Premier, Inc. v. Peterson

• Citation: 755 S.E.2d 56
• Decision Date: 04 March 2014
• Docket Number: No. COA13–344.,COA13–344.
• Court: Court of Appeal of North Carolina (US)
• Parties: PREMIER, INC., Plaintiff, v. Dan PETERSON; Optum Computing Solutions, Inc.; Hitschler–Cera, LLC; Donald Bauman; Michael Held; The Held Family Limited Partnership; Robert Wagner; Alek Beynenson; I–Grant Investments, LLC; James Munter; Gail Shenk; Steven E. Davis; Charles W. Leonard, III and John Does 1–10, Defendants.

755 S.E.2d 56

PREMIER, INC., Plaintiff,

v.Dan PETERSON; Optum Computing Solutions, Inc.; Hitschler–Cera, LLC; Donald Bauman; Michael Held; The Held Family Limited Partnership; Robert Wagner; Alek Beynenson; I–Grant Investments, LLC; James Munter; Gail Shenk; Steven E. Davis; Charles W. Leonard, III and John Does 1–10, Defendants.

No. COA13–344.

Court of Appeals of North Carolina.

March 4, 2014.

Appeal by defendants from order entered 11 December 2012 by Judge Calvin E. Murphy in Mecklenburg County Superior Court. Heard in the Court of Appeals 29 August 2013.

Moore & Van Allen, PLLC, Charlotte, by J. Mark Wilson, Kathryn G. Cole, and Benjamin R. Huber, for plaintiff-appellee.

Williams Mullen, Raleigh, by Christopher G. Browning, Jr. and Garrick A. Sevilla, for defendants-appellants.

DAVIS, Judge.

Dr. Dan Peterson (“Dr.Peterson”); Optum Computing Held; the Held Family Limited Partnership; Robert Wagner; Alek Beynenson; I–Grant Investments, LLC; James Munter; Gail Shenk; Steven E. Davis; Charles W. Leonard, III; and John Does 1–10 (collectively “Defendants”) appeal from the trial court's 11 December 2012 order granting summary judgment in favor of Plaintiff Premier, Inc. (“Premier”) on (1) its claim for a declaratory judgment that it did not breach its contract with Defendants; and (2) Defendants' counterclaims for breach of contract, attorneys' fees, and recovery of audit expenses. After careful review, we vacate the trial court's order granting summary judgment and remand for further proceedings.

Factual Background

On 29 September 2006, Premier acquired Cereplex, Inc. (“Cereplex”) by entering into a Stock Purchase Agreement (the “Agreement”) with Defendants, the former shareholders and stakeholders of Cereplex. Cereplex developed and designed web-based surveillance and analytic services to healthcare providers through its software products, Setnet and PharmWatch. Setnet was designed to assist healthcare providers in detecting, responding to, and preventing healthcare-associated infections (“HAIs”). HAIs are infections that patients acquire during their course of treatment in a healthcare facility or setting. The Setnet program provided various alerts, reports, and other monitoring and surveillance functions regarding the possible presence of HAIs in healthcare providers' patient population.

PharmWatch was a program designed to optimize treatment, curb resistance to antibiotics, and prevent unnecessary use or overuse of antibiotics. The PharmWatch product provided automated surveillance and monitoring by generating alerts to notify a healthcare provider of a potential problem in the provision and dosage of antibiotics to a particular patient.

After acquiring Cereplex, Premier developed SafetySurveillor, a successor product that combined the functionalities of Setnet and PharmWatch into one software program. SafetySurveillor, like its predecessors, generates automated alerts to notify the user of potential problems that require attention. SafetySurveillor's key features relate to its ability to (1) facilitate infection prevention by firing alerts to infection control professionals regarding the potential existence of clusters or outbreaks of HAIs; and (2) provide configurable pharmacological-related alerts based on set variables, including high-cost medication, drug combinations, length of therapy, lab results, and other factors.

Pursuant to the Agreement, Defendants were entitled to receive an annual earnout payment (the “Earnout Amount”) from Premier for five years following the date of the Agreement. The Earnout Amount provision of the Agreement states, in pertinent part, as follows:

