before expanding

      its health services into Harrison County and further provided that Floyd would

      refrain from duplicating services already provided in Harrison County by HCH.

      In 2011, HCH filed a complaint alleging that Floyd breached the terms of the

      Operating Agreement when it acquired Harrison Family Medicine (“HFM”).

      In response, Floyd asserted several affirmative defenses which included

      abandonment, waiver, and equitable estoppel. Later, Floyd also raised issues

      regarding causation and damages.

[2]   After a series of summary judgment motions and hearings, the trial court

      granted summary judgment in favor of HCH on the issue of breach. The trial

      court also denied Floyd’s summary judgment motion on the issue of causation

      and damages and found that there were no genuine issues of material fact

      relating to Floyd’s affirmative defenses. Instead of proceeding to a jury trial in

      2018, Floyd sought discretionary interlocutory appellate review of several

      restated issues: (1) whether the trial court erroneously rejected, as a matter of

      law, the affirmative defenses of waiver, estoppel, and abandonment; (2)

      whether the trial court erroneously concluded that the right of first refusal

      clause in the Operating Agreement was enforceable under Indiana law; and (3)

      Court of Appeals of Indiana | Memorandum Decision 18A-PL-46 | August 20, 2018   Page 2 of 13
      whether the trial court properly denied Floyd’s motion for summary judgment

      on the issue of damages Floyd’s actions may have caused to HCH.

[3]   Because there are genuine issues of material fact, we reverse and remand the

      trial court’s judgment on the affirmative defenses of abandonment and waiver.

      The trial court’s rulings on the equitable estoppel affirmative defense, the

      enforceability of the Operating agreement, and the issue of damages are

      affirmed.

                               Facts and Procedural History
[4]   In 2003, HCH and Floyd1 were both county hospitals in southern Indiana.

      That year, the two hospitals agreed to enter into a joint venture to provide

      medical services in Harrison County. As a result of their shared desire for a

      partnership, HCH and Floyd drafted and signed the Operating Agreement for

      the LLC on February 23, 2004. HCH and Floyd agreed to jointly lease a space

      in Corydon where HCH would provide urgent care services and Floyd would

      provide occupational health services. In addition, Floyd agreed to give HCH a

      “right of first refusal” to join with Floyd in any further expansion by Floyd into

      Harrison County:

                 Section 10.1. [Floyd] Covenant. [Floyd] agrees, on behalf of itself
                 and its Affiliates, not to market its occupational health services to
                 any business entity in Harrison County which utilizes a member

      1
          Floyd has since been purchased by Louisville-based Baptist Health Systems.

      Court of Appeals of Indiana | Memorandum Decision 18A-PL-46 | August 20, 2018    Page 3 of 13
                 of the HCH medical staff as its company physician, unless
                 otherwise agreed to by HCH. Furthermore, in the event [Floyd]
                 opts to expand any other health services in Harrison County,
                 [Floyd] will provide HCH with a right of first refusal to
                 participate in such expanded health services by means of a 50/50
                 joint venture between [Floyd] and HCH. With respect to the
                 expansion of health services in Harrison County, Floyd agrees,
                 on behalf of itself and its Affiliates, to use its good faith efforts to
                 avoid duplication of services currently provided by HCH.

      Appellant’s App. Vol. II p. 47.

[5]   Despite the fact that the parties did not follow the terms of the Operating

      Agreement for meetings, assessments, and the appointment of officers, the

      parties continued to abide by its terms in various ways. Both hospitals

      continued to pay rent for the space that they leased together in Corydon.2 HCH

      also included the LLC in its audited financial statements submitted to the

      Indiana State Board of Accounts.3

[6]   In 2009, Floyd acquired a physical therapy clinic in Corydon called PT Works.

      HCH did not object or assert any rights to participate in the expansion under

      the Operating Agreement. In 2010, Floyd made plans to expand its services in

      Harrison County through the purchase of a family practice group, Harrison

      Family Medicine (“HFM”). At that same time, HCH also explored the

      2
       Floyd references a lease guaranty in its brief, but there is no evidence in the record that shows a guaranty
      was ever signed by either party.
      3
          HCH continued to recognize the LLC in its statements until 2012.

