Northwest Country Place v. Ncs Healthcare

• Decision Date: 08 September 2005
• Docket Number: 0204-03349; A122110.
• Citation: 119 P.3d 272,201 Or. App. 448
• Parties: NORTHWEST COUNTRY PLACE, INC., an Oregon corporation, Respondent, v. NCS HEALTHCARE OF OREGON, INC., an Ohio corporation, registered to do business in Oregon, Appellant.
• Court: Oregon Supreme Court

119 P.3d 272

201 Or. App. 448

NORTHWEST COUNTRY PLACE, INC., an Oregon corporation, Respondent, v. NCS HEALTHCARE OF OREGON, INC., an Ohio corporation, registered to do business in Oregon, Appellant.

0204-03349; A122110.

Court of Appeals of Oregon.

Argued and Submitted December 14, 2004.

Decided September 8, 2005.

Timothy R. Volpert, Portland, argued the cause for appellant. With him on the briefs were Kent B. Thurber, Jeff Lindberg, and Davis Wright Tremaine LLP.

Gary Harrell, Portland, argued the cause for respondent. On the brief were Mary A. Nester and Harrell & Nester, LLP.

Before HASELTON, Presiding Judge, and LINDER and WOLLHEIM, Judges.

HASELTON, P.J.

Defendant appeals from a judgment that (1) rejected its counterclaim for breach of contract and (2) determined that defendant was not entitled to attorney fees notwithstanding that defendant had prevailed against plaintiff's breach of contract claim. Defendant raises two primary contentions. First, defendant contends that the trial court's expressed reasoning is internally inconsistent and, in all events, is irreconcilable with its disposition of defendant's counterclaim. Second, defendant contends that it was entitled to attorney fees either because the trial court entered judgment for defendant on plaintiff's contract claim or because, under a proper analysis, defendant should have prevailed on its counterclaim. As explained below, although we affirm the disposition of the counterclaim, we conclude that the trial court erred in failing to designate defendant as the prevailing party on plaintiff's contract claim and, concomitantly, in failing properly to consider defendant's entitlement to attorney fees as a "prevailing party." See ORS 20.077 (2001), amended by Or. Laws 2003, ch. 576, § 167. Accordingly, we remand for reconsideration of defendant's attorney fee petition.

Plaintiff owns and operates a number of long-term care facilities. Defendant is a pharmaceutical company. In 1995, defendant entered into a contract with plaintiff by which defendant agreed to supply pharmaceutical goods and services to one of plaintiff's facilities, Oakwood Country Place. In 1999 and 2000, the parties modified the pricing schemes under that contract. In the fall of 2001, plaintiff became aware of apparent disparities between what defendant was charging Oakwood and what defendant was charging one of plaintiff's other facilities, Liberty Country Place, under a similar contract. As a result of the consequent audit, plaintiff became convinced that defendant was inflating the price of drugs supplied to plaintiff, with the result that plaintiff was being overcharged by defendant. For a period of eight months — August 2001 through March 2002 — plaintiff refused to pay defendant's invoices. Nevertheless, defendant continued to supply goods and services to plaintiff's facilities throughout that period. In April 2002, defendant began requiring plaintiff to "prepay" for delivery of drugs and services.

When the parties could not reach a resolution of their billing dispute, plaintiff sued defendant for breach of contract, alleging that defendant "had been overcharging plaintiff at least starting from June 1, 2000, if not before, and continuing through the present time * * * in the approximate amount of $200,000, the exact amount to be determined at trial." Defendant answered and counterclaimed for payment of the outstanding, unpaid invoices.¹

At trial, plaintiff, in attempting to establish the amount of defendant's alleged overcharging, relied on the testimony of an expert witness pharmaceutical services consultant, Robert Wehner. Wehner analyzed defendant's billings from 1998 through 2002, utilizing sampling and statistical extrapolation. Wehner testified that, according to his calculations, the total amount of defendant's overcharges from 1999 through 2001 was $274,399.²

In defending against plaintiff's allegations of overcharging, defendant offered expert testimony and argument challenging the statistical validity of Wehner's calculations. In its supplemental trial memorandum, defendant argued that "Wehner's calculations were based upon flawed methodology." Among the alleged methodological flaws that defendant identified were that the dates of service and patients within each month whose charges were analyzed were not randomly selected; that plaintiff "select[ed] the residents to be audited, even though plaintiff has an obvious motivation to select patients whose bills could skew the calculation in its favor"; that Wehner utilized too small a sample size in that too few patients were selected; that patients were included in the sample who were not covered by the contracts at issue; and that Wehner "did not take account of returns to inventory and other adjustments to initial billings." In addition, defendant argued that Wehner was biased because defendant had laid Wehner off less than two years before he conducted the audit of plaintiff's account with defendant, and he "was upset at losing his job" with defendant. Finally, defendant argued that Wehner based his analysis on a "false assumption" that the contractually specified rate was equal to the rates paid under the state Medicaid system.

