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Beal v. McGuire

Supreme Court of Alaska

September 25, 2009

David D. BEAL; Jerry L. Coles; Steven E. Nathanson; Michael C. Norman; Raymond E. Gills; and Stephen C. Sitter, Appellants,
v.
David A. MCGUIRE; HealthSouth Corporation; Alaska Surgery Center, Inc.; Alaska Surgery Center, Ltd.; Louise Bjornstad; and Lake Otis Professional Center, LLC, Appellees.

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Douglas Pope, Pope & Katcher, Anchorage, for Appellants.

Timothy J. Petumenos, Birch Horton Bittner & Cherot, and Roger F. Holmes, Biss & Holmes, Anchorage, for Appellees.

Before EASTAUGH, CARPENETI, and WINFREE, Justices.

OPINION

EASTAUGH, Justice.

I. INTRODUCTION

Six members of a joint venture sued two other members, primarily claiming breaches of fiduciary duties. The joint venture, most of whose members were Anchorage physicians, owned a medical services condominium on Laurel Street and leased it out for use as an ambulatory surgical center. The plaintiffs claimed in part tat the joint venturer defendants and others were liable for moving the surgical center to a building not owned by the joint venture. They claimed that this diminished the income-earning capacity of the condominium because an Alaska statute, AS 18.07.031(c), effectively prevented the plaintiffs from replacing the surgery center on Laurel Street. The superior court granted complete summary judgment for all the defendants. Because we conclude that genuine issues of material fact exist both as to the extent of the fiduciary duty the two joint venturer defendants owed the plaintiffs and as to whether they breached that duty, we reverse in part and remand. We affirm the summary judgment entered for all the other defendants.

II. FACTS AND PROCEEDINGS

This appeal arises out of a lawsuit brought by six members of a joint venture, Advances in Surgical Care, against two other joint venturers and against several other persons

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and entities.[1] The plaintiffs were Anchorage physicians David Beal, Jerry Coles, Steven Nathanson, Michael Norman, Raymond Gills, and Stephen Sitter. The two joint venturer defendants were HealthSouth Corporation and Anchorage physician David McGuire; the other defendants were former HealthSouth employee Louise Bjornstad and several business entities.

Ten physicians and one dentist formed Advances in Surgical Care in 1981. The owners of Advances changed over the years. When the lawsuit was filed in 2003, there were nine members; each had an equal ownership interest. The nine were the six plaintiffs, defendants HealthSouth and Dr. McGuire, and one other individual. Dr. McGuire was not one of the original Advances members, but had become a member by July 1982. HealthSouth became a member in the mid-1990s.

The 1981 organizing document was entitled " Joint Venture Agreement," but it also consistently referred to the members as " partners" and to the entity as " the Partnership." The 1981 joint venture agreement defines " Partnership" to mean " joint venture." The members, including Dr. McGuire, executed an amended agreement in 1982. Like the 1981 agreement, the 1982 agreement is entitled " Joint Venture Agreement," but it also consistently refers to the members as " partners" and to the entity as " the Partnership." Unlike the 1981 agreement, the 1982 agreement does not define " Partnership." The record contains no later organizing document for Advances, and the parties refer to none, so we assume the 1982 agreement is the controlling document. It was largely the same as the 1981 agreement; we will discuss differences in the two agreements as necessary.

The parