Opinion
E031260.
10-15-2003
INLAND PRIMARY CARE MEDICAL GROUP, INC., Plaintiff, Cross-defendant and Appellant, v. PRIMECARE INTERNATIONAL, INC., Defendant, Cross-complainant and Appellant; PRIMECARE MEDICAL NETWORK, INC., Defendant and Appellant. PHYCOR INC. et al. Defendants and Respondents.
McDermott, Will & Emery, James T. Grant, Jamila A. Berridge; Cadden & Fuller and Betty J. Levine for Defendants, Cross-Complainant and Appellants. Law Offices of Don A. Hernandez, Don A. Hernandez; Burris & Schoenberg and E. Randol Schoenberg for Plaintiff, Cross-Defendant and Appellant.
1. Introduction
After a six-week jury trial, Inland Primary Medical Group, Inc. (Inland) obtained a verdict against two PrimeCare defendants in the amount of $3 million for breach of contract and $213,189 for constructive fraud, including punitive damages. On PrimeCares cross-complaint against Inland for money had and received, the jury awarded PrimeCare $296,189.73.
In this opinion, we use "PrimeCare" as the collective name for several related entities, PhyCor Inc., PrimeCare International, Inc., PrimeCare Medical Network, Inc., and North American Medical Management, Inc. Generally, we will not distinguish between them except where it is significant. PrimeCare Medical Group of Corona, Inc., ("PrimeCare Corona") another defendant and cross-respondent, is an independent physicians association (IPA) separate from Inland and from any of the PrimeCare entities.
PrimeCare and Inland both appeal. Although we affirm the grant of a directed verdict in favor of PrimeCare Corona, we reverse the judgment on the grounds the court improperly granted a directed verdict on the issue of whether PrimeCare breached its contract with Inland.
2. Factual and Procedural Background
Inland was a group of medical doctors who practiced together between January 1999 and August 1999. In January 1999, Inland, represented by Dr. Albert Briccetti, signed a "confidential letter of intent" with PrimeCare, represented by David DeValk. The letter of intent provided that PrimeCare Medical Network would provide management services for a managed care medical practice, including "eligibility, claims adjudication, referral specialty pool accounting, capitation reporting and managed care revenue and expense reporting," and marketing and promotion. The letter also stated: "PrimeCare will arrange for a two-year credit line for the Groups use in the amount of $500,000 should the practice require additional financial support for [primary care physician] salary guarantees, practice asset purchases and interim working capital." PrimeCare would provide services for two years with an option for Inland to renew for an additional seven years. Finally, the parties agreed to negotiate exclusively for 60 days and "[t]his period of exclusivity shall automatically renew for additional (30) day periods, until either party gives the other party 30 days notice of its intention to terminate the exclusivity period."
The relationship between Inland and PrimeCare lasted until August. On June 24, Briccetti wrote PrimeCare to explain why Inland had not yet executed the final documents, a group services agreement, and a medical services agreement. It is undisputed that PrimeCare could not arrange for Inland to obtain a $500,000 line of credit either from a Loma Linda hospital or from a bank. Additionally, Inland had too few member-patients enrolled to generate sufficient revenue through capitation payments to support the group. By the end of 1999, PrimeCare had advanced about $376,000 to Inland. On July 19, 1999, PrimeCares legal counsel wrote a letter terminating the relationship in 30 days.
Inland sued PrimeCare for contractual interference, breach of contract, constructive fraud, and an accounting. PrimeCare filed a cross-complaint for declaratory relief and breach of contract against Inland.
In the course of discovery, PrimeCare answered requests for admissions in which it admitted the letter of intent was a "valid, binding, and enforceable agreement" between January 25, 1999, and August 19, 1999.
Finding there was no triable issue of fact about breach of contract, the court granted a directed verdict in favor of Inland. The court ruled a two-year contract existed and could not be terminated upon 30-days notice. It instructed the jury: "I have determined as a matter of law that Inland Primary Care Medical Group has established that PrimeCare International and PrimeCare Medical Network breached their contract with Inland Primary Care Medical Group. Therefore, your sole obligation as to this claim is to determine what, if any, damages were caused by the breach of contract."
3. The Directed Verdict in Favor Of Inland
The dispositive issue concerns the propriety of the directed verdict. We review the grant of a directed verdict under a stringent standard. We disregard conflicting evidence and indulge every legitimate inference in favor of PrimeCare. In order to sustain the directed verdict in favor of Inland, there must be a total lack of evidence to support a ruling in favor of PrimeCare such that the only possible ruling is against it.
Newing v. Cheatham (1975) 15 Cal.3d 351, 358-359.
