Life Care Centers of America, Inc. v. Charles Town Associates Ltd. Partnership
| Citation | 79 F.3d 496 |
| Decision Date | 24 April 1996 |
| Docket Number | 94-5866,Nos. 94-5744,s. 94-5744 |
| Parties | LIFE CARE CENTERS OF AMERICA, INC., Plaintiff-Appellee, Cross-Appellant, v. CHARLES TOWN ASSOCIATES LIMITED PARTNERSHIP, LPIMC, Inc., and Bruce Weinstein, Eugene H. Rosen, and John W. Galston, Defendants-Appellants, Cross-Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (6th Circuit) |
On Appeal from the United States District Court for the Eastern District of Tennessee; R. Allan Edgar, Judge.
Thomas E. Ray, Ray & Sibley, Chattanooga, TN, G. Lee Garrett, Jr. (argued and briefed), David P. Baum (briefed), Jones, Day, Reavis & Pogue, Atlanta, GA, for Life Care Centers of America, Inc.
Elaine B. Winer, Rice, Kreitzer & Winer, Chattanooga, TN, Leighton Aiken (argued and briefed), Felicia Latham, Owens, Clary & Aiken, Dallas, TX, for Charles Town Associates Ltd. Partnership, LPIMC Inc., Bruce Weinstein, Eugene H. Rosen, John W. Galston.
Before: JONES and BATCHELDER, Circuit Judges; and COOK, Chief District Judge. *
COOK, Chief District Judge, delivered the opinion of the court, in which JONES, J., joined. BATCHELDER, J. (pp. 515-16), delivered a separate opinion concurring in part and dissenting in part.
The parties to this action appeal several orders by the district court. The issues on appeal and cross-appeal are whether the district court erred when it (1) concluded that certain solicitation efforts by Life Care Centers of America (Life Care) were not violations of its fiduciary duty to the Defendants; (2) held that Life Care's solicitation efforts did not constitute a breach of its management agreement; (3) turned Life Care's motion to strike into a motion for summary judgment; (4) granted Life Care's motion in limine, thereby excluding evidence of its alleged mismanagement; (5) entered a summary judgment in favor of the Defendants with respect to Life Care's claim for tortious interference with a contract; (6) denied the Defendants' motion for a directed verdict; (7) awarded a directed verdict in favor of Life Care in connection with the Defendants' breach of contract claim; and (8) instructed the jury on the issue of mitigation of damages.
For the reasons that have been set forth below, we affirm in part and reverse in part the decisions of the district court, and remand the case for a new trial in accordance with this opinion.
On November 10, 1982, Life Care entered into a written management agreement with the then-owner of Jeffersonian Manor, a nursing home in Charles Town, West Virginia. In 1987, Charles Town Associates Limited Partnership (Charles Town) acquired Jeffersonian Manor and retained Life Care as its managing agent. The management agreement contained a termination clause which, as a condition precedent, required Charles Town (1) to notify Life Care of any perceived breaches of their contract, and (2) to provide Life Care with an opportunity to correct any of the claimed contractual violations.
In 1990, the limited partners of Charles Town voted to make LPIMC their new managing general partner. On July 10, 1991 Life Care initiated a bid among Charles Town's limited partners to replace LPIMC as their managing general partner. LPIMC, upon learning of this contact with the limited partners, advised Life Care that it considered this solicitation effort to constitute substantive violations of their management agreement and its fiduciary duties as a managing agent. LPIMC also warned Life Care that its employment tenure with Charles Town would be terminated unless this activity ceased immediately. However, when Life Care refused to do so, its services were terminated.
Notwithstanding the cessation of its formal relationship with LPIMC, Life Care continued its bid to become the new managing general partner of Charles Town. However, these efforts were stymied in the spring of 1992 when the limited partners voted to reject Life Care's application. Thereafter, Life Care filed a lawsuit against LPIMC, Charles Town and its general partners, charging them with breach of contract/wrongful termination, tortious interference with a contract, and inducement to breach a contract. 1
In connection with the breach of contract issue, the Defendants asserted in their eighth affirmative defense that Life Care had violated the following provisions of the management agreement:
1.1 Control Retained in Board. Owner, acting through its duly elected officers, shall at all times exercise control over the assets and operation of the nursing home and [Life Care] shall perform the duties herein required to be performed by it as the agent of Owner and in accordance with the reasonable policies and directives of Owner.
