Mariner Health Care Mgmt. Co. v. Healthcare

• Decision Date: 18 April 2011
• Docket Number: A10A1679.,Nos. A10A1642,s. A10A1642
• Citation: 703 S.E.2d 687,306 Ga.App. 873
• Parties: MARINER HEALTH CARE MANAGEMENT COMPANYv.SOVEREIGN HEALTHCARE, LLC et al.Sovereign Healthcare, LLC et al.v.Mariner Health Care Management Company.
• Court: Georgia Court of Appeals

306 Ga.App. 873

703 S.E.2d 687

10 FCDR 3520

MARINER HEALTH CARE MANAGEMENT COMPANY

v.SOVEREIGN HEALTHCARE, LLC et al.Sovereign Healthcare, LLC et al.

v.Mariner Health Care Management Company.

Nos. A10A1642

A10A1679.

Court of Appeals of Georgia.

Oct. 28, 2010.Reconsideration denied Nov. 19, 2010.Certiorari Denied April 18, 2011.

Troutman Sanders, Thomas E. Reilly, Brian P. Watt, Atlanta, for appellant.Greenberg Traurig, Michael J. King, Atlanta, Brock, Clay, Calhoun & Rogers, Nancy I. Jordan, Charles M. Dalziel, Jr., Marietta, for appellee.

JOHNSON, Judge.

In 2003, Mariner Health Care Management Company entered into a contract with Sovereign Healthcare, LLC, Sovereign Healthcare Holdings, LLC and Southern Healthcare Management, LLC (collectively “Sovereign”), whereby Mariner agreed to provide certain administrative services to Sovereign for a period of five years. In 2005, after more than two years of performance under the contract, Sovereign filed the instant lawsuit, claiming that the parties had reached an oral agreement to terminate the contract early, but Mariner subsequently refused to abide by that oral agreement to terminate. Mariner filed a counterclaim for breach of contract, seeking liquidated damages for Sovereign's premature termination of the administrative services contract. Sovereign moved for summary judgment as to Mariner's claim for liquidated damages, and Mariner filed an opposing motion for summary judgment. After a hearing, the trial court granted summary judgment to Mariner on the issue of liability for Sovereign's early termination of the administrative services contract, but denied its motion for summary judgment as to liquidated damages. Instead, the court granted summary judgment to Sovereign as to Mariner's claim for liquidated damages, finding that the liquidated damages provision in the contract is an unenforceable penalty. Mariner appeals in Case No. A10A1642, and Sovereign cross-appeals in Case No. A10A1679.

Case No. A10A1642

1. Mariner asserts that the trial court erred in finding that the liquidated damages provision in the administrative services contract is unenforceable. The contract provides:

In the event Sovereign terminates this Agreement prior to the expiration of the Initial Term for any reason whatsoever, other than those specified in Sections 4(a)(i) through (iii) or 4(c) hereof [concerning certain failures or misconduct by Mariner], Sovereign shall pay [Mariner], in a lump sum, as liquidated damages, an early termination fee equivalent to fifty percent (50%) of the total Fee that would have been paid to [Mariner] through the expiration of the Initial Term....

Georgia law allows parties to provide for liquidated damages in their contracts, and unless the provision violates some principle of law, the parties are bound by their agreement.¹ Such provisions are enforceable if (1) the injury caused by the breach is difficult or impossible to estimate accurately; (2) the parties intended to provide for damages rather than a penalty; and (3) the sum stipulated is a reasonable pre-estimate of the probable loss.²

Determining whether a liquidated damages provision is enforceable is a question of law for the court, which necessarily requires the resolution of questions of fact. At trial the burden is on the defaulting party to show that the provision is a penalty, but this burden does not arise at the summary judgment stage. To obtain summary judgment, the moving party must show there is no genuine issue of material fact as to the three factors set out above and that the undisputed facts warrant judgment as a matter of law. To obtain summary judgment, a defendant need not produce any evidence, but must point to an absence of evidence supporting at least one essential element of the plaintiff's claim. Our review of a grant of summary judgment is de novo, and we view the evidence and all reasonable inferences drawn therefrom in the light most favorable to the nonmovant.³

In this case, the trial court erred in finding that Sovereign carried its burden of showing an absence of evidence supporting at least one essential element of Mariner's liquidated damages claim. On the contrary, the record reveals that there is no genuine issue of material fact as to the three factors set out above, and that the undisputed facts warrant enforcement of the liquidated damages clause as a matter of law.

With regard to the first liquidated damages requirement, Sovereign argues that the injury caused by a breach of the administrative services contract was not difficult to estimate because it simply required a calculation of Mariner's lost profits, by subtracting its costs from its revenue. However, “lost profits are generally held to be too speculative for recovery.” ⁴ Consistent with that general rule, the Mariner officer who negotiated the administrative services contract averred by affidavit, and without contradiction, that when the parties entered into the contract it was impossible to estimate Mariner's lost profits in the event of a breach because its future costs were unknown due to variables such as inflation, labor market fluctuations, and the facts that this was a new business venture for Mariner and that it was using a new billing software system. Because the undisputed facts show that the anticipated expenses for the new business venture could not have been easily calculated,⁵ there is no question that the injury caused by a breach of the contract was difficult to estimate with accuracy.

“As for the second [liquidated damages] requirement, we ascertain the intent of the parties by first looking to the language of the contract. Although the words used by the parties are not conclusive, they are a significant factor in determining the parties' intent.” ⁶ Here, the contract specifically referred to the payment of “liquidated damages” in the event of an early termination by Sovereign, thereby supporting an inference that the parties intended to provide for liquidated damages rather than a penalty.⁷ Moreover, the record contains statements from officers who helped negotiate the contract for both sides that the liquidated damages provision was meant to compensate Mariner for lost revenues in the event of an early termination.

Finally, as to the third requirement, “the touchstone question is whether the parties employed a reasonable method under the circumstances to arrive at a sum that reasonably approximates the probable loss....” ⁸ An officer for Sovereign deposed that the amount of liquidated damages agreed upon was fair, reasonable and standard in the industry. Furthermore, Mariner presented evidence that the actual profit margin under the contract, prior to its termination, was approximately 48.5 percent. Thus, liquidated damages in the amount of 50 percent of remaining fees under the contract was a reasonable pre-estimate of probable loss.⁹

Because Sovereign failed to show that the liquidated damages provision is an unenforceable penalty, and indeed the undisputed facts establish that the provision is enforceable as a matter of law, the trial court erred in granting summary judgment to Sovereign on that ground, and in denying summary judgment to Mariner.¹⁰ Accordingly, that portion of the trial court's order must be reversed.

2. Mariner contends that the trial court erred in denying its motion for summary judgment as to Sovereign's additional breach of contract claims based on Mariner's alleged loss of certain accounts payable data and alleged failure to properly transmit payroll data to the Internal Revenue Service, resulting in a fine of Sovereign. As recited above, Mariner, as the movant, was required to demonstrate that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. ¹¹ Contrary to Mariner's contention, the record reveals that genuine issues of material fact exist as to Sovereign's breach of contract claims. Since Mariner has failed to show that it is entitled to judgment as a matter of law on those claims, the trial court did not err in denying summary judgment.

3. Likewise, the trial court did not err in denying summary judgment to Mariner on Sovereign's claim for attorney fees for bad faith under OCGA § 13–6–11. Questions concerning bad faith under OCGA § 13–6–11 are generally for the jury to decide.¹² Indeed, “[o]nly in the rare case where there [is] absolutely no evidence to support the award of expenses of litigation would the trial court be authorized to grant summary adjudication on such issues.” ¹³ This is not such a...