Visiting Nurse Ass'n of Fla., Inc. v. Jupiter Med. Ctr., Inc.

Citation154 So.3d 1115
Decision Date06 November 2014
Docket NumberNo. SC11–2468.,SC11–2468.
CourtUnited States State Supreme Court of Florida

David B. Earle, Thomas K. Gallagher, and John P. Carrigan of Ross Earle & Bonan, P.A., Stuart, FL, for Petitioner.

Michael G. Austin and Matthew D. Grosack of DLA Piper LLP (US), Miami, FL, for Respondent.



Visiting Nurse Association of Florida, Inc., seeks review of the decision of the Fourth District Court of Appeal in Jupiter Medical Center, Inc. v. Visiting Nurse Ass'n of Florida, Inc., 72 So.3d 184 (Fla. 4th DCA 2011), on the ground that it expressly and directly conflicts with a decision of the Fifth District Court of Appeal in Commercial Interiors Corp. of Boca Raton v. Pinkerton & Laws, Inc., 19 So.3d 1062 (Fla. 5th DCA 2009), on a question of law. We have jurisdiction. See art. V, § 3(b)(3), Fla. Const. For the following reasons, we quash the Fourth District's decision holding that a court must determine whether a contract is legal prior to enforcing an arbitral award based on the contract.

A. Overview

After the conclusion of an arbitration proceeding resolving a contract dispute between Visiting Nurse Association, Inc. (VNA), a home health care agency, and Jupiter Medical Center, Inc. (JMC), a hospital, involving agreed-upon discharge planning procedures and VNA's lease of office space in JMC's hospital, the arbitration panel issued an “interim award,” granting VNA damages, prejudgment interest on a portion of the damages, and reserving jurisdiction to consider attorney's fees and costs. In a “Final Award of Arbitrators,” the arbitration panel granted VNA attorney's fees, administrative filing fees and expenses, and arbitrators' fees and expenses.

After the “interim award” was issued, JMC filed a motion for reconsideration and a motion to reopen the hearing, alleging that the arbitration panel construed the contract and the discharge planning procedures in violation of federal and state health care laws prohibiting kickbacks for referrals of Medicare patients. The panel summarily denied the motion by e-mail stating that it had already considered those arguments. Jupiter Medical Center subsequently filed a motion to vacate the arbitration award in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida, alleging that the arbitration panel interpreted the contract to be an unlawful agreement and that the panel exceeded its powers.1 Visiting Nurse Association also filed a motion to enforce the award. At the conclusion of a hearing regarding both motions, the circuit court dismissed the motion to vacate and granted the motion to enforce the award.

On appeal, the Fourth District noted that the trial court did not address the issue of the contract's legality prior to dismissing the action. The Fourth District ultimately reversed the dismissal of the motion to vacate the award and remanded for the trial court to consider the legality of the contract because “a Florida court cannot enforce an illegal contract” and must make that determination prior to enforcing an award based thereon. Visiting Nurse Association then filed a petition to invoke this Court's discretionary jurisdiction, and we granted review. The circumstances leading to the contractual dispute, the arbitration award, and this Court's review of Jupiter Medical Center are more fully set forth below.

B. Contractual Relationship and Breach

This action arises from the February 2005 purchase of a hospital-based home health care agency (HHA) by VNA from JMC. In 2004, VNA approached JMC to purchase JMC's in-house HHA believing that if it streamlined JMC's current operations, VNA could generate $1.5 million of revenue due to the volume of Medicare patients serviced by JMC. Visiting Nurse Association's purchase decision was based on the belief that it would receive forty-five to fifty Medicare referrals per month. Despite a purchase evaluation revealing significant competition from other HHAs, JMC concluded that its in-house HHA's fair market value was $639,000, which VNA ultimately agreed to pay in cash. In exchange for the $639,000, VNA was to obtain all rights and interests in JMC's HHA. The agreement also provided that VNA would have “access to the institution” and “work space” in the hospital. This portion of the agreement was then memorialized in a separate, contemporaneous “office lease” agreement that provided that VNA would occupy space in the discharge planning office until the “dissolution of [VNA].” Further, although VNA did not need the space, it agreed to take over 5,000 square feet of JMC's existing 10–year lease in Jupiter Farms at an expense of $375,000, to purchase “JMC's market share of HHA referrals.” Shortly thereafter, VNA noticed a decline in Medicare referrals and attributed it to JMC not divulging information about the agreement's discharge procedures, specifically paragraph five of Exhibit “D” of the agreement, to JMC physicians. In Exhibit “D” of the agreement, the discharge planning procedures were outlined as follows:

