KTM Health Care Inc. v. SG Nursing Home LLC

• Decision Date: 16 August 2018
• Docket Number: No. 20160558-CA,20160558-CA
• Citation: 436 P.3d 151
• Parties: KTM HEALTH CARE INC., Appellee and Cross-appellant, v. SG NURSING HOME LLC DBA Kolob Care & Rehabilitation of St. George, and Apex Healthcare Solutions LLC, Appellants and Cross-appellees.
• Court: Utah Court of Appeals

436 P.3d 151

KTM HEALTH CARE INC., Appellee and Cross-appellant,

v.SG NURSING HOME LLC DBA Kolob Care & Rehabilitation of St. George, and Apex Healthcare Solutions LLC, Appellants and Cross-appellees.

No. 20160558-CA

Court of Appeals of Utah.

Filed August 16, 2018

Gary R. Guelker and Janet I. Jenson, Salt Lake City, Attorneys for Appellants and Cross-appellees.

Justin D. Heideman and Justin R. Elswick, Attorneys for Appellee and Cross-appellant.

Judge Ryan M. Harris authored this Opinion, in which Judges Gregory K. Orme and David N. Mortensen concurred.

Opinion

HARRIS, Judge:

¶1 KTM Health Care, Inc. (Pharmacy) and SG Nursing Home LLC dba Kolob Care & Rehabilitation of St. George (Nursing Home) entered into a written agreement for Pharmacy to become Nursing Home’s exclusive provider of all pharmacy-related products and services. Soon after signing the contract, however, Nursing Home attempted to cancel its agreement with Pharmacy, apparently realizing that it was still contractually committed to a different provider. Pharmacy then sued Nursing Home, asserting claims for breach of contract as well as various fraud-related causes of action. Nursing Home defended the case, in part, by arguing that the parties had been mutually mistaken about Nursing Home’s ability to terminate its contract with its existing provider, and asserting that the parties had therefore never actually entered into an enforceable contract. Prior to trial, on Nursing Home’s motion, the court determined that Pharmacy chose to "elect" its breach of contract remedies and that it would not be permitted to further pursue its fraud-based remedies.

¶2 The case proceeded to trial, and a jury determined that Nursing Home breached the contract and that Pharmacy was entitled to over $143,000 in damages, plus attorney fees, even though the jury instructions made no mention of attorney fees. However, the jury also determined that the parties had, in fact, been mutually mistaken about the terms of Nursing Home’s contract with its previous provider. Believing that the jury’s answers to the questions on the special verdict form were inconsistent, the trial court resubmitted the case to the jury. After briefly re-deliberating, the jury affirmed its breach finding, but changed its mutual mistake finding. It also amended its damages award by increasing the amount of consequential damages while eliminating any mention of attorney fees. Following trial, the court refused to award Pharmacy any prejudgment interest.

¶3 Both parties appeal. Nursing Home asserts that the trial court erred in resubmitting the case to the jury. Pharmacy asserts that the trial court erred by excluding one of its expert witnesses, by dismissing its fraud-based claims prior to trial, and by failing to award prejudgment interest. We affirm in part, reverse in part, vacate the trial court’s judgment, and remand the case for the limited purpose of entering judgment in favor of Pharmacy on its breach of contract claim in an amount consistent with the jury’s original damages award (less attorney fees).

BACKGROUND

¶4 In August 2009, Adam Katschke and a business partner formed Pharmacy. Pharmacy began as an "open-door" pharmacy, which is a "typical retail community pharmacy" that is open to the public. After operating as an open-door pharmacy for several months, Katschke and his business partner decided that they wanted to grow their business, and in 2010 started contacting various entities in southern Utah with the goal of becoming a "closed-door" pharmacy. A "closed-door" pharmacy typically is not open to the public but, instead, serves as a dedicated pharmacy for one or more entities such as long-term care facilities, nursing homes, or assisted living centers.

¶5 One of the entities that Pharmacy contacted was Nursing Home, a facility that billed itself as "the largest skilled nursing facility in Southern Utah." When Pharmacy initially contacted Nursing Home about becoming its pharmacy, Nursing Home already had an existing agreement with a different provider, but was considering a change due to "service issues" it was experiencing with that provider.

