Saint Alphonsus Diver. Care v. Mri Assoc.

• Decision Date: 21 October 2009
• Docket Number: No. 34885-2007.,34885-2007.
• Citation: 224 P.3d 1068
• Parties: SAINT ALPHONSUS DIVERSIFIED CARE, INC., an Idaho nonprofit corporation, Plaintiff-Appellant, v. MRI ASSOCIATES, LLP, an Idaho limited liability partnership, Defendant-Respondent. MRI Associates, LLP, an Idaho limited liability partnership, on its own behalf, and on behalf of MRI Limited, an Idaho limited partnership, and MRI Mobile Limited, an Idaho limited partnership, Counter claimant-Respondent, v. Saint Alphonsus Diversified Care, Inc., an Idaho nonprofit corporation; and Saint Alphonsus Regional Medical Center, Inc., Counter defendants-Appellants.
• Court: Idaho Supreme Court

224 P.3d 1068

SAINT ALPHONSUS DIVERSIFIED CARE, INC., an Idaho nonprofit corporation, Plaintiff-Appellant, v. MRI ASSOCIATES, LLP, an Idaho limited liability partnership, Defendant-Respondent.

MRI Associates, LLP, an Idaho limited liability partnership, on its own behalf, and on behalf of MRI Limited, an Idaho limited partnership, and MRI Mobile Limited, an Idaho limited partnership, Counter claimant-Respondent, v. Saint Alphonsus Diversified Care, Inc., an Idaho nonprofit corporation; and Saint Alphonsus Regional Medical Center, Inc., Counter defendants-Appellants.

No. 34885-2007.

Supreme Court of Idaho, Boise, August 2009 Term.

October 21, 2009.

Opinion Denying Rehearing January 12, 2010.

Jones Day, Washington, D.C.; Gjording & Fouser, PLLC, Boise; and Givens Pursley LLP, Boise, for appellants. Donald B. Ayer argued.

Banducci Woodard Schwartzman PLLC, Boise, for respondent. Thomas A. Banducci argued.

EISMANN, Chief Justice.

This is an appeal from a judgment against a general partner for wrongful dissociation, breach of a noncompete clause, breach of the covenant of good faith and fair dealing, intentional interference with prospective contractual relations or business expectations, breach of fiduciary duties, and civil conspiracy. We vacate the judgment and remand this case for further proceedings.

I. BACKGROUND

Doctors of Magnetic Resonance, Inc.; Saint Alphonsus Diversified Care, Inc.;¹ Mednow, Inc.; and HCA of Idaho, Inc.,² formed a general partnership named MRI Associates (MRIA).³ The parties executed a written partnership agreement that was effective on April 26, 1985. The purpose of the partnership was to acquire and operate diagnostic and therapeutic devices, equipment, and accessories, beginning with a magnetic resonance imaging (MRI) scanner; to acquire related buildings and other facilities; and to transact all business matters incident to such activities. MRIA and others formed two limited partnerships: MRI Limited Partnership (MRI Center), which owned and operated an MRI scanner located on the hospital campus of St. Alphonsus Regional Medical Center (St. Alphonsus) under the name of MRI Center of Idaho, and MRI Mobile Limited Partnership (MRI Mobile), which owned and operated mobile MRI scanners. MRIA owned thirty percent of, and was the general partner of, each limited partnership.

For years following the creation of MRIA, physicians at St. Alphonsus used MRI Center to produce MRI scans and radiologists from the Saint Alphonsus Radiology Group, also known as Gem State Radiology (GSR), to read the scans. The radiologists organized as GSR were under an exclusive contract to serve the professional radiological needs of St. Alphonsus's patients.

In 1998, the radiologists at GSR began planning to construct and operate an outpatient medical imaging facility that would provide a full range of medical imaging services, including both MRI imaging and other imaging services that were not provided by MRI Center. After GSR had acquired land in downtown Boise, it disclosed its plans to St. Alphonsus and encouraged it to become involved in the project. Thereafter, there were unsuccessful negotiations among the GSR radiologists, St. Alphonsus, and MRIA to have one medical imaging entity.

The radiologists formed the partnership Intermountain Medical Imaging, LLC (Intermountain Imaging), which began operating on September 1, 1999. On July 1, 2001, Saint Alphonsus became a partner in the non-MRI part of the business of IMI.

On February 24, 2004, Saint Alphonsus Diversified Care, Inc. gave notice to MRIA that it would dissociate from the partnership effective on April 1, 2004, and on October 18, 2004, it filed this lawsuit seeking a judicial determination of the amount it was entitled to receive for its interest in MRIA. MRIA responded by filing a multi-count counterclaim against Saint Alphonsus Diversified Care, Inc., and against St. Alphonsus⁴ (both herein called St. Alphonsus) and by filing third-party claims. The claims against the third-party defendants were ultimately dismissed.