With respect to its counterclaim, defendant presented evidence, in the form of summaries of the invoices that it had issued to plaintiff between August 31, 2001 and March 31, 2002, indicating that, as of the time of trial, the unpaid invoices plus interest at the contractual 1.5 percent per month totaled $281,228.86. Plaintiff defended against the counterclaim by arguing that the invoice summaries on which defendant relied did not accurately describe the amounts owing under the contract for the counterclaim period of August 31, 2001 through March 31, 2002. In that regard, plaintiff advanced three principal contentions.

First, plaintiff argued that defendant's invoices included improper overcharges. That is, in contesting the counterclaim, plaintiff relied, in part, on the same evidence that it had presented on its own claim — viz., Wehner's audit and statistical analysis. As noted, Wehner testified that defendant's charges were inconsistent with the pricing structure set forth in the parties' contract, resulting in significant overcharges. Plaintiff did not, however, present any evidence as to the specific amount of any alleged overcharging in defendant's invoices for the period covered by the counterclaim (August 31, 2001 through March 31, 2002).

Second, plaintiff challenged the accuracy of defendant's proof of damages due to a number of billing and accounting errors created by defendant's computerized billing and invoicing procedures. Plaintiff's accountant, Alana Ayriss, testified:

"There are quite a few errors on the invoices that we found. We did a thorough research of every invoice, every open invoice. * * * We looked at every invoice from that period of time, and we found quite a few discrepancies."

Plaintiff also elicited testimony from defendant's executive director for Oregon, Susan Morris, in which Morris admitted that defendant's exhibits summarizing the outstanding invoices — upon which defendant principally relied for proof of the $281,228.86 figure — included some invoices that were not encompassed within the counterclaim. Further, there were discrepancies between the summaries and the actual invoices they purported to summarize. Morris could not offer any definitive explanation for those discrepancies, speculating that they could be attributable to credits or corrections for billing errors.

Third, plaintiff contended that defendant's total alleged counterclaim damages failed to account for payments that plaintiff had subsequently made to defendant on previously unpaid invoices. Ayriss testified that plaintiff had made payments of at least $104,000 on the outstanding invoices. According to Ayriss's calculations, as a result of payments and corrections for billing errors — and without any reduction for alleged overcharges³ — as of the time of trial there remained only $170,000 "outstanding on the books."⁴ It is not clear from her testimony whether Ayriss included interest in arriving at that figure.

The case was tried to the court over two days. The trial court subsequently issued a letter opinion that stated:

"Each [party] submits it should prevail in toto and that the other should take nothing. * * * [T]he ultimate decisions turn on whether either party satisfied its burden of proof.

"* * * Although I am convinced plaintiff was overcharged, I do not know by how much. Although I also am convinced defendant has been underpaid, I likewise do not know by how much. No evidence was presented to provide a basis of what to award either party other than the full amounts each has claimed. In this unusual if not unique circumstance, the parties must remain in their undisturbed positions.

"In sum, plaintiff did not sustain its burden of proving it was overcharged bills in the sum of $274,399. Likewise, defendant did not sustain its burden of proving it is owed $281,448.86 for bills and interest through April 30, 2003 flowing from charges it made to plaintiff from August 31, 2001 through March 31, 2002."

The court also determined that, because "neither side is the prevailing party," neither is entitled to attorney fees. The court explained:

"[W]hereas each has defended against an almost identical dollar claim, and in light of all other relevant factors in setting attorneys' fees, neither is awarded such fees, since reasonable fee awards would be identical."

Approximately one week after the court's initial letter opinion, defendant's attorney submitted a letter to the trial court asking the court to resolve "inherent inconsistencies" in its opinion. That letter identified two purported problems with the opinion. First, defendant asserted that the trial court's findings were logically inconsistent:

"You stated that you were convinced that each party was owed...