Iron Mound LLC v. Nueterra Healthcare Mgmt. LLC

• Decision Date: 25 June 2010
• Docket Number: No. 101,647.,101
• Citation: 234 P.3d 39
• Parties: IRON MOUND, LLC, Appellant,v.NUETERRA HEALTHCARE MANAGEMENT, LLC, Successor-In-Interest of ASC Group, LLC, Appellee.
• Court: Kansas Court of Appeals

234 P.3d 39

IRON MOUND, LLC, Appellant,v.NUETERRA HEALTHCARE MANAGEMENT, LLC, Successor-In-Interest of ASC Group, LLC, Appellee.

No. 101,647.

Court of Appeals of Kansas.

June 25, 2010.

[234 P.3d 104]

Syllabus by the Court

1. When the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law, summary judgment is appropriate. The trial court is required to resolve all facts and inferences which may reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. In order to preclude summary judgment, the facts subject to the dispute must be material to the conclusive issues in the case. On appeal, the same rules apply; summary judgment must be denied if reasonable minds could differ as to the conclusions drawn from the evidence.

2. The primary rule for interpreting written contracts is to ascertain the intent of the parties. If the terms of the contract are clear, the intent of the parties is to be determined from the language of the contract without applying rules of construction.

3. Under Kansas law, a court may ascertain the existence and terms of an agreement from a combination of written instruments and the acts of the parties in connection therewith.

4. Where ambiguity is involved in an agreement, courts consider all language employed, the circumstances existing when the agreement was made, the object sought to be attained, and other circumstances, if any, which tend to clarify the real intention of the parties.

5. The parties to a contract know best what was meant by its terms, since they are the least liable to be mistaken as to what was intended, and where the contract is ambiguous as to a material point, parol evidence will be received to aid in its construction.

6.

[234 P.3d 105]

Under the facts of this case, a genuine issue of material fact exists as to the parties' intent concerning the payment of management fees under their agreement, and the issue was prematurely decided as a matter of law at the summary judgment stage.

Jeffery L. Carmichael, of Morris, Laing, Evans, Brock & Kennedy, Chartered, of Wichita, for appellant.

Scott C. Nehrbass, James D. Oliver, and Matthew D. Stromberg, of Foulston Siefkin LLP, of Overland Park, for appellee.

Before HILL, P.J., GREEN and STANDRIDGE, JJ.

GREEN, J.

Iron Mound, LLC (Iron Mound) appeals from the trial court's judgment granting summary judgment to Nueterra Healthcare Management, LLC (Nueterra) and denying summary judgment to Iron Mound on Iron Mound's breach of contract claims. On appeal, Iron Mound argues that the trial court inappropriately granted summary judgment to Nueterra based on the trial court's improper interpretation and application of an agreement between the parties as to the payment of management fees. We agree that the trial court improperly granted summary judgment to Nueterra. Based on the evidence presented at the summary judgment stage, a genuine issue of material fact exists as to the parties' intent concerning the payment of management fees under the agreement. As a result, the question of whether Iron Mound was entitled to continued payment of management fees is one of fact, and the issue was prematurely decided as a matter of law at the summary judgment stage. Accordingly, we reverse and remand.

On March 26, 1999, Iron Mound entered into an Operating Agreement with ASC Group, LLC (ASC Group) for ASC Midwest, LLC (ASC Midwest). Under the terms of the Operating Agreement, Iron Mound held a 40% interest in ASC Midwest, and ASC Group held a 60% interest in ASC Midwest. The purpose and business of ASC Midwest was to develop, own, and operate ambulatory surgical facilities and other healthcare facilities.

Before the Operating Agreement was executed, the chairman and president of ASC Group, Dan Tasset, and the equal interest holders in Iron Mound, attorney A.J. Schwartz and Ward Schraeder,

[234 P.3d 106]

had been involved in business dealings to develop and manage surgical hospitals, ambulatory surgical centers, and other medical projects. Schwartz testified that before the Operating Agreement was executed, he and Schraeder, not ASC Group, had already made the contacts and done a lot of the “ground floor” work for surgical center projects in Manhattan, Salina, and Topeka and, therefore, Iron Mound was to receive a higher percentage of the management fees from those projects.

