State ex rel. Palmer v. Unisys Corp.

• Decision Date: 19 December 2001
• Docket Number: No. 99-1535.,99-1535.
• Citation: 637 N.W.2d 142
• Parties: STATE of Iowa, DEPARTMENT OF HUMAN SERVICES, ex rel. Charles M. PALMER, Director, Plaintiff, v. UNISYS CORPORATION and Paramax Systems Corporation, A Unisys Company, Defendants. Unisys Corporation, Appellant, v. Lewin-VHI, INC., n/k/a LWVHI, Inc., Defendant, Heritage National Health Plan and Care Choices, Inc., Appellees.
• Court: Iowa Supreme Court

637 N.W.2d 142

STATE of Iowa, DEPARTMENT OF HUMAN SERVICES, ex rel. Charles M. PALMER, Director, Plaintiff, v. UNISYS CORPORATION and Paramax Systems Corporation, A Unisys Company, Defendants.

Unisys Corporation, Appellant, v. Lewin-VHI, INC., n/k/a LWVHI, Inc., Defendant, Heritage National Health Plan and Care Choices, Inc., Appellees.

No. 99-1535.

Supreme Court of Iowa.

December 19, 2001.

Mark McCormick, Mark E. Weinhardt, Margaret C. Callahan, and Danielle M. Shelton of Belin Lamson McCormick Zumbach Flynn, P.C., Des Moines, for appellant.

David Swinton of Ahlers, Cooney, Dorweiler, Haynie, Smith & Allbee, P.C., Des Moines, for appellee Heritage National Health Plan.

Richard R. Chabot and Jill Mataya Corry of Sullivan & Ward, P.C., Des Moines, for appellee Care Choices.

CADY, Justice.

Unisys Corporation appeals from an order by the district court dismissing its claims for unjust enrichment and contribution. We reverse the decision of the district court, and remand the case for further proceedings.

I. Background Facts and Proceedings.

This action originated when the State of Iowa sued Unisys Corporation and a subsidiary corporation named Paramax Systems Corporation for breach of contract and breach of implied warranty in connection with its management of the state and federal Medicaid program in Iowa. Unisys filed a cross-petition against Heritage National Health Plan and Care Choices, Inc. for contribution, indemnity, and unjust enrichment. Heritage and Care Choices moved for summary judgment and the facts and circumstances presented during the course of the summary adjudication proceedings that followed form the basis for this appeal. These facts, viewed in a light most favorable to Unisys, are accepted for the purpose of establishing the factual background of this appeal.

Iowa's Medicaid program makes medical services available to eligible Iowans. The State administers the program through the Department of Human Services, who receives both state and federal funds to administer the program and reimburse medical providers for the medical services rendered to Medicaid recipients.

In 1987, the Department first entered into a contract with Unisys to help manage the program and serve as the fiscal agent. As fiscal agent, Unisys was responsible for reimbursing Medicaid providers.

Medicaid recipients are able to receive medical care under the Medicaid program through several methods. One method is to receive medical care from a medical provider on a fee-for-service basis. Another method permits recipients to receive services from health maintenance organizations (HMOs).

The Department contracted with several HMOs, including Heritage and Care Choices, to provide care to eligible recipients. However, instead of paying a separate fee for each medical service rendered by the HMOs, the Department agreed to pay the HMOs a predetermined monthly fee for each Medicaid recipient enrolled in the HMO in return for providing the recipient any and all medical services needed during the month. This fee was known as the "capitation rate" and was paid whether or not a recipient actually received medical services during the month. Paragraph 6.1 of the contract between the Department and the HMOs provided:

In full consideration of contract services rendered by the HMO, the DEPARTMENT agrees to pay the HMO monthly payments based on the capitation rates specified in Addendum VI. The monthly capitation rate for each enrollee category will be as specified in the addendum, and will apply through the date of contract termination.

The "capitation rate" was determined at the beginning of each fiscal year using statistics and data of the actual medical costs of Medicaid recipients who received medical care on a fee-for-service basis during the preceding fiscal year, and was essentially the quotient of the number of months an individual was eligible for Medicaid services and the amount expended during those months on the individual. Addendum VI to the contract provided, in relevant part:

The following category-specific monthly rates are based on Iowa Medicaid's actual cost experience in each category ... for state fiscal year....

The contract then specified the rate of payment for each category of Medicaid recipient. The categories were based on the sex and age of the recipients. The contract between the Department and the HMO further provided in paragraph 6.2 that "[t]he monthly capitation rates ... shall not be subject to renegotiation during the initial contract term...." Additionally, paragraph 6.7 provided:

The DEPARTMENT will not normally recover HMO per capita payments when the HMO actually provided service, even if the recipient is subsequently determined to be ineligible for the month in question.