      Court of Appeals of Indiana | Memorandum Decision 18A-PL-46 | August 20, 2018                      Page 4 of 13
      possibility of purchasing HFM. HCH, however, was not under the same

      contractual duty to offer a right of first refusal as Floyd. Floyd proceeded with

      its plans to purchase without ever offering HCH a right of first refusal. HFM

      was fully acquired by Floyd in September of 2011.

[7]   On December 10, 2012, Floyd provided written notice of its desire to dissolve

      the LLC.4 On January 2, 2013, HCH filed its lawsuit against Floyd alleging

      breach of contract, breach of fiduciary duty, unjust enrichment, and promissory

      estoppel. The following month, the LLC was officially dissolved when Floyd

      filed Articles of Dissolution with the Indiana Secretary of State.

[8]   On December 22, 2014, Harrison filed a motion for partial summary judgment,

      asking that the trial court find as a matter of law that Floyd breached the

      Operating Agreement. After some discovery, Floyd filed its response on

      February 25, 2016. Floyd also filed a cross-motion for summary judgment. In

      May of 2016, the trial court entered an order granting HCH’s motion for partial

      summary judgment and ruling that the undisputed evidence established as a

      matter of law that Floyd breached the parties’ Operating Agreement. The trial

      court also denied Floyd’s motion for summary judgment in which it argued

      legal defenses to the enforcement of the Operating Agreement.

      4
        At all times since its formation, Harrison-Floyd Health Services, LLC remained an active in-good-standing
      company under Indiana law. However, either party could have unilaterally dissolved the company at any
      time.

      Court of Appeals of Indiana | Memorandum Decision 18A-PL-46 | August 20, 2018                   Page 5 of 13
[9]    On June 17, 2016, Floyd filed a motion to reconsider the order granting HCH’s

       motion for partial summary judgment. Floyd then filed a second motion for

       summary judgment in July of 2016, arguing that HCH could not establish

       causation or damages as a result of Floyd’s breach. In September of 2017, the

       trial court held a hearing on both Floyd’s motion to reconsider and its second

       motion for summary judgment. On October 19, 2017, the trial court entered an

       order reaffirming its prior order of May 2016 granting HCH partial summary

       judgment. The trial court also denied Floyd’s second motion for summary

       judgment on the question of breach.

[10]   Instead of proceeding to the jury trial which was schedule to begin in May of

       2018, Floyd sought discretionary interlocutory appellate review of several

       restated issues: (1) whether the trial court erroneously rejected, as a matter of

       law, the affirmative defenses of waiver, estoppel, and abandonment; (2)

       whether the trial court erroneously concluded that the right of first refusal

       clause in the Operating Agreement was enforceable under Indiana law; and (3)

       whether the trial court properly denied Floyd’s motion for summary judgment

       on the issue of damages Floyd’s actions may have caused to HCH.

                                  Discussion and Decision
[11]   We review summary judgment using the same standard as the trial court. Quirk

       v. Delaware Cty, 91 N.E. 3d 1008 (Ind. Ct. App. 2018). The fact that a party has

       filed a cross-motion does not alter our standard of review. Floyd Cty v. City of

       New Albany, 1 N.E.3d 207 (Ind. Ct. App. 2014). Summary judgment is only

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-46 | August 20, 2018   Page 6 of 13
       appropriate where the designated evidence shows that there is no genuine issue

       of material fact and the moving party is entitled to judgment as a matter of law.

       Id. All facts and inferences are construed in favor of the non-moving party.

       City of Beech Grove v. Beloat, 50 N.E.3d 135, 137 (Ind. 2016). When the

       challenge to summary judgment raises questions of law, we review them de

       novo. Rogers v. Martin, 63 N.E.3d 316, 320 (Ind. 2016). The party opposing the

       grant of summary judgment has the burden of persuading this court that the

       trial court’s ruling was improper. City of Lawrenceburg v. Milestone Contractors,

       809 N.E.2d 879, 882–83 (Ind. Ct. App. 2004).

                              I. Affirmative Defenses
[12]   Floyd argues that the trial court erred by ruling that there were no genuine

       issues of material facts relating to the affirmative defenses.