The agreement between ASC Group and Iron Mound as to the division of management fees from the surgical centers was outlined in Article X, Section 10.2 of the Operating Agreement as follows:

“10.2 Revenues Relating to Services Performed by ASC or Its Affiliates. Following the admission of ASC and Iron Mound as Members of the Company, ASC and Iron Mound agree that ASC or its Affiliates may contract with the Company or the Centers to perform the following specialized services (collectively the ‘Services') with the percentage of revenues specified below to be received by the Company and allocated among the Members in accordance with their respective Percentage Interests. It is acknowledged by ASC and Iron Mound that neither the Company nor Iron Mound shall have any right to revenues from the Services which are not included within the percentages set for[th] below. The Company shall be entitled to receive the following percentages of the revenues received by ASC or its affiliates for performing the Services on behalf of the Center:

“(a) Management Services: 25% of the gross management fee received.

“(b) Business Development and Set Up Services: 90% of the development fee received after payment of (i) expenses incurred by ASC and Iron Mount attributable to travel, meals and use of outside consultants to perform such Services, and (ii) payment to Iron Mound of a one time payment of $42,500 for each Center developed by the Company.

“(c) In the event that ASC or its Affiliates should obtain a Management Agreement for the Topeka, Salina or Manhattan Centers contemplated on the date of the execution of this Agreement, the percentages of the revenues from the Management Services to be received by the Company shall vary from that indicated in (b) above, in that the gross fees received from such Management Agreements shall be divided as follows: (i) Topeka-Company 0% and Iron Mound-15%; (ii) Salina and/or Manhattan-Company 0% and Iron Mound 20%. ” (Emphasis added.)

On April 24, 1999, ASC Management, LLC (ASC Management), which was a wholly owned subsidiary of ASC Group, and Manhattan Surgical Center, LLC, (Manhattan Surgical Center) entered into a management agreement (Management Agreement I) for

[234 P.3d 107]

ASC Management “to provide its skills, supervision and certain personnel to operate the Center.” As compensation for its services, Manhattan Surgical Center was to pay ASC Management a business development fee of $100,000 and a management fee of 7% of the monthly collected net revenues derived from the operation of Manhattan Surgical Center. Management Agreement I was to remain in effect for 5 years and would automatically renew for successive 5-year terms unless either ASC Management or Manhattan Surgical Center gave notice of election of nonrenewal at least 90 days before the expiration of any such term.

On May 25, 2001, Schwartz sent a letter to Tasset stating that Iron Mound had elected to dissolve ASC Midwest and that he would be attending to the duties regarding the winding up of ASC Midwest. Under Article XV, Section 15.1(b) of the Operating Agreement, Iron Mound could elect to dissolve ASC Midwest: “The Company will be dissolved upon the happening of any of the following events: ... The election to dissolve by a Member holding at least 40% of the Percentage Interests of the Company.” Schwartz filed a Certificate of Cancellation for ASC Midwest with the Kansas Secretary of State's office on May 30, 2001. When ASC Midwest was dissolved, it had no liabilities, and its only significant asset was the interest in management fees with respect to the Manhattan Surgical Center as provided in Section 10.2 of the Operating Agreement. Both Schwartz and Schraeder testified that one of the things accomplished by the dissolution of ASC Midwest was to free Iron Mound from the restrictive covenants under Section 4.7 of the Operating Agreement.

Despite the fact that ASC Midwest was dissolved in May 2001, ASC Management, which later became Nueterra, continued making payments to Iron Mound in compliance with the Operating Agreement until February 2006.

On February 7, 2006, Nueterra entered into a new management agreement (Management Agreement II) with Manhattan Surgical Center for a period of 7 years. Under the terms of Management Agreement II, Manhattan Surgical Center agreed to pay Nueterra 4% of the monthly net revenue for the period during the term beginning February 7, 2006, and ending on January 31, 2007; 3.5%

[234 P.3d 108]

of the monthly net revenue for the period during the term beginning February 1, 2007 and ending on January 31, 2008; and 3% of the monthly net revenue for the period during the term beginning February 1, 2008, and ending February 6, 2013.

According to Tasset, Manhattan Surgical Center refused to continue paying at the rate specified in Management Agreement I and was going to attempt to find a new management company or to manage itself. As a result, Nueterra negotiated Management Agreement II with substantially lower management fees. Tasset outlined the differences between the two management agreements, including that Nueterra provided all the business office billing functions under Management Agreement I and now Manhattan Surgical Center provided those services under Management Agreement II. On the other hand, James...