1. For any patient requiring home health services post discharge, [JMC] will include in the discharge plan a list of home health agencies that are available to the patient, that are participating in the Medicare program and that serve the geographic area in which the patient resides, consistent with the requirements of 42 CFR 42.43, [JMC] will update its list at least annually and include home health agencies which have requested to be listed by [JMC] and which meet the requirements stated herein.
2. For patients enrolled in managed care organizations, [JMC] indicates the availability of home health agencies to individuals and entities that have a contract with the managed care organization.
3. [JMC] will document in the patient's medical record that the list was presented to the patient or to an individual acting on the patient's behalf.
4. [JMC] will inform the patient or the patient's family of their freedom to choose among participating Medicare home health agencies and will, when possible, respect patient and family preferences, when they are expressed to [JMC]. [JMC] will not specify or otherwise limit the qualified providers that are available to the patient.
5. If, after following the foregoing procedures, the patient expresses no preference, [JMC] will inform the patient of its relationship with the VNA. The purpose of establishing a working relationship with the VNA is to facilitate the smooth transfer of patients into post-hospital care and thereby reduce the average length of stay for hospitalization.

(Some emphasis added).

Around November 2006, VNA suspected that a rotation system was being used where each patient who did not express a preference for a particular HHA was simply assigned to the next HHA on JMC's HHA list. Jupiter Medical Center denied there was a rotation system in place. At the evidentiary hearing, however, a former JMC discharge planner said a rotation system had indeed been implemented and VNA was only mentioned if the patient had previously been provided services by JMC's HHA prior to its sale to VNA. On June 4, 2007, VNA notified JMC that it would not renew the Jupiter Farms lease after its expiration. Approximately a week later, Chief Medical Officer Dr. Ketterhagen was hired, and he directed the discharge planning department to continue its rotation system to ensure equal distribution of HHA referrals. Pursuant to these directions, if a patient did not express a preference for a particular HHA, JMC referred the patient to the next HHA on JMC's list because Dr. Ketterhagen did not believe JMC was allowed to demonstrate a preference to any particular HHA.

On September 10, 2007, Dr. Ketterhagen informed VNA that due to a shortage of office space, VNA could not continue to maintain office space in the hospital. In this notice, Dr. Ketterhagen also informed VNA that JMC would no longer notify patients of its relationship with VNA. In September 2007, in accordance with its previous notice to JMC, VNA did not make a rent payment for the Jupiter Farms office space. Jupiter Medical Center filed suit in circuit court and VNA instituted arbitration proceedings on November 1, 2007. Neither party argued that the contractual arrangement itself was illegal during the arbitration proceedings.

C. Arbitration Awards

The arbitration panel issued an “interim award” in which the panel found that JMC breached the contract in two material respects. First, JMC never made its staff aware of the discharge planning procedures outlined in Exhibit “D” of the agreement; the closest JMC ever came to complying with provision 5 of Exhibit “D” was informing former patients of JMC's HHA that VNA had purchased the HHA. Further, the facts demonstrated that JMC continued its use of a rotation system, which deprived VNA of “what it had paid $639,000 for: the ability to subtly ‘nudge’ JMC's patients to select its agency from among a host of choices.”2 Notably, the panel did not conclude that JMC breached the agreement by failing to refer patients, but only for failing to follow the discharge procedures. The panel also found that even if JMC's equivocation in following the discharge procedures was not a breach of contract, the September 10, 2007, letter from JMC to VNA terminating the in-house lease agreement and announcing its intention to cease explaining its relationship with VNA to patients did constitute a breach.

Second, JMC breached the agreement by terminating VNA's lease agreement that provided VNA with office space inside JMC and access to the discharge planning staff. The panel concluded that the office space gave VNA visibility and access to doctors and other referrers in the hospital; without the space, VNA was on equal footing with other HHAs, which was not the benefit VNA purchased.

Regarding damages, the panel noted that calculation of damages was difficult...

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