Mo. Consol. Health v. Community Health Plan, WD 59012.

• Decision Date: 29 March 2002
• Docket Number: No. WD 59012.,No. WD 59076.,WD 59012.,WD 59076.
• Citation: 81 S.W.3d 34
• Parties: MISSOURI CONSOLIDATED HEALTH CARE PLAN, Appellant/Cross-Respondent, v. COMMUNITY HEALTH PLAN, Respondent/Cross-Appellant.
• Court: Missouri Court of Appeals

81 S.W.3d 34

MISSOURI CONSOLIDATED HEALTH CARE PLAN, Appellant/Cross-Respondent, v. COMMUNITY HEALTH PLAN, Respondent/Cross-Appellant.

No. WD 59012.

No. WD 59076.

Missouri Court of Appeals, Western District.

March 29, 2002.

Motion for Rehearing and/or Transfer to Supreme Court Denied May 28, 2002.

Application for Transfer Denied August 27, 2002.

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Gerald P. Greiman, St. Louis, Eugene G. Bushmann, Jefferson City, for Appellant/Cross-Respondent.

R. Dan Boulware, St. Joseph, Johnny K. Richardson, Jefferson City, for Respondent/Cross-Appellant.

PAUL M. SPINDEN, Chief Judge.

Community Health Plan, a health maintenance organization, contracted with Missouri Consolidated Health Care Plan to provide health care benefits for state employees and other public entities in Missouri. When Community began experiencing substantial financial losses under the MCHCP contract and when MCHCP refused to allow Community to increase its premiums, Community decided to eliminate a large portion of its provider network for state employees. MCHCP responded by filing this action for declaratory relief, specific performance, and injunctive relief. Community filed counterclaims for fraudulent representation, fraudulent nondisclosure, negligent nondisclosure, unilateral mistake, breach of contract, and breach of duty of good faith and fair dealing.

MCHCP filed motions for judgment on the pleadings and for summary judgment, asserting that sovereign immunity barred Community's claims for fraudulent representation, fraudulent nondisclosure, and negligent nondisclosure. Although the circuit court agreed that MCHCP was entitled to sovereign immunity, it concluded that it would consider Community's claims for fraudulent representation, fraudulent nondisclosure, and negligent nondisclosure as contract claims rather than as tort claims. The circuit court also determined that the legal issues raised by Community's counterclaims would be tried to a jury and that the equitable issues raised by MCHCP and Community would be taken with the case to be decided after the jury's verdict.

The jury determined that, before Community bid in response to MCHCP's requests in 1995, 1996, and 1997 for proposals to provide health benefits to MCHCP members, MCHCP falsely represented to Community that historical claims and utilization data on the proposed insured group was not available. The jury also determined that MCHCP breached an implied covenant of good faith and fair dealing in the 1997 request for proposal (RFP) contract by refusing to give Community a rate increase beyond the consumer price index (CPI) cap. The jury awarded $14.5 million to Community on these claims. The jury found for MCHCP on Community's claims that it should have received rate increases under the 1995 and 1996 RFP contracts in excess of the CPI cap. In accordance with the jury's verdict, the circuit court entered judgment for Community and stated that it would bear interest at nine percent and that costs would be assessed against MCHCP.

After the jury's verdict and the entry of judgment, the circuit court determined the remaining equitable issues. It entered a permanent injunction prohibiting Community from reducing its provider network and from not performing its contractual obligations with MCHCP. It also concluded that, because Community affirmed the contracts by submitting its claims for damages under a breach of warranty ex contractu action, Community abandoned its claims and affirmative defenses that sought to disaffirm the contracts. The circuit court found:

MCHCP has the right, at its sole option, to extend the 1995 and 1996 RFP Contracts for up to four additional one year periods and to extend the 1997 RFP Contract for up to two additional one year periods, provided, however, that the parties establish a mutually agreeable rate (price). If a rate is not so established, [Community] may terminate the contracts upon 60 days advance written notice.

The circuit court also decided that the MCHCP funds, which were segregated and set aside in lieu of an injunction bond, should continue to remain segregated.

The circuit court further announced that it was retaining jurisdiction "to resolve matters pertaining to the establishment of the rate (price) of continued coverage under the current contracts and to resolve matters pertaining to damages suffered by [Community] under the contracts since April 13, 2000." It also retained jurisdiction to consider matters pertaining to the injunctive relief granted by its judgment. The circuit court, however, determined that no just reason required delay and that the parties could proceed "as they deem[ed] appropriate." MCHCP and Community filed cross appeals.