1.2 Methods of Operation. [Life Care] shall make substantial changes in the method of operating the nursing home only after timely notification to, and with consent of Owner. Changes made to conform to governmental laws, regulations and ordinances shall not be deemed "substantial" for the purposes of this agreement.
On March 17, 1993, Life Care filed a motion to strike, in which it challenged the efficacy of the Defendants' eighth affirmative defense. In support of this position, Life Care asserted that it only owed a fiduciary duty to the partnership as a whole--not to the individual partners. The district court agreed, holding that the Defendants had not shown that Life Care's solicitation efforts had violated its fiduciary duty to Charles Town. In its ruling, the district court concluded that the challenged activity of Life Care was not implicated by the solicitation of proxies from the limited partners because the pertinent sections of the management agreement only referred to the methods by which it could implement procedures for its day to day operation of the nursing home.
The Defendants asked the district court to reconsider its decision, arguing that (1) the issue of the fiduciary duty of a limited partnership's agent was novel and, thus, should not have been decided on a motion to strike, (2) their eighth affirmative defense was legally sufficient as pleaded, and (3) genuine issues of a material fact remained as to whether Life Care's actions were detrimental to Charles Town and, hence, violative of its fiduciary duty. On August 13, 1993, the Defendants' motion for reconsideration was denied.
Acting on the belief that the district court had turned Life Care's motion to strike into a motion for summary judgment without giving them an opportunity to demonstrate that a genuine issue of a material fact existed, the Defendants filed a motion to supplement the record on August 27, 1993. On February 7, 1994, the district court granted their motion, but declared that these additional matters did not create a genuine issue of any material fact to warrant the reversal of its earlier rulings.
In one of their affirmative defenses, the Defendants charged Life Care with mismanagement of the Jeffersonian Manor in violation of the management agreement. On February 10, 1994, Life Care filed a motion in limine in which it requested the district court to preclude the Defendants from introducing any evidence of mismanagement, contending that it had neither received any notice of an alleged breach of their management agreement nor had it been given an opportunity to correct any of the perceived deficiencies. The district court granted Life Care's motion in limine in part, and, as a result, precluded the Defendants from introducing any evidence of Life Care's alleged mismanagement.
On March 2, 1994, the Defendants filed a motion which sought the entry of a summary judgment as to Life Care's claims of tortious interference with a contract. The Defendants argued that these claims were deficient as a matter of law because, in terminating Life Care as the managing agent, they were acting within the scope of their positions as general partners of Charles Town. The Defendants maintained that they, as agents of Charles Town, were not third parties to the management agreement and could not have tortiously interfered with the contractual relationship about which Life Care complained. In its opposition papers, Life Care contended that a general partner or agent could tortiously interfere with a partnership's contract if the act was committed with legal "malice" (i.e., not for the benefit of the partnership). Life Care claimed, in part, that the Defendants had failed to show that the termination of its services were in the best interests of Charles Town.
The district court granted the Defendants' motion for summary judgment and dismissed Life Care's claims of tortious interference after concluding that the Defendants were not third parties to the management contract inasmuch as they had acted within the scope of their authority as general partners. 2
The Defendants moved for a directed verdict, contending that Life Care had failed to present any evidence during its case in chief that their administrative decisions had been made in bad faith and against Charles Town's best interests. The district court disagreed and, thereafter, denied their motion.
At the close of the Defendants' case, Life Care moved for a directed verdict on its breach of contract claim. The Defendants had no legal defense to this claim because the district court had (1) held that Life Care's solicitation had not violated any fiduciary duties to Charles Town and (2) precluded them from introducing any evidence in support of their...
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