Vinson v. Ham Bros. Constr., Inc. (1970) 7 Cal.App.3d 990, 993.
At trial, the parties focused on several issues involving the $500,000 line of credit, the membership enrollment for Inland, and the ability to terminate the letter of intent based on 30-days notice. The trial court granted the directed verdict based on two grounds. First, the court decided that, based on PrimeCares admission, the letter of intent was a contract, and based on the testimony of Briccetti and DeValk, the credit line was not a condition of the contract. Second, the court decided the contract was for a two-year term and not terminable upon 30-days notice or at all. Therefore, the court held a breach of contract occurred as a matter of law.
On appeal, both parties raise a host of issues involving performance, breach, termination, repudiation, the line of credit, and best efforts. PrimeCare characterizes the trial courts directed verdict as an implied finding that defendants had repudiated the letter of intent with Inland. But PrimeCare maintains that factual disputes remained about whether Inland had repudiated the contract first and whether PrimeCare was entitled to terminate the letter of intent because there was no line of credit and because Inland had not performed. PrimeCare asserts substantial evidence could have supported a jury finding that PrimeCare did not repudiate the letter of intent by terminating it in August 1999.
In response, Inland strenuously argues the evidence shows PrimeCare terminated or repudiated the contract on July 19 before Inland decided to disband as a group on July 30. Inland also maintains PrimeCare breached the contract by not arranging for a line of credit. Finally, Inland asserts there was no right to terminate the contract based on 30-days notice.
For the most part, the record supports the trial courts reasons for granting the directed verdict. PrimeCare admitted the letter of intent was a binding contract. In its reply brief, PrimeCare also admits Inlands decision to disband came after PrimeCare delivered the termination letter.
Furthermore, as to the $500,000 line of credit, both Devalk and Briccetti testified that PrimeCare did not have to provide the $500,000 line of credit to Inland. They also testified that the agreement was not conditioned upon Inland receiving a line of credit. Rupal Shah, one of the other Inland doctors, did not believe the line of credit was essential to the letter of intent. Neither of the two formal agreements, the general services agreement and the management services agreement, which were contemplated to fulfill the letter of intent, refer to the requirement of a line of credit. Even the hearsay testimony of Gerald Coil, DeValks supervisor—which the court admitted during a hearing under Evidence Code section 402 but excluded from the jury—did not expressly state the parties had agreed the line of credit was a condition of the contract. Nor did the court "erroneously [find] that PrimeCare unconditionally promised to obtain the [line of credit] for Inland," as asserted by PrimeCare in its opening brief. PrimeCares citations to the record show the court engaged in a lengthy discussion with counsel on the issues of the case, including the line of credit, but the court did not make any such finding.
Additionally, both Briccetti and DeValk testified that the letter of intent did not contain a provision allowing it to be terminated on 30-days notice. The 30-days notice to terminate related to the exclusivity provision of the letter of intent, not to a general 30-days right to terminate. Again, Coils hearsay testimony on this point did not sufficiently impeach Briccetti and DeValks testimony.
Therefore, we do not find fault with the trial courts granting the directed verdict expressly because the line of credit was not a condition of the contract and because there was no right to terminate upon 30-days notice. Nevertheless, we think the trial court focused too narrowly on these two issues in deciding PrimeCare breached the contract. Instead, the trial court should have considered whether, for other reasons, PrimeCare could justifiably terminate the agreement with Inland without breaching the contract and whether that question should go to the jury.
Evidence in the record shows that, by June or July, Inland did not have enough capitation revenue or working capital to continue to operate. Until June, PrimeCare had covered the shortfall, including paying the doctors salaries. Even if DeValk and Briccetti agreed the line of credit was not a condition of the letter of intent, Inland may not have been financially viable without the line of credit. Under those circumstances, could the trial court properly decide there was no factual issue about whether PrimeCare breached its contract with Inland? We think not. Because factual issues existed regarding whether PrimeCare breached the contract when it ended its relationship with Inland in July 1999, we hold the court erroneously granted a directed verdict. The record demonstrates evidence from which a jury could find that PrimeCare could justifiably terminate the letter of intent and did not breach its contract with Inland in doing so.