¶6 In March 2010, Katschke met with a representative (Manager) of Apex Healthcare Solutions, LLC, the company that owned Nursing Home and had supervisory authority over its employees. During the meeting, Manager indicated to Katschke that Nursing Home was interested in utilizing Pharmacy’s services, but that Katschke had to be the specific pharmacist assigned to the account; no one else would do. Katschke indicated that he would be willing to make arrangements to serve as the face of Pharmacy in its relationship with Nursing Home, and to personally work with Nursing Home during the contemplated closed-door contract. Although they had apparently come close to agreement on material terms, Nursing Home and Pharmacy did not sign a contract at that meeting. According to Katschke, Nursing Home wanted Pharmacy "to go write it up and give [Nursing Home] some proofs" of a proposed contract.

¶7 After meeting with Katschke, Manager contacted Nursing Home’s existing provider to determine whether it could terminate its contract. After that conversation, Manager "was under the impression that [Nursing Home was] on a month-to-month contract" with its existing provider, and that Nursing Home would be able to terminate its contract and transition to a different provider as early as June 28, 2010. However, Nursing Home did not terminate its contract at that time. And Katschke, for his part, was unaware of the terms of Nursing Home’s contract with its other provider.

¶8 Katschke also owned and operated another pharmacy in Nevada (Nevada Pharmacy), and Katschke was the sole pharmacist staffing that pharmacy. To honor Nursing Home’s request that he be the face of Pharmacy for any relationship with Nursing Home, Katschke determined that Nevada Pharmacy would need to hire another pharmacist to operate it. Soon after the March 2010 meeting, believing that a contractual relationship with Nursing Home was imminent, Nevada Pharmacy made that hire, and agreed to retain a second pharmacist for a 36-month term beginning on May 1, 2010, at a rate of $45 per hour for a 40-hour week plus various benefits.

¶9 Meanwhile, Katschke began to renovate Pharmacy in order to come into compliance with regulations governing closed-door pharmacies. This involved adding shelving, countertops, pharmacy software, an alarm system, and a refrigerator. Pharmacy completed these improvements in April 2010, and incurred over $33,000 in expenses in doing so.

¶10 On May 25, 2010, after some additional negotiations, Katschke and Manager—on behalf of their respective entities—signed a contract whereunder Pharmacy would become Nursing Home’s exclusive closed-door pharmacy beginning on June 28, 2010 and continuing for an initial one-year term. The agreement contained a provision allowing for automatic renewal of the agreement for additional one-year periods unless, at least ninety days prior to the expiration of the current contractual term, either party provided the other with written notice of its intent not to renew.

¶11 That same day, after the contract had been signed, Nursing Home’s administrator (Administrator) contacted the existing provider to let it know that Nursing Home was "going in a different direction." The provider responded by expressing its view that Nursing Home did not have the right to cancel the contract. Administrator informed Katschke of the issue in an email, but initially downplayed it, stating that he thought he could "get this resolved within a day or two."

¶12 Several days later, on June 7, however, Administrator sent another email to Katschke informing him that "apparently we are not going to be able to get out of" the contract with the other provider "until the end of October [2010]," despite just having signed a contract with Pharmacy. Administrator further explained that "[w]e ... would like to do business with you but right now it looks like we don’t have a choice other than to take a step back, at least for a while."

¶13 Later that month, after apparently making the determination that it was bound by its contract with the other provider, Nursing Home made the decision to renew its contract with that provider. The renewed contract was set to commence on July 1, 2010, just three days after its contract with Pharmacy was set to commence, and was renewable in one-year terms thereafter. Administrator gave Katschke the bad news on July 11, 2010, via email: "[W]e have decided to stick with [the other provider] for at least another year." Administrator’s email did not mention Nursing Home’s contract with Pharmacy.

¶14 Later that year, in October 2010, Pharmacy sued Nursing Home for (among other claims) breach of contract, fraud in the inducement, constructive fraud, intentional misrepresentation, and negligent misrepresentation.

¶15 As the case proceeded to trial, Pharmacy informed the court and Nursing Home of its intention to call a pharmacist (Pharmacy Expert) as an expert witness. Pharmacy Expert had experience dealing with closed-door pharmacies, and Pharmacy wanted him to testify about "the number of years for which [Pharmacy] can recover damages" for lost profits. Pharmacy Expert’s proposed testimony included the opinion that the parties likely would have renewed the contract for at least six years. Nursing Home moved to exclude that testimony, arguing that Pharmacy Expert’s analysis was unhelpful and unreliable. The trial court granted Nursing Home’s motion, reasoning that "there are not sufficient facts in this case to support the proposed testimony" that Nursing Home "would have renewed its pharmacy provider agreement with [Pharmacy] for at least six years had [Nursing Home] begun using [Pharmacy] for its pharmaceutical needs in 2010." Therefore, the trial court determined that Pharmacy Expert’s proposed testimony should be excluded because it would not be helpful to the jury.

¶16...