Found. for Seacoast Health v. HCA Health Servs. of N.H., Inc.

• Decision Date: 15 July 2008
• Docket Number: No. 2007–537.,2007–537.
• Citation: 953 A.2d 420,157 N.H. 487
• Court: New Hampshire Supreme Court
• Parties: FOUNDATION FOR SEACOAST HEALTH v. HCA HEALTH SERVICES OF NEW HAMPSHIRE, INC. and another

157 N.H. 487

953 A.2d 420

FOUNDATION FOR SEACOAST HEALTH

v.HCA HEALTH SERVICES OF NEW HAMPSHIRE, INC. and another

No. 2007–537.

Supreme Court of New Hampshire.

Argued: May 22, 2008.

Opinion Issued: July 15, 2008.

Devine, Millimet & Branch P.A., of Manchester (George R. Moore and Daniel E. Will on the brief, and Mr. Moore orally), and McDermott, Will & Emery LLP, of Boston, Massachusetts (Emily E. Smith–Lee on the brief), for the plaintiff.

McLane, Graf, Raulerson & Middleton P.A., of Manchester (Wilbur A. Glahn, III on the brief), and Latham & Watkins LLP, of Washington, D.C. (Everett C. Johnson, Jr. & a. on the brief and Mr. Johnson orally), for the defendants.

HICKS, J.

The plaintiff, Foundation for Seacoast Health (Foundation), appeals decisions of the Superior Court (McHugh, J.) granting the defendants', Hospital Corporation of America (HCA) and its successors and HCA Health Services of New Hampshire, Inc. (HCA–NH), motion for summary judgment and motion to dismiss, and denying the Foundation's motion for partial summary judgment. We affirm in part, vacate in part and remand.

I. Background

The trial court found or the record supports the following. In 1895, the New Hampshire legislature created the Portsmouth Regional Hospital (hospital) as a public trust. In 1983, the trustees of the hospital decided to sell the hospital and entered into an Asset Purchase Agreement (APA) with HCA and HCA–NH. When the parties entered into the APA, HCA was a publicly traded national corporation that owned all of the common stock of HCA–NH. Upon closing, HCA–NH became the owner of the hospital's assets and operator of the hospital.

The proceeds of the sale went to the creation of the Foundation, a nonprofit entity charged with, among other things, ensuring that the hospital continued to meet the healthcare needs of the community. The APA affords the Foundation a right of first refusal (ROFR) to repurchase the hospital's tangible assets under certain circumstances.

We note here that HCA has undergone numerous transactions since 1983 and is currently survived by a successor. For ease of reference, we adopt the defendants' use of the term "HCA3" to refer to the 1983 iteration of HCA and all its successors. We also note that the defendants acknowledge that HCA3 took HCA's place under the APA.

The ROFR provision reads as follows:

5.2.11. Right to Repurchase Hospital.

(a) Right of First Refusal. Neither [HCA3] nor HCA–NH will directly or indirectly by merger or transfer of stock or otherwise sell, transfer, assign, or otherwise dispose of all or any substantial part of the assets of the Hospital (a "Transfer") unless (i) [HCA3] shall have received a bona fide arm's length written offer with respect to the Transfer of such assets of the Hospital (a "Bona Fide Offer"), and (ii) prior to the making of any such Transfer, [HCA3] shall have given written notice to the Foundation stating its desire to dispose of such assets and enclosing a copy of the Bona Fide Offer. Thereafter, the Foundation shall have an assignable option to purchase all (but not less than all) of the tangible assets specified in such notice, said option to be exercised by the giving, by the Foundation or its assignee (the "Purchaser"), as appropriate, within 120 days after delivery of such notice, of a counter-notice stating that the sender of such counter-notice desires to purchase all of such assets.... Notwithstanding the foregoing, this Section 5.2.11(a) shall not apply to a Transfer by [HCA3] or HCA–NH to a wholly-owned subsidiary of [HCA3] ("Transferee") if, from and after such Transfer, the Transferee shall perform and assume all obligations of [HCA3] and HCA–NH under this Agreement and prior to such Transfer shall agree to such performance and assumption of obligations in a writing satisfactory to the Seller; provided, however, that no such Transfer shall relieve [HCA3] from any of its obligations hereunder.

APA § 5.2.11(a).

HCA–NH continued to own and operate the hospital since the parties entered into the APA in 1983. However, numerous transactions and corporate restructurings occurred after 1983 significantly altering the corporate structure above HCA–NH. We need not recite every transaction here. Because the issues on appeal center around a 2006 leveraged buy-out (2006 LBO) and a transaction in 1999 (1999 transaction), we recite only those facts pertinent to these transactions.