                                         A. Abandonment
[13]   The first affirmative defense raised by Floyd was abandonment.

               The abandonment of a contract is a matter of intention to be
               ascertained from the facts and circumstances surrounding the
               transaction from which the abandonment is claimed to have
               resulted. An abandonment of a contract need not be express but
               may be inferred from the conduct of the parties and attendant
               circumstances. A contract will be treated as abandoned when the
               acts of one party, inconsistent with the existence of the contract,
               are acquiesced in by the other party. Abandonment of a contract
               is a mixed question of law and fact; what constitutes an
               abandonment is a question of law; and whether there has been an
               abandonment is a question of fact.

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-46 | August 20, 2018   Page 7 of 13
       DiMaggio v. Rosario, 52 N.E.2d 896, 906 (Ind. Ct. App. 2016).

[14]   In support of Floyd’s claim that the Operating Agreement was abandoned, the

       designated evidence shows that HCH knowingly “decided just to sort of let it

       pass” when it heard that Floyd had purchased PT Works in 2009. Appellant’s

       App. Vol. III p. 37. Further, in answering a questions about the origin of the

       current lawsuit, the HCH CFO testified in a deposition that “We discussed our

       options of – of doing nothing, basically just like we had with the PT Works

       acquisition . . . .” Appellant’s App. Vol. III p. 38 (emphases added).

[15]   Meanwhile, in support of its claim that the Operating Agreement was not

       abandoned, HCH points to, among other things, the fact that it continued to file

       reports with the Secretary of State’s office and file tax returns on behalf of the

       LLC. HCH also highlights the fact that Floyd disclosed its interest in the LLC

       in the audited financial statement that it filed as a matter of public record with

       the State Board of Accounts. Based upon the abovementioned evidence and

       arguments, each party presented designated evidence supporting their respective

       positions on the abandonment of the Operating Agreement. Consequently, the

       trial court erred when it concluded that there were no genuine issues of material

       fact as to the abandonment affirmative defense.

                                                B.      Waiver
[16]   The second affirmative defense that Floyd raised was waiver. Waiver is the

       intentional relinquishment of a known right involving both knowledge of the

       existence of the right and the intention to relinquish it. Rogier v. Am. Testing and

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-46 | August 20, 2018   Page 8 of 13
       Eng’g Corp., 734 N.E.2d 606, 620 (Ind. Ct. App. 2000). Whether there has been

       waiver of a contract provision is ordinarily a question of fact. van de Leuv v.

       Methodist Hosp. of Ind., Inc., 642 N.E.2d 531, 533 (Ind. Ct. App. 1994).

[17]   Floyd argues that HCH waived its rights to enforce the contractual right of first

       refusal when HCH knowingly acquiesced to Floyd’s purchase of PT Works in

       2009 and it failed to object to Floyd’s purchase of HFM for at least eighteen

       months. This argument is supported by the excerpts of HCH’s CFO’s

       deposition in which he admitted HCH “let it pass” when Floyd purchased PT

       Works. Appellant’s App. Vol. III p. 37. The CFO further said “That was my

       thought on it. I didn’t really think it was of a lot of consequence” and that

       HCH debated doing nothing when HFM was purchased. Id. at 37–38.

       Conversely, HCH argues that it did not waive its right and that it did not have a

       duty to raise the issue of a possible breach when Floyd purchased PT Works in

       2009. Based upon these disputed facts, the trial court erred when it found that

       there was no genuine issue of material fact as to waiver.

                                     C. Equitable Estoppel
[18]   Finally, Floyd raised equitable estoppel as an affirmative defense.

               [E]quitable estoppel requires a false representation or
               concealment of material facts; it must have been made with
               knowledge, actual or constructive, of the facts; the party to whom
               it was made must have been without knowledge or the means of
               knowledge of the real facts; it must have been made with the
               intention that it should be acted on; and the party to whom it was
               made must have relied on or acted on it to his prejudice.

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-46 | August 20, 2018   Page 9 of 13
               Equitable estoppel may arise from silence or acquiescence as well
               as from positive conduct. However, silence will not form the
               basis of an estoppel unless the silent party has a duty to speak.

       City of New Albany v. Cotner, 919 N.E.2d 125, 133–34 (Ind. Ct. App. 2009)

       (internal citations and quotations omitted).

[19]   The heart of Floyd’s equitable estoppel claim is that HCH had a duty to tell

       Floyd that it had breached the Operating Agreement when it acquired PT

       Works and it was at risk of breaching the Operating Agreement again if it were

       to acquire HFM. Floyd does not cite to any provision of the Operating

       Agreement or other authority to show that HCH had a duty to inform Floyd

       that Floyd had breached the Operating Agreement. Thus, the judgment of the

       trial court concerning the equitable estoppel affirmative defense is affirmed.

