Lloyd Noland Foundation v. Healthsouth

• Decision Date: 24 August 2007
• Docket Number: 1041121.
• Citation: 979 So.2d 784
• Parties: THE LLOYD NOLAND FOUNDATION, INC. v. HealthSOUTH CORPORATION.
• Court: Alabama Supreme Court

979 So.2d 784

THE LLOYD NOLAND FOUNDATION, INC. v.HealthSOUTH CORPORATION.

1041121.

Supreme Court of Alabama.

August 24, 2007.

Sydney F. Frazier, Jr., and Roy J. Crawford of Cabaniss, Johnston, Gardner, Dumas & O'Neal, LLP, Birmingham; Daniel J. Reynolds, Jr., Bessemer; J. Timothy Francis, Birmingham; and W. Ryan deGraffenried, Jr., of Watson, deGraffenried, Hardin & Tyra, Tuscaloosa, for appellant.

Bruce F. Rogers and Charles K. Hamilton of Bainbridge, Mims, Rogers & Smith, LLP, Birmingham; and Jon B. Terry of Bains & Terry, Bessemer, for appellee.

BOLIN, Justice.

The Lloyd Noland Foundation, Inc.("the Foundation"), appeals from the Jefferson Circuit Court's order granting a motion filed by HealthSouth Corporation to dismiss the Foundation's complaint on the grounds of res judicata and collateral estoppel.We reverse and remand.

Facts and Procedural History

In 1996, the Foundation and Tenet Health System Medical, Inc., a subsidiary of Tenet Healthcare Corporation("Tenet"), entered into a stock-purchase agreement pursuant to which Tenet acquired the stock and assets of the Lloyd Noland Hospital.The Foundation alleges that a number of contractual provisions were connected with this sale, including commitments from Tenet to provide health benefits to retired employees of the hospital, a long-term lease on the Foundation's management offices at the hospital, an option to repurchase 120 licensed beds at the hospital ("the option beds") for one dollar ($1.00), a duty to cooperate in obtaining the necessary certificates of need ("CONs") and in licensing the option beds in the name of the Foundation, and a separate lease agreement providing space in the hospital for 55 of the option beds in a long-term acute-care unit.The Foundation also required Tenet to bind any successor owner to these same obligations.

Tenet operated the hospital for approximately three years then sold it to the City of Fairfield Healthcare Authority("Fairfield") in 1999.The sale to Fairfield involved four contracts: (1) an asset sale agreement executed on October 21, 1999; (2) a security agreement executed on November 15, 1999; (3) a six-month promissory note executed by Fairfield on November 15, 1999, in favor of Tenet; and (4) a guaranty agreement executed on November 15, 1999.The promissory note was extended by an "Agreement Regarding Amendment of Secured Promissory Note," dated May 15, 2000.HealthSouth managed the hospital on behalf of Fairfield from 1999 to 2003 because Fairfield had no employees or assets; at that time, according to HealthSouth, HealthSouth "repossessed" the hospital.(HealthSouth's briefat p. 4.)The hospital was subsequently closed.

On February 11, 2000, Fairfield brought a declaratory-judgment action in the Montgomery Circuit Court, seeking a judgment declaring that the Foundation was not entitled to CONs to reclassify 100 existing "acute-care" beds at the hospital to "long-term acute-care" hospital beds pursuant to § 22-21-265,Ala.Code 1975, andAla. Admin. Code(SHPDA) r. 410-1-2-.19.The Foundation filed a counterclaim against Fairfield, alleging that Fairfield had expressly assumed the obligations of the contracts between Tenet and the Foundation, including the obligations of the lease agreement relating to 55 of the option beds and the duty to cooperate in obtaining the necessary CONs.The Montgomery Circuit Court entered a summary judgment in favor of Fairfield, and the Foundation appealed.This Court reversed the summary judgment and concluded that Fairfield was "contractually bound to, among other things, `cooperate with [the Foundation] in having the Option Beds relicensed, recertified or relocated for long term acute care purposes at the Hospital or at other sites,' so that the Foundation could, following the issuance of the CONs, purchase up to 120 beds from Fairfield."Lloyd Noland Found., Inc. v. City of Fairfield Healthcare Auth.,837 So.2d 253, 266(Ala.2002).

On February 16, 2001, the Foundation sued Tenet in the United States District Court for the Northern District of Alabama, on the basis of diversity jurisdiction.The Foundation alleged that Tenet failed to ensure that certain obligations arising out of Tenet's purchase of the hospital from the Foundation were met and sought damages under a guaranty agreement executed by Tenet and the Foundation in 1996.Specifically, the Foundation alleged that the obligations assumed by Tenet in its purchase of the hospital and guaranteed in the guaranty agreement were:

"(a) The obligation to resell to the Foundation for One Dollar ($1.00) 120 of the licensed acute-care hospital beds conveyed to [Tenet] by the Foundation pursuant to the Stock Purchase Agreement, such resale to take place when the Foundation became legally authorized to operate the beds for long-term acute-care services.