BAJI Nos. 10.85, 10.86, and 10.87 recognize the legal principle that a failure to perform a contract is not a breach of contract if the failure is justified or excused. An illustration is the case cited by PrimeCare which most closely resembles this case, Parsons v. Bristol Development Co. Parsons, an architect agreed to perform services for a construction company, Bristol. Bristol could not obtain clear title to the property and therefore could not obtain a construction loan out of which to pay Parsons. Parsons sued and the trial court found that "Bristols obligation to make further payment under the contract was conditioned upon the existence of construction loan funds. On the ground that this condition to plaintiffs right to further payment was not satisfied, the court entered judgment for defendants." The appellate court affirmed: "Each party to a contract has a duty to do what the contract presupposes he will do to accomplish its purpose. [Citation.] Thus, `A party who prevents fulfillment of a condition of his own obligation . . . cannot rely on such condition to defeat his liability. [Citations.] Plaintiff, however, has not shown that Bristol failed to make the proper and reasonable efforts that were contemplated to secure the loan from which he was to be paid. [Citation.] The risk that a loan might not be obtained even though Bristol acted properly and in good faith was a risk clearly anticipated even though the reason the loan failed may not have been foreseen."
Parson v. Bristol Development Co. (1965) 62 Cal.2d 861.
Parson v. Bristol Development Co., supra, 62 Cal.2d at page 864.
Parson v. Bristol Development Co., supra, 62 Cal.2d at pages 868-869.
In Parsons, the contract between the parties failed because Bristol could not get a construction loan from a third party. Similarly, in the present case, the contract between PrimeCare and Inland failed because PrimeCare could not arrange for a line of credit and Inland generated insufficient capitation revenues. Ultimately, it could be found that either Inland or PrimeCare was to blame for one or both of these two problems and therefore breached the letter of intent. But, by granting a directed verdict, the court violated another contract principle that "[w]hether a breach is so material as to constitute cause for the injured party to terminate a contract is ordinarily a question for the trier of fact." The jury should have decided whether PrimeCare had performed adequately and could justifiably terminate the letter of intent and whether PrimeCare or Inland breached the letter of intent.
Whitney Inv. Co. v. Westview Dev. Co. (1969) 273 Cal.App.2d 594, 601.
The jurys resolution of these questions may certainly affect the $3 million damages award, which was based on the existence of a nine-year contract. Additionally, the constructive fraud claim and PrimeCares cross-complaint may also be affected by how the jury ultimately decides Inlands breach of contract claim. The judgment for Inland and for PrimeCare must be reversed and the case remanded for a new trial.
Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 412-413; Guerbadot v. Sneckner (1960) 185 Cal.App.2d 173, 176; Stroman v. Atchison T. & S. F. Ry. Co. (1958) 161 Cal.App.2d 151, 166.
4. The Directed Verdict in Favor of PC Corona
The trial court also granted a directed verdict in favor of PrimeCare Corona on Inlands contractual interference claim. PrimeCare Corona is the IPA under which Inland operated as a group provider pending the completion of Inlands credentialing and a request for proposal. Inland accused PrimeCare Corona of inhibiting the transfer of patients to Inland. The evidence cited by Inland does not support this theory of liability.
The elements of tortious interference with contract are a valid contract between the plaintiff and a third party, defendants knowledge of the contract, defendants intentional acts designed to disrupt the contract, actual breach or disruption, and damages.
PMC, Inc. v. Saban Entertainment, Inc. (1996) 45 Cal.App.4th 579, 595, disapproved of on other grounds in Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134.
There is no evidence any of the doctors affiliated with PrimeCare Corona did anything to affect the agreement between Inland and PrimeCare. Instead, Inland points a finger at three people: Diane Gephart, an employee of PrimeCare who acted as administrator for PrimeCare Corona and Inland in 1999; Don Comstock, an independent consultant working for PrimeCare; and John Cronin, another consultant and an acting chief executive officer for PrimeCare. Relying on nothing more than these tenuous connections to PrimeCare Corona, Inland contends these three individuals were actually agents of PrimeCare Corona and acted on its behalf by refusing to conduct an audit of the membership enrollments for PrimeCare Corona and Inland.
Ultimately, in its cross-appellants reply brief, Inland concedes its quarrel is not with PrimeCare Corona, the IPA, but with PrimeCare, the obligor under the letter of intent. Inland states: "[Inland] claims that PrimeCare breached the [letter of intent] by failing to allocate and pay [Inland] for hundreds, if not thousands of HMO members . . . ." Inland accuses PrimeCare and DeValk of wrongly assigning Inlands HMO members to PrimeCare Corona and PrimeCare of refusing to audit the enrollments and effect reassignments to Inland. But PrimeCare Corona is not implicated. Although PrimeCare may have breached its contract with Inland, there is no viable contention that PrimeCare Corona interfered with Inlands contract with PrimeCare.
5. Disposition
We affirm the ruling granting a directed verdict in favor of PrimeCare Corona on Inlands claim for contractual interference. Otherwise, we reverse the judgment and remand for a new trial. The prevailing parties are awarded their costs on appeal.
We concur: Ramirez, P.J. and Hollenhorst, J.