Breach of Warranty Ex Contractu

In its first point on appeal, MCHCP contends that the circuit court erred in denying its motions for directed verdict and for judgment notwithstanding the verdict because Community did not make a submissible case on its breach of warranty ex contractu claims. MCHCP asserts that the circuit court could not recast Community's misrepresentation claims as breach of warranty ex contractu claims because the evidence did not establish that MCHCP made a positive representation upon which Community relied. MCHCP argues that Community's misrepresentation claims were tort claims barred by sovereign immunity.

In reviewing the circuit court's denial of MCHCP's motion for directed verdict and judgment notwithstanding the verdict, we must determine whether Community made a submissible case. Spring v. Kansas City Area Transportation Authority, 873 S.W.2d 224, 225 (Mo. banc 1994). In making this determination, we review the evidence and all reasonable inferences in the light most favorable to the jury's verdict and disregard contrary evidence. Nemani v. St. Louis University, 33 S.W.3d 184, 185 (Mo. banc 2000), cert. denied, 532 U.S. 981, 121 S.Ct. 1623, 149 L.Ed.2d 485 (2001). Whether evidence is substantial and whether the inferences drawn from it are reasonable are questions of law. Simpson v. Indopco, Inc., 18 S.W.3d 470, 473 (Mo.App.2000). We will reverse judgment on the basis that insufficient evidence supported the jury's verdict "only where there is a complete absence of probative fact to support the jury's conclusion." Giddens v. Kansas City Southern Railway Company, 29 S.W.3d 813, 818 (Mo. banc 2000), cert. denied, 532 U.S. 990, 121 S.Ct. 1644, 149 L.Ed.2d 502 (2001). When reasonable minds can differ on a question put to a jury, this court should not disturb the jury's verdict. Washington v. Barnes Hospital, 897 S.W.2d 611, 615 (Mo. banc 1995).

Community's misrepresentation claims, as submitted to the jury, asserted breach of warranty ex contractu. Community averred that MCHCP falsely represented to it that historical claims and utilization information¹ on the proposed insured group was not available to it before it bid on the 1995, 1996 and 1997 RFP contracts and that such representations were material to its bids. Community contends that, had it had this information, its bids would have been higher, and higher bids would have generated more revenues from the MCHCP contracts.

To recover against a governmental entity for breach of warranty ex contractu, a contractor must establish that the governmental entity; made a positive representation of material fact that was false, that the contractor did not know the representation was false, and that he sustained damages as a direct, result of the misrepresentations and his reliance on it. Ideker, Inc. v. Missouri State Highway Commission, 654 S.W.2d 617, 621 (Mo.App.1983). The, cause of action focuses on a warranty — a form of guarantee and synonymous to a promise — concerning the character, quality and nature of the contract's subject matter. Because such issues are a "narrow niche in the vast body of case law," the Ideker court recognized that, to allow a cause of action for breach of warranty ex contractu, courts had to reconcile the cause of action with two countervailing principles:

The first being that since damages were sought in connection with work performed on a public project under a contract with a governmental entity, the party sought to be held liable, the doctrine of sovereign immunity precluded a cause of action ex delicto (fraudulent misrepresentation). The second being a well established principle of contract law, finding clarity of expression in United States v. Spearin, 248 U.S. 132, 136, 39 S.Ct. 59, 61, 63 L.Ed. 166 (1918), that when one agrees to do a thing possible of performance "he will not be excused or become entitled to additional compensation because unforeseen difficulties are encountered."

Id. at 620, 621. In a later decision, Judge Ronald Somerville, the author of Ideker, admonished:

The theory of recovery identified with Ideker, Inc. v. Missouri State Highway Commission ... was never intended to be a panacea for every successful bidder whose costs overrun the bid price. Hence, the emphasis upon a positive representation of a material fact by a governmental entity which is false or incorrect and relied upon by a contractor. Otherwise, this innovative theory of recovery could never be reconciled with the well-established principle of contract law, finding clarity of expression in United States v. Spearin, 248 U.S. 132, 136, 39 S.Ct. 59, 61, 63 L.Ed. 166 (1918), that when one agrees to do a thing possible of performance "he will not be excused or become entitled to additional compensation, because unforeseen difficulties are encountered."

Sanders Company Plumbing and Heating, Inc. v. City of Independence, 694 S.W.2d 841, 850-51 (Mo.App.1985) (Somerville, J., dissenting).

MCHCP asserts that its informing Community that its historical claims and utilization data on the proposed insured group was not available was not a positive representation; therefore, Community did not make a submissible case on its breach of warranty ex...