       The case is reversed and remanded to the trial court for a determination of the

       affirmative defenses of abandonment and waiver on the merits.

                                II. Right of First Refusal
[20]   Floyd argues that the parties’ contractual right of first refusal is a restrictive

       covenant that is unenforceable and against public policy. The provision at issue

       here provided that

               in the event [Floyd] opts to expand any other health services in
               Harrison County, [Floyd] will provide HCH with a right of first
               refusal to participate in such expanded health services by means
               of a 50/50 joint venture between [Floyd] and HCH. With
               respect to the expansion of health services in Harrison County,

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-46 | August 20, 2018   Page 10 of 13
        [Floyd] agrees, on behalf of itself and its Affiliates, to use its good
        faith efforts to avoid duplication of services currently provided by
        HCH.

Appellant’s App. Vol. II p. 47. This section of the Operating Agreement is

titled “Restrictive Covenants.” Appellant’s App. Vol. II p. 47. However, this

title does not properly characterize the content in the section. Black’s Law

Dictionary defines a restrictive covenant as “a written agreement that limits the

use of property for specific purposes and regulates the structures that may be

built on it.” Restrictive Covenant, BLACK’S FREE ONLINE LAW DICTIONARY,

https://thelawdictionary.org/restrictive-covenant/ (last visited July 26, 2018).

Furthermore, this provision is not a “covenant not to compete.” Appellant’s

Br. p. 38. Black’s Law Dictionary defines a covenant not to compete as “the

type of agreement where a party agrees not to compete against another business

of a similar kind.” Covenant Not to Compete, BLACK’S FREE ONLINE LAW

DICTIONARY, https://thelawdictionary.org/covenant-not-to-compete/ (last

visited July 26, 2018). Based on the definitions in Black’s Law Dictionary,

Floyd and HCH’s “restrictive covenant” is neither a restrictive covenant nor a

non-compete. It is merely a right of first refusal provision. See Hyperbaric

Oxygen Therapy Sys., Inc. v. St. Joseph Med. Ctr. of Ft. Wayne, Inc., 683 N.E.2d

243, 249 (Ind. Ct. App. 1997) (stating that the subject matter of a contractual

“right of first refusal” may be anything which parties may make the subject of

contracts). Moreover, according to the terms of the Operating Agreement,

Floyd could have unilaterally dissolved the LLC at any time, thereby

eliminating any restrictions. The parties do not cite to any cases where an

Court of Appeals of Indiana | Memorandum Decision 18A-PL-46 | August 20, 2018   Page 11 of 13
       Indiana court has voided a right of first refusal provision in a contract between

       two private parties. The trial court did not err when it found that the right of

       first refusal provision in the Operating Agreement was enforceable.

                          III. Damages from the Breach
[21]   In its second summary judgment motion, Floyd asked the court to find as a

       matter of law that HCH sustained no damages from Floyd’s breach.

       Specifically, Floyd argued that HCH “cannot show that its non-participation

       actually caused any damages.” Appellant’s Br. p. 45. “The elements of a

       breach of contract claim are the existence of a contract, the defendant’s breach,

       and damages to the plaintiff.” WESCO Distribution, Inc. v. ArcelorMittal Ind.

       Harbor LLC, 23 N.E.3d 682, 696 (Ind. Ct. App. 2014). In addition to the

       breach, the defendant must be the cause in fact of the plaintiff’s loss. Id. “[T]he

       test of causation is not whether the breach was the only cause, or whether other

       causes may have contributed, but whether the breach was a substantial factor in

       bringing about the harm.” Id.

[22]   Based on our disposition of Issue I, liability has not yet been determined.

       Without a determination on liability, there can be no ruling on damages. If

       there is ultimately a determination that Floyd is liable, then the issue of

       damages can be addressed. We, therefore, affirm the trial court’s denial of

       Floyd’s motion for summary judgment on the issue of damages.

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-46 | August 20, 2018   Page 12 of 13
[23]   Affirmed in part, reversed in part, and remanded for proceedings not

       inconsistent with this opinion.

       Bailey, J., and Mathias, J., concur.

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-46 | August 20, 2018   Page 13 of 13