Ultimately, the case went to a jury trial on the remaining causes of action in MRIA's counterclaim alleging causes of action for wrongful dissociation, breach of a noncompete clause, breach of the covenant of good faith and fair dealing, intentional interference with prospective contractual relations or business expectations, breach of fiduciary duties, and civil conspiracy. The jury found St. Alphonsus liable on all causes of action, and awarded damages of $63.5 million. The district court reduced the verdict to $36.3 million after determining that the jury had totaled damage awards on two alternative theories. The court also denied St. Alphonsus's motions for a judgment notwithstanding the verdict or a new trial. St. Alphonsus then timely appealed.

II. ISSUES

1. Did the district court err in holding that St. Alphonsus wrongfully dissociated from MRIA?

2. Did the district court err in submitting to the jury the issue of whether the partnership agreement contained a definite term?

3. Did the district court err in admitting into evidence a memorandum that included a reference to legal advice received by St. Alphonsus?

4. Did the district court err by admitting into evidence a settlement offer made by MRIA?

5. Must the award of damages be vacated because it includes damages sustained by nonparties?

6. Must the award of damages be vacated because it includes lost profits beyond the term of the partnership?

7. Must the award of damages be vacated because there was insufficient evidence to support the award of lost profits?

8. Does the evidence support an award of damages based upon the value of MRIA?

9. Did the district court err in denying MRIA's motion to amend to add a claim for punitive damages?

10. Did the district court err in dismissing MRIA's antitrust cause of action?

11. Is either party entitled to an award of attorney fees on appeal?

III. ANALYSIS

A. Did the District Court Err in Holding that St. Alphonsus Wrongfully Dissociated from MRIA?

St. Alphonsus dissociated from MRIA on April 1, 2004. MRIA included in its counterclaim a cause of action for wrongful dissociation alleged under two theories: (a) the dissociation breached an express provision of the partnership agreement and (b) the partnership agreement had a definite term and the dissociation occurred prior to the expiration of that term. MRIA and St. Alphonsus both filed motions for partial summary judgment on that cause of action. The district court granted MRIA's motion for summary judgment, holding that St. Alphonsus's dissociation was wrongful because it breached an express provision of the partnership agreement. The court did not discuss the alternative theory that the dissociation occurred prior to the expiration of the definite term of the partnership. St. Alphonsus contends the district court erred in granting the partial summary judgment.

"A partner who wrongfully dissociates is liable to the partnership and to the other partners for damages caused by the dissociation." I.C. § 53-3-602(c). A partner's dissociation is wrongful if "[i]t is in breach of an express provision of the partnership agreement." I.C. § 53-3-602(b)(1). Whether there is an express provision in the partnership agreement that was breached by the dissociation is an issue of law over which we will exercise free review. See Howard v. Perry, 141 Idaho 139, 142, 106 P.3d 465, 468 (2005) ("Whether a contract is ambiguous is a question of law over which we exercise free review."). The partnership agreement was effective on April 26, 1985. Because of a subsequent change in the applicable law, it is necessary to first discuss how the agreement is to be viewed when addressing this issue.

When the parties entered into the partnership agreement, the applicable law in Idaho was the "Uniform Partnership Law" (UPL), former I.C. §§ 53-301 et seq.⁵ The UPL did not include the concept of dissociation. Under the UPL, a partnership was not a legal entity distinct from the partners. Swope v. Swope, 112 Idaho 974, 981, 739 P.2d 273, 280 (1987). It was "an association of two or more persons to carry on as co-owners a business for profit." State v. Cosgrove, 36 Idaho 278, 285, 210 P. 393, 395 (1922); former I.C. § 53-306(1). Therefore, the withdrawal of one partner caused a dissolution of the partnership. Kelly v. Silverwood Estates, 127 Idaho 624, 628, 903 P.2d 1321, 1325 (1995); Elliot v. Elliot, 88 Idaho 81, 86, 396 P.2d 719, 722 (1964); former I.C. § 53-329. A partner could at any time withdraw from the partnership by the partner's express will to cease being associated in the carrying on of the partnership business. Former I.C. §§ 53-329 & 53-331.⁶ If that breached the partnership agreement, the partner could be liable for wrongful dissolution. Former I.C. § 53-338(2)(a)(2).

In 1998, the UPL was repealed effective July 1, 2001, and the "Uniform Partnership Act (1996)" (RUPA), I.C. §§ 53-3-101 et seq., was enacted effective January 1, 2001.⁷ Ch. 65, §§ 1 & 3, 1998 Idaho Sess. Laws 226, 227, 259. The RUPA introduced the new concept of "dissociation."

Under the RUPA, "[a] partnership is an entity distinct from its partners." I.C. § 53-3-201(a). An association of two or more persons to carry on as co-owners a business for profit forms a partnership; they are not the partnership. I.C. § 53-3-202(a). A partner who chooses to withdraw from the partnership is dissociated, I.C. § 53-3-601(1), but "[t]he dissociation of the partner does not require the dissolution of the partnership and the winding up of its affairs." Costa v. Borges, 145 Idaho 353, 357, 179 P.3d 316, 320 (2008). A partner has the power to dissociate at any time, rightfully or wrongfully. I.C. § 53-3-602(a). If a partner wrongfully dissociates, a majority in interest of the remaining partners can, within ninety days, agree to continue the partnership, I.C. § 53-3-801(1) & (2)(i), but they will have to purchase the...