Health Application Systems, Inc. v. Hartford Life and Acc. Ins. Co.

• Decision Date: 12 March 1980
• Docket Number: No. NN-37,NN-37
• Citation: Health Application Systems, Inc. v. Hartford Life and Acc. Ins. Co., 381 So.2d 294 (Fla. App. 1980)
• Parties: HEALTH APPLICATION SYSTEMS, INC., Appellant, v. HARTFORD LIFE AND ACCIDENT INSURANCE COMPANY and State of Florida Department of Health and Rehabilitative Services, a State agency, Appellees.
• Court: Florida District Court of Appeals

Page 294

381 So.2d 294

HEALTH APPLICATION SYSTEMS, INC., Appellant, v. HARTFORD LIFE AND ACCIDENT INSURANCE COMPANY and State of Florida Department of Health and Rehabilitative Services, a State agency, Appellees.

No. NN-37.

District Court of Appeal of Florida, First District.

March 12, 1980.

F. Perry Odom, C. Everett Boyd of Ervin, Varn, Jacobs, Odom & Kitchen, Tallahassee, for appellant.

M. Stephen Turner of Thompson, Wadsworth, Messer, Turner & Rhodes, Tallahassee, Marion R. Shepard, John M. McNatt of Mathews, Osborne, Ehrlich, McNatt, Gobelman & Cobb, Jacksonville, Fred W. Baggett, Tallahassee, for appellees.

LARRY G. SMITH, Judge.

This case deals with the sufficiency of pleadings filed in litigation arising from a contractual dispute. Health Application Systems, Inc. (HAS) appeals an order of the trial court dismissing, with prejudice, its counterclaim against appellee, State of Florida, Department of Health and Rehabilitative Services (HRS), and the third party complaint of HAS against appellee, Hartford Life and Accident Insurance Company. The litigation was initiated by HRS, which sued Paid Prescriptions, Inc. (PAID), and HAS, claiming breach of contract and conversion of funds by PAID and HAS under PAID's agreement with HRS for the furnishing of certain administrative services relating to the Florida Medicaid Drug Program. The issues on appeal are (1) whether HAS's counterclaim against HRS stated a cause of action based upon an alleged assignment by PAID, to HAS, of certain funds payable under the contract between PAID and HRS; and (2) whether HAS's third-party complaint states a cause of action against Hartford, in behalf of HAS as a third-party beneficiary of a reinsurance agreement between Hartford and PAID which protected PAID from losses under its contract with HRS. The third-party complaint also sought recovery against Hartford based upon theories of indemnification, contribution, or subrogation. We agree with the trial judge's ruling that neither the counterclaim nor the third-party complaint state a cause of action, and we affirm the orders of dismissal.

An explanation of the status of the parties and the manner in which the dispute arose will be helpful in understanding the issues. The State of Florida participates in the Medicaid program under Title XIX of the Social Security Act, 42 U.S.C.A. § 1396, et seq. (1974). The State's program provides pharmaceutical drug benefits to low income individuals. HRS, which is in charge of the program for the State, entered into a contract in 1974 with PAID to administer the program, keep records, and pay the pharmacists providing drugs to Medicaid recipients. PAID was compensated by HRS by fixed rate "premiums" based upon the number of eligible recipients receiving drugs. PAID protected itself against the possibility of loss under the 1974 contract by a "stop-loss" or reinsurance agreement with Hartford. The reinsurance agreement expired on June 30, 1976, the date on which the 1974 contract terminated. Although PAID and HRS entered into a second contract commencing July 1, 1976, no reinsurance agreement was entered into with Hartford for coverage of this second contract.

PAID's contractual arrangement with HAS was as follows: PAID subcontracted with HAS for HAS to perform certain duties under the 1974 and 1976 contracts, consisting of the administrative, managerial, and record keeping functions, including preparation of checks and making payments using PAID's funds. For the services performed, HAS was to receive 91/2% of all contract premiums received by PAID from HRS.

The suit filed by HRS against PAID and HAS claims damages relating to the 1976 contract. HRS's claim is that PAID and HAS breached the 1976 contract and converted funds paid by HRS under the 1976 contract by paying claims owed by PAID under the 1974 contract. HRS claims injury because the contract required PAID to maintain a reserve account for deposit of premiums paid by HRS, from which HRS was to receive the interest earned and 75% of the balance remaining at the expiration of the contract. HRS alleged that as a result of the improper payment of funds by PAID (through HAS), HRS sustained claimed damages in excess of three million dollars. After filing of the complaint, HRS and PAID settled all claims against each other, and PAID was dismissed from the law suit.

Turning first to the issues relating to dismissal of HAS's counterclaim against HRS, we note initially that the counterclaim, although in two counts, essentially is based upon HAS's allegation that it has a cause of action directly against HRS by virtue of an assignment by PAID to HAS of 91/2% of the premiums payable by HRS to PAID under the 1974 contract. We conclude, after examination of the pleadings, and the contracts attached as exhibits, that there was no assignment, and that consequently, dismissal of the counterclaim was proper.

The pertinent language of HAS's contract with PAID, relied upon by it as an assignment, is as follows:

"WHEREAS, PAID desires to subcontract certain of its obligations and to assign certain of its rights under the Third Party Contract to HAS; and

"WHEREAS, HAS is willing to assume the obligations hereinafter referred to in consideration of the assignment of that portion of HAS' rights under the contract hereinafter described;

"1. PAID does hereby subcontract to HAS and HAS does hereby assume and agree to perform all of the obligations imposed upon PAID pursuant to the following provisions of the Third Party Contract . . .

"3. PAID agrees to remit to HAS, or authorizes HAS to retain, as the case may be, nine and one-half (91/2%) of the gross monthly premiums received by PAID, as the case may be, pursuant to the Third Party Contract . . ." (Emphasis supplied)

We parenthetically observe that under the Florida Rules of Civil Procedure, and case law interpreting the rule, exhibits attached to a pleading become a part for all purposes; and if an attached document negates the pleader's cause of action or defense, the plain language of the document will control and may be the basis for a motion to dismiss. Rule 1.130(b), Florida Rules of Civil Procedure; Padgett v. First Federal S & L Ass'n, 378 So.2d 58 (Fla. 1st DCA 1979). See also Trawick, Florida Practice and Procedure, § 6-15 at 75 (1978).

We think it is clear, as argued by HRS, that the contractual provision whereby HAS was to receive 91/2% of the gross monthly premiums "received by PAID", does not constitute an assignment. A mere agreement to pay a debt out of a designated fund does not operate as a legal or equitable assignment, since the assignor retains control over the subject matter. Miller v. Wells Fargo, 540 F.2d 548, 558 (2nd Cir. 1976). Such an agreement amounts only to a mere promise to pay, and does not meet the test of an intention on the part of the assignor to give, and of the assignee to receive, present ownership of the fund, Lone Star Cement Corp. v. Swartwout, 93 F.2d 767, 770 (4th Cir. 1938).

A subcontractor does not, merely by virtue of the relationship with the principal contractor, become an assignee of funds due under the prime contract. Nickel v. Pollia, 179 F.2d 160 (10th Cir. 1950). The rule with respect to subagents is stated in the Restatement of Agency 2d, § 458a as follows:

"If an agent employs a subagent, the agent is the employing person, and the principal is not a party to the contract, except where,...