In instances where enrollment is disputed between two HMOs, the DEPARTMENT will be the final arbitrator of HMO membership and reserves the right to recover an inappropriate capitation payment. The DEPARTMENT also reserves the right to recover other types of inappropriate capitation payments, including but not limited to untimely notice from the HMO to the local office of the DEPARTMENT of an enrollee's request to disenroll, which had been submitted to the HMO.

Prior to 1994, the Department determined the capitation rates used to reimburse HMOs for providing medical services. However, it contracted with Unisys in the fiscal years 1994 and 1995 to assemble the necessary data to make the calculations and determine the capitation rates.

During 1994 and 1995, the Department entered into written contracts with Heritage and other HMOs to provide medical care to Medicaid recipients based on the capitation rates calculated by Unisys. The State later determined Unisys miscalculated the capitation rates used in the contracts. Consequently, the rates used in the HMO contracts were higher than they should have been if properly calculated. As a result, the State overpaid the HMOs between $15 million and $17.5 million in 1994 and 1995. Heritage and Care Choices received most of the overpayments. The State then sought to recover this amount from Unisys based upon its mistakes. Although Unisys disputed the claim brought by the State, it filed its cross-petition against Heritage and Care Choices based on the theories of unjust enrichment, indemnity, and contribution. It claimed Heritage and Care Choices were not entitled to retain the alleged overpayments because the fundamental understanding of the contract between the State and the HMOs was that the HMOs would be reimbursed at a fixed rate based upon the actual cost the State had experienced in the previous year, and a mistake in calculating those costs would entitle the State to recover overpayments from the HMOs resulting from the mistake. Unisys submitted expert evidence that the capitation rates were inflated. Heritage submitted evidence that the State did not believe Heritage was liable for the overpayments, and that it had no intention of pursuing any action against Heritage.

The district court granted summary judgment for Heritage and Care Choices. It determined unjust enrichment was not available as a theory of recovery because the claim was governed by a written contract. It also rejected the indemnification and contribution theories. In particular, the district court found Unisys had no standing as a nonparty to the contract to assert that the contract between the State and the HMOs was a product of mistake. It found the parties to the contract did not intend to permit the State to recover excessive payments to HMOs based upon the miscalculation of the capitation rates.

Unisys appealed. Following the appeal, Unisys dismissed its claims against Care Choices and dismissed its indemnity claim against Heritage. It asserts that it stated viable claims against Heritage for contribution and unjust enrichment, and is entitled to receive a trial on the merits.

II. Standard of Review.

Our review is at law. Phillips v. Covenant Clinic, 625 N.W.2d 714, 717 (Iowa 2001). We will not disturb a grant of summary judgment if there is no genuine issue of material fact and the moving party is entitled to summary judgment as a matter of law. Iowa R. Civ. P. 237(c); Fitzgerald v. Salsbury Chem., Inc., 613 N.W.2d 275, 280 (Iowa 2000). When the facts are undisputed, we reverse only if the district court misapplied the law. Fitzgerald, 613 N.W.2d at 280.

In reviewing a summary judgment ruling, we consider the facts in a light most favorable to the nonmoving party. Phillips, 625 N.W.2d at 717. In addition, we construe every legitimate inference that can be reasonably deduced from the record in favor of the party resisting the motion. Id. at 718.

III. Overview.

The right of one party, who has satisfied a claim, to seek reimbursement from another party can generally be pursued by three interrelated common law principles: indemnity, contribution, and subrogation. Chenery v. Agri-Lines Corp., 115 Idaho 281, 284, 766 P.2d 751, 754 (1988). All three principles are equitable in nature and employed to correct or prevent unjust enrichment. See 1 Dan B. Dobbs, The Law of Remedies § 4.3(4), at 604-05, 607-08 (2d ed.1993) [hereinafter Dobbs]; I George E. Palmer, The Law of Restitution § 1.5(d), at 29 (1978) [hereinafter Palmer]. In essence, these doctrines evolved from the most basic legal concept of preventing injustice. I Palmer, § 1.1, at 5. Thus, the idea of unjust enrichment is deeply engrained in our law and is widely applied. Id. at 2. It not only cuts across many areas of the law, such as contract and tort, "but it also occupies much territory that is its sole preserve." Id. It is a theory to support restitution, with or without the existence of some underlying wrongful conduct. See Smith v. Harrison, 325 N.W.2d 92, 94 (Iowa 1982) ("Unjust enrichment is a doctrine of restitution."); 1 Dobbs, § 4.1(1), at 553 (plaintiff may confer benefit without any wrongdoing by defendant). Moreover, it has...