(iii) Earnout. On each of the dates that are the first five (5) anniversaries of the Closing Date, the Earnout Amount earned duringthe preceding twelve (12) months shall be determined by the Buyer in good faith (the “Yearly Earnout”).... “Earnout Amount” shall mean an amount equal to $12,500 for each Hospital Site where a Product Implementation occurs during the applicable 12–month period; excluding the first fifty (50) Hospital Sites where a Product Implementation occurs.... For the avoidance of doubt the first fifty (50) Hospital Site threshold is a one-time threshold, not an annual threshold. “Hospital Site” shall mean an individual hospital, nursing home, care center or similar facility (and for the avoidance of doubt a single health care company or hospital group may consist of multiple Hospital Sites). “Product Implementation” means a Hospital Site that has (A) subscribed to or licensed the Company's Setnet or PharmWatch product (or any derivative thereof, successor product, or new product that substantially replaces the functionality of either product), whether such product is provided, sold or licensed (for a charge or at no charge, or provided on a stand-alone basis or bundled with other products and/or services) to the applicable Hospital Site by Company (or its successor in interest), any affiliate of the Company or any reseller authorized by the Company, and (B) completed any applicable implementation, configuration and testing of the product so that the product is ready for production use by the Hospital Site. Together with the delivery of each Yearly Earnout, the Buyer shall provide the Sellers' Representative with a written report listing the names and addresses of the Hospital Sites covered by the applicable Yearly Earnout payment.

The Agreement provided that Defendants were authorized to conduct an annual audit to verify that Premier was paying out the correct Earnout Amount to Defendants. Defendants were responsible for paying the expenses associated with the audit unless the audit revealed that Premier had underpaid the Earnout Amount by more than 5%. If the applicable Earnout Amount was in dispute, Premier would not have any obligation to pay the costs and expenses of the audit “unless a final, nonappealable order of a court or an arbitrator that is binding on [Premier] finds that the Audit findings are correct.”

From May 2010 to September 2010, Dr. Peterson, the cofounder and former Chief Executive Officer of Cereplex, conducted a pilot audit on Defendants' behalf regarding Premier's compliance with the Agreement. Dr. Peterson testified by affidavit that in determining the appropriate Earnout Amount that Defendants were due, his audit “reported on the occurrence of single-event alerts as a simple and sure way to identify Product Implementations of SafetySurveillor ¹ for the Audit.” A single-event alert refers to the notification the SafetySurveillor program dispatches to infection control professionals or other designated medical personnel to identify either (1) the potential presence of an HAI in a patient who was discharged from a hospital and later sought medical attention from another healthcare facility; or (2) a possible problem with the antibiotic therapy prescribed to a patient.

Dr. Peterson examined Premier's databases and discovered over 1,000 healthcare facilities from which an alert had been fired. His affidavit states that “[e]ach alert relates to an individual patient and is specific to the facility at which that patient was seen, and each alert was sent to at least one clinician who had chosen to be alerted about the event.” He also explained that in order for an alert to be fired from a facility, the SafetySurveillor program must have acquired access to the facility's patient data.

The conclusion reached by Dr. Peterson from his audit was that Premier had provided SafetySurveillor to over 1,000 facilities yet had only recognized 263 Hospital Sites for purposes of the Product Implementation provision of the Agreement. Based on Dr. Peterson's audit, Defendants informed Premier that they intended to initiate litigation against Premier for miscalculating the Earnout Amount and violating the terms of the Agreement.

On 19 January 2011, Premier filed an action in Mecklenburg County Superior Court seeking a declaratory judgment that it had not breached the Agreement. On 27 April 2011, Defendants filed an answer and counterclaims. Defendants alleged that Premier had, in fact, breached its contract with Defendants and sought damages as well as the recovery of audit expenses and attorneys' fees. The matter was designated a complex business case and assigned to the Honorable Calvin E. Murphy.

On 29 July 2011, the trial court entered a case management order giving the parties until 30 April 2012 to complete fact discovery and until 31 July 2012 to complete all discovery. On 30 August 2011, approximately 40 days after the entry of the case management order, Premier filed a motion for judgment on the pleadings pursuant to Rule 12(c) of the North Carolina Rules of Civil Procedure or, in the alternative, a motion for summary judgment pursuant to Rule 56.

The trial court conducted a hearing on 14 December 2011 and entered its order and opinion on 11 December 2012 granting summary judgment in Premier's favor on its declaratory judgment claim as well as on Defendants' counterclaims for breach of contract, attorneys' fees, and recovery of audit expenses.² Defendants appealed to this Court.

Analysis

On an appeal from an order granting summary judgment, this Court reviews the trial court's decision de novo. Shroyer v. Cty. of Mecklenburg, 154 N.C.App. 163, 167, 571 S.E.2d 849, 851 (2002). Summary judgment is appropriate if “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law.” Dockery v. Quality Plastic Custom Molding, Inc., 144 N.C.App. 419, 421, 547 S.E.2d 850, 852 (2001).

In a contract dispute between two parties, the trial court may interpret a plain and unambiguous contract as a matter of law if there are no genuine issues of material fact. See McKinnon v. CV Indus., Inc., 213 N.C.App. 328, 333, 713...