Nelson v. Loan

• Decision Date: 17 November 2011
• Docket Number: No. 11–369.,11–369.
• Citation: 385 S.W.3d 762,2011 Ark. 491
• Court: Arkansas Supreme Court
• Parties: Brett NELSON, M.D., Appellant v. ARKANSAS RURAL MEDICAL PRACTICE LOAN & SCHOLARSHIP BOARD, Appellee.

2011 Ark. 491
385 S.W.3d 762

Brett NELSON, M.D., Appellant
v.
ARKANSAS RURAL MEDICAL PRACTICE LOAN & SCHOLARSHIP BOARD, Appellee.

No. 11–369.

Supreme Court of Arkansas.

Nov. 17, 2011.

[385 S.W.3d 763]

Kevin P. Keech and Rachel V. Hampton, North Little Rock, for appellant.

[385 S.W.3d 764]

Dustin McDaniel, Atty., Gen., Colin R. Jorgensen, Office of Atty. Gen., Little Rock, for appellee.

COURTNEY HUDSON HENRY, Justice.

[2011 Ark. 1]Appellant Brett Nelson, M.D., appeals the order of the Pulaski County Circuit Court granting summary judgment in favor of appellee Arkansas Rural Medical Practice Student Loan and Scholarship Board (Board) on its breach-of-contract claim arising under the Community Match Loan and Scholarship Program. For reversal, Nelson contends that genuine issues of material fact remain as to his counterclaims and defenses, and he argues that the provisions of Arkansas Code Annotated section 17–95–409(b) (Repl.2010), regarding the suspension of a medical license for the breach of a loan agreement, are not applicable to contracts under the community-match program. We affirm in part and reverse and remand in part.

In 1949, the General Assembly passed Act 131, which created the Arkansas Rural Medical Practice Loan and Scholarship Program that was designed to promote the practice of medicine in rural areas. With the passage of Act 1114 of 1995, the legislature established the community-match scholarship program to remedy the pressing need for additional physicians [2011 Ark. 2]in rural communities. This program, codified at Arkansas Code Annotated sections 6–81–715–717 (Repl.2003), supplemented the rural-practice program by authorizing a community to provide financial assistance to those medical students interested in engaging in rural community practice.

Under the community-match program, a qualified rural community ¹ and the Board enter into joint contracts with accepted applicants to make a loan in the maximum amount of $16,500 per academic year, with the Board and the community each contributing one-half of the loan, unless the Board does not have sufficient funds, in which case the rural community may provide the total loan amount. Ark.Code Ann. § 6–81–716(a)– (b)(1) (Repl.2003). As required by statute, the contract obligates the recipient of a community-match loan to “bindingly contract” to practice primary-care medicine full time in the particular rural community upon the completion of his or her one-year residency or upon the completion of three additional years of medical training beyond internship. Ark.Code Ann. § 6–81–716(c)(1)(A). For each continuous, whole-calendar year of primary-care medical practice, the Board and the rural community are required to cancel, by converting to a scholarship grant, the full amount of one year's loan, plus accrued interest. Ark.Code Ann. § 6–81–716(c)(1)(B).

Another feature of the community-match program applies to alternates on the waiting list for admission to medical school. If an alternate enters into a community-match contract, the alternate is moved to the top of the waiting list. Ark.Code Ann. § 6–81–717(a)(1)(A)[2011 Ark. 3]Repl.2003). If an alternate is admitted to medical school under the program and the alternate breaches the contract by failing to engage in the practice of primary-care medicine in the rural community, the alternate is obligated to pay an amount equal to 100% of the loan amount and other unspecified damages, with the minimum amount of damages being equal to the difference between resident and out-of-state tuition for four years

[385 S.W.3d 765]

of medical school, but not less than $25,000. Ark.Code Ann. § 6–81–717(c).² In addition, section 6–81–716(c)(3)(C) states that “the loan contract shall provide for liquidated damages in an amount equal to fifty percent (50%) of the principal of the loan.”

The record reveals the following undisputed facts. In March 1997, Nelson was an alternate on the waiting list for admission to medical school for the 1997–98 academic year when he applied with the Board to participate in the community-match program. Conditioned upon Nelson's acceptance to medical school, Nelson, the Board, and the rural community of Forrest City, Arkansas, entered into a one-year loan contract to provide Nelson $16,500 in funds for the 1997–98 academic year. Nelson was advanced on the waiting list, and he achieved admittance to medical school that year. The parties entered into like community-match contracts in the succeeding three academic years. Each of the contracts made reference to the governing statutes, and the contracts set forth the terms and obligations of the parties as required by statute. Over four years, Nelson received $66,000 in loans.

Nelson graduated from medical school in 2003. After completing his internship and [2011 Ark. 4]residency, he began serving his four-year commitment in June 2007 when he accepted employment at the Forrest City Medical Center Hospital. The hospital did not renew Nelson's employment contract in September 2008, and Nelson left Forrest City to practice medicine in the State of Georgia. Thereafter, Nelson allowed his Arkansas license to lapse, and he no longer holds a license to practice medicine in Arkansas.

In September 2009, the Board filed a complaint against Nelson for breach of contract and, alternatively, unjust enrichment. Nelson answered the complaint, and pleading affirmatively, he alleged that his full performance of the contract was excused based on promissory estoppel; commercial impracticability; fraud in the inducement; unconscionability; frustration of purpose; hindrance of performance; the Board's breach of the implied duties of good faith and fair dealing; and the unenforceability of the penalty provisions in the contracts, as being vague and in violation of public policy. He also asserted counterclaims for breach of the implied duties of good faith and fair dealing; promissory estoppel; and the violation of the Arkansas Deceptive Trade Practices Act.³ The underlying theme of Nelson's claims and defenses was that he entered the contracts based on the assumption that Forrest City was a medically under-served area but that there proved to be no need for his services. Nelson alleged that the lack of need was due to the saturation of doctors in the area as a result of the Board's approval of a disproportionate number of community-match scholarships for Forrest City. Nelson also asked for declaratory judgment as to whether the suspension provisions of Arkansas Code Annotated section 17–95–409(b) were applicable to any of his contracts.

[2011 Ark. 5]In February 2010, the Board filed a motion to dismiss Nelson's counterclaims for breach of the implied covenant of good faith and fair dealing and for promissory estoppel. By this motion, the Board did

[385 S.W.3d 766]

not claim that the material facts were undisputed. Instead, the Board asserted that it was entitled to judgment as a matter of law because ordinary contract principles do not apply to community-match contracts because the agreements are based on statutory directives and are not the product of arms-length negotiation. As support for this proposition, the Board referenced decisions of federal courts pertaining to contract disputes under the National Health Services Corps Scholarship Program (NHSC). In response, Nelson argued that the federal decisions were not persuasive authority due to distinctions between the statutory scheme of the community-match program and the federal scholarship program. On June 9, 2010, the circuit court entered an order denying the Board's motion to dismiss Nelson's counterclaims.

Thereafter, Nelson filed a motion for partial summary judgment on his claim for declaratory relief that his medical license was not subject to suspension as a consequence of any breach of contract. In support of this motion, Nelson argued that the suspension provisions of Arkansas Code Annotated section 17–95–409(b) apply only to contracts under the...