By 1999, HCA3, now a limited liability company by merger, was held by a company called Healthtrust, Inc.—The Hospital Company (Healthtrust), which in turn was held by a company called Columbia/HCA Healthcare Corporation (Columbia). HCA3, in turn, owned 100% membership interest in Hospital Corp., LLC. Hospital Corp., LLC had previously been inserted, through a series of transactions, into the corporate chain between HCA3 and HCA–NH, and in 1999, it owned 100% of the common stock of HCA–NH, which continued to own the hospital's assets.

In the 1999 transaction, HCA3 transferred 100% of its membership interest in Hospital Corp., LLC to HCA3's parent, Healthtrust. This resulted in the removal of HCA3 from the hospital's corporate chain. HCA3 did not send the Foundation written notice of this transaction. After the 1999 transaction, Columbia was the parent corporation to Healthtrust, which held Hospital Corp., LLC, which was the parent company to HCA–NH, which owned the hospital's assets.

Over the next two years, Columbia's name was changed twice and by 2001, it was known as HCA Inc. In 2006, HCA Inc. was the subject of the 2006 LBO, through which a group of private investors acquired all of HCA Inc.'s stock. HCA Inc. did not send the Foundation written notice of this transaction. In response to inquiries from the Foundation, HCA Inc. sent a letter explaining its position that the ROFR was not triggered by the 2006 LBO.

In October 2006, before the 2006 LBO transaction was finalized, the Foundation filed suit against HCA3 and HCA–NH seeking: (1) a declaratory judgment that the proposed 2006 LBO triggered the ROFR; (2) injunctive relief to prohibit the LBO; (3) specific performance under the terms of the ROFR; and (4) damages for a breach of the implied covenant of good faith and fair dealing. The Foundation subsequently withdrew its motion for injunctive relief and the HCA Inc. shareholders completed the 2006 LBO.

In March 2007, both the Foundation and the defendants filed motions for summary judgment. The defendants sought summary judgment on all counts; the Foundation sought partial summary judgment on its petition for declaratory judgment "that the recent sale of the Defendants' corporate parent triggered an unambiguous contractual right of first refusal belonging to the Foundation."

In April, before the hearing on the summary judgment motions, the Foundation filed an amended petition adding a claim for breach of contract for the refusal to give the Foundation "an opportunity to exercise its right of first refusal" during the 2006 LBO. The amended petition also added claims for breach of contract and breach of the implied covenant of good faith and fair dealing against the defendants for the 1999 transaction, which the Foundation asserted it had learned of "only recently."

In May 2007, the trial court issued an order denying the Foundation's motion for partial summary judgment and granting the defendants' motion for summary judgment, resulting in the dismissal of the Foundation's challenge to the 2006 LBO. Finding the language of the ROFR unambiguous, the trial court ruled:

[A]bsent a "change of control" provision in a ROFR clause, a stock sale does not generally amount to a transfer of corporate assets that will trigger the ROFR....

[T]he plain terms of the ROFR at issue here do not guarantee the Foundation a right-of-first-refusal triggered by a change in HCA [Inc.]'s shareholders. HCA–NH is still the direct owner of the assets of Portsmouth Regional Hospital; until such time as those assets have been legally transferred to another entity, the ROFR lies dormant.

The defendants subsequently filed a motion to dismiss the Foundation's remaining claims regarding the 1999 transaction for failure to state a claim for which relief can be granted. The defendants argued that the court's summary judgment order compelled dismissal of the Foundation's remaining claims. The court agreed, ruling: "[The] prior order [of] the court found as a matter of law that the Foundation's ROFR is only triggered by an actual transfer of the assets[,]" and "[d]espite the corporate reformations ... in 1999, actual ownership of the assets of the Hospital has remained constant." The Foundation argues that the trial court erred in finding "that only a transfer of the Hospital assets from their immediate owner triggers the right of first refusal."

II. The Right of First Refusal Provision

"The interpretation of a contract, including whether a contract term is ambiguous, is ultimately a question of law for this court to decide. Accordingly, we review a trial court's interpretation of a contract de novo. " Behrens v. S.P. Constr. Co., 153 N.H. 498, 500, 904 A.2d 676 (2006) (citation omitted).

When interpreting a contract, "our inquiry focuses on the intent of the contracting parties at the time of the agreement." R. Zoppo Co. v. City of Dover, 124 N.H. 666, 671, 475 A.2d 12 (1984).

In the absence of ambiguity, the parties' intent will be determined from the plain meaning of the language used. The words and phrases used by the parties will be assigned their common meaning, and we will ascertain the intended purpose of the contract based upon the meaning that would be given to it by a reasonable person.

Greenhalgh v. Presstek, 152 N.H. 695, 698, 886 A.2d 1000 (2005) (citation omitted).

The Foundation argues that the trial court erred in denying its motion for partial summary judgment because: (1) the plain language of the ROFR provision demonstrates an intent to reach parent-level stock transactions; (2) the ROFR provision and the APA...