"(b) The obligation to cooperate with the Foundation in having the beds relicensed, recertified or relocated for long-term acute-care services at the Lloyd Noland Hospital or at other locations.

"(c) The obligation to lease to the Foundation 19,000 square feet in the Lloyd Noland Hospital for the purposes of operating the long-term acute-care beds.

"(d) The obligation to provide certain medical benefits to retired employees of the Foundation.

"(e) The obligation to bind any successors or assigns of [Tenet] by the same duties and obligations to the Foundation which were required of [Tenet] under the Stock Purchase Agreement.

"(f) The obligation to obtain the prior written consent of the Foundation before any of the assets, rights and duties under the Stock Purchase Agreement were delegated or assigned by [Tenet] to a third party."

The Foundation alleged that Tenet breached the following obligations:

"(a)[Tenet] breached its obligation to obtain written consent from the Foundation prior to the assignment of the assets, rights and duties under the Stock Purchase Agreement.

"(b)[Tenet] breached its obligation to ensure that the aforesaid terms and provisions of the Stock Purchase Agreement were binding and enforceable on [Fairfield] as the successor and assign of [Tenet], in that [Fairfield] has failed and refused to honor the aforesaid duties and obligations to the Foundation, contending instead that it has assumed none of those obligations.Instead [Fairfield] has intentionally, willfully, deliberately and maliciously set about to delay and destroy the Foundation's contractual rights under the Stock Purchase Agreement by the following acts and conduct:

"(1)[Fairfield] has denied, rejected and repudiated each and all of the foregoing obligations of [Tenet] to the Foundation.

"(2)[Fairfield] has instituted litigation and administrative proceedings for the purpose of nullifying, delaying, preventing and otherwise interfering with and damaging the Foundation's contractual rights under the Stock Purchase Agreement with [Tenet].

"(3)[Fairfield] has entered into contracts and agreements for the operation of the Lloyd Noland Hospital with a competitor of the Foundation as part of a plan, intent and design to interfere with and damage the Foundation's contractual rights under the Stock Purchase Agreement with [Tenet].

"(4)[Fairfield] has failed and refused to honor the obligations of the medical benefit program for retirees of the Foundation."

Subsequently, Tenet filed a third-party complaint against both Fairfield and HealthSouth, seeking indemnity based on a contractual provision in the agreement amending the six-month promissory note, which was executed on May 15, 2000.The provision stated as follows:

"Indemnification obligation: [Fairfield] and Guarantor [HealthSouth] shall jointly and severally indemnify Payee [Tenet] for any loss, damage, expenses, or costs (including attorney's fees) incurred by Payee that are attributable to any claim by the Lloyd Noland Foundation, an Alabama nonprofit corporation('LNF'), based on acts or failure to act by [Fairfield] and/or Guarantor after the Closing Date (as such term is defined in the Asset Sale Agreement) with respect to `LNF beds' as such term is used in Schedule 1.7(f) to the Asset Sale Agreement and/or the Lloyd Noland Retiree Medical Discount Program, referenced in Schedule 1.7(f)."

The promissory note was paid by HealthSouth on November 15, 2000.Both Fairfield and HealthSouth moved for a summary judgment in the federal litigation, arguing that the agreement amending the promissory note, which included the indemnity provision, expired when HealthSouth paid the promissory note in full.Additionally, Fairfield argued that it had not authorized HealthSouth to execute an indemnity agreement on its behalf.Tenet filed a motion for a partial summary judgment, arguing that the agreement to indemnify did not end when HealthSouth paid the promissory note.

On August 27, 2004, while the federal action was pending, the Foundation filed a complaint in the Birmingham Division of the Jefferson Circuit Court against HealthSouth based on alleged conduct related to the 1999 sale of the hospital by Tenet to Fairfield and the subsequent management of the hospital.The Foundation alleged that HealthSouth had misrepresented "that [Fairfield] was the purchaser of the Hospital" when, the Foundation alleged, Fairfield had no finances, no credit, no employees, and was not a duly organized entity.The Foundation also alleged fraudulent misrepresentation based on statements made when HealthSouth acquired the hospital from Fairfield in 2003.The Foundation alleged that HealthSouth had intentionally interfered with its contractual relations with Tenet when HealthSouth arranged the purchase of the hospital by Fairfield.The Foundation sought $15,000,000 in actual damages and $100,000,000 in punitive damages.In the alternative, the Foundation sought injunctive relief and a judgment declaring (1) that Fairfield was a mere instrumentality of HealthSouth; (2) that all the obligations that were assumed by Fairfield when it ...