April 14, 2018

Indiana Wants to Enforce Contracts as Written; The Care Group Heart Hospital, LLC v. Sawyer

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This case is a lesson to lawyers who engage in extreme advocacy—courts do not like it.

Sawyer was a cardiologist at St. Vincent Medical Group, and a member-owner of The Care Group Heart Hospital. These relationships were governed by three agreements: (1) an employment agreement between Sawyer and the Medical Group; (2) an operating agreement between Sawyer and the Hospital; and (3) a joinder agreement among all three parties, which conditioned Sawyer’s ownership interest in the Hospital on his continued employment with the Medical Group. Under the joinder agreement, Sawyer was to have his interest in the Hospital redeemed “within ninety days of any termination of employment.”

Eventually, Sawyer’s employment with the Medical Group was terminated. But the Hospital did not pay him his redemption amount for almost eight months. Sawyer sued the Medical Group and the Hospital. Against the Medical Group, he claimed tortious interference with business relationships; breach of the duty of good faith and fair dealing; and breach of the employment agreement, which caused him to lose both his employment and his ownership interest in the Hospital. Against the Hospital, he brought a breach-of-contract claim.

The Hospital filed numerous dispositive motions (a motion to dismiss, motion for summary judgment, and motion for judgment on the evidence), arguing it did not breach the joinder agreement because it paid Sawyer his redemption. The trial court denied all of these motions. Eventually, the jury returned a verdict for $470,000 against the Hospital for breach of the joinder agreement.

The Hospital moved to correct error, reiterating its previous arguments. It argued that it should only be liable for $6,559.60—the interest on the five-month delay in paying the redemption amount at the statutory rate of eight percent. The trial court denied that motion, too. Finally, the trial court awarded sanctions to Sawyer as a result of a discovery dispute. The Court of Appeals affirmed all but the sanction award, and the Indiana Supreme Court accepted transfer.

On transfer, the Court first addressed whether the trial court erred when interpreting the joinder agreement. Sawyer argued that the Hospital had waived this issue because it agreed to jury instructions on breach. But the Court found that the Hospital did not need to object to the jury instructions to preserve its argument that the trial court erred in a contract-interpretation ruling that was outside the jury’s purview.

The Court then turned to the joinder agreement, which required that Sawyer’s interest be redeemed after “any termination of employment” with the Medical Group. Sawyer argued that “any termination” means only a termination permitted by the employment agreement’s terms because the employment agreement and joinder agreement are really one contract. The Court disagreed.

First, it found that it was improper to read the two agreements as one under the contemporaneous document doctrine. That doctrine lets courts construe together contracts that relate to the same transaction or subject matter, if nothing indicates a contrary intention, on a case-by-case basis. But this doctrine won’t apply if one of the litigants is not a party to one of the contracts, unless the litigant who is absent from the cast of parties to one of the agreements is nevertheless “the same in essential respects” to a party to that agreement. In this case, the Hospital was not a party to the employment agreement between Sawyer and the Medical Group, and Sawyer failed to prove that they should be treated as the same essential entity.

In one breath, Dr. Sawyer acknowledges that the Medical Group and the Hospital are separate entities. In his amended complaint, he identifies them as different defendants, observes that the Medical Group is a corporation while the Hospital is a limited liability company, seeks to recover his lost ownership interest from both the Medical Group and the Hospital, and explains that his employment relationship with the Medical Group differs from his ownership relationship with the Hospital.

But in the next breath, he denies this separation as “simply a fiction.” He argues that St. Vincent Health is, in his words, the “mother ship” with a controlling ownership of both the Hospital and the Medical Group. He also reasons that the Hospital and the Medical Group retained the same counsel through trial.

We disagree that the Hospital and the Medical Group are a single entity. As Dr. Sawyer has already acknowledged, the two parties have different business structures, are different defendants, and have different relationships with him. He has not tried to pierce the corporate veil, and sharing an attorney does not make the Hospital and the Medical Group one and the same.

Second, Sawyer argued that the joinder agreement incorporated the entire employment agreement. The joinder agreement referred to the employment agreement, attached the employment agreement as an exhibit, and expressly incorporated one provision of the employment agreement (a provision which did not affect the case). But the Court found that these facts were not enough to make the entire employment agreement part of the joinder agreement. “[T]he incorporating contract [] must clearly and explicitly communicate the intent to incorporate the other writing,” and none of the joinder agreement’s references to the employment agreement included an incorporation clause.

“The joinder agreement simply lacks the requisite expression of intent to incorporate the entire employment agreement.”

Thus, the joinder agreement’s obligation to redeem upon “any termination” meant what it said—any termination, regardless of whether that termination was proper.

Thus, looking only within the four corners of the joinder agreement, the plain meaning of “any termination” is any termination, for any reason. This includes a termination that breaches the employment agreement. … Adding the terms of Dr. Sawyer’s reading—any termination under the employment agreement—would dramatically change the parties’ agreement.

The Hospital did not breach the joinder agreement when it discontinued and paid out Sawyer’s ownership interest, and the trial court erred in finding otherwise. The Hospital’s breach was by not paying the redemption within 90 days, and the proper remedy for this was the statutory 8% for 5 months, or $6,559.60.

Finally, the Court addressed the discovery sanctions. Sawyer argued that the trial court should have ordered more, but the Court again disagreed with him.

Here, discovery disputes hampered every stage of this protracted litigation, and the trial court sanctioned Dr. Sawyer and the defendants along the way.

One of those sanctions happened after the defendants did not comply with a motion to compel. The trial court issued an order awarding Sawyer any expenses, fees, or costs incurred in the contempt proceedings. He then filed a fee petition asking for $450,000, which included expenses for a separate qui tam lawsuit, a motion for default judgment that was denied, summary judgment filings, and a consumer complaint against another doctor. The defendants argued that only $27,233.19 of his requested fees were appropriate, and the courts agreed. In particular, the Court found that Sawyer’s “requests for expenses unrelated to discovery abuses” supported the trial court’s sanctions award.

As an aside, the Court noted in a footnote that it was addressing “repetitive motions” filed by Sawyer’s counsel in a separate order. That order criticized Sawyer’s counsel for filing multiple “motions” and other papers, which were in substance additional merits briefs. This included: (1) a 6-page “Motion for Oral Argument” accompanied by 210 pages of “exhibits” that were not part of the appellate record; (2) a 7-page “Verified Corrections of Misrepresentations During Rebuttal at Oral Argument;” and (3) a 228-page (including exhibits) “Motion for Remand to Trial Court for Consideration of Motion for Relief Based on Defendants’ Fraud on the Court.” The Court described each of these as “little more than a more-strident continuation of arguments in Appellee’s transfer briefing and a new effort to expand the Record on Appeal outside Rule 32’s parameters.”

In conclusion, we amplify Reed’s admonition: After transfer briefing is closed, further arguments on the merits—by any name—may be filed only by leave of this Court or in the limited form Rule 48 authorizes for notices of additional authority. By that measure, Appellee’s submissions described above are improper and should be stricken.

Based on the unhappiness the Court expressed with Sawyer’s counsel, they are lucky to have escaped without any sanctions imposed upon them.

Lessons:

  1. Contemporaneously signed documents will not generally be read as one agreement if they contain different parties.
  2. A contract will not incorporate another contract entirely unless it contains an expression of intent to incorporate.
  3. Courts will not look kindly on a fee petition which includes a request for fees that have nothing to do with the sanction being imposed.
  4. Once briefing on transfer is closed, lawyers should obtain leave of court before filing anything else which could be understood to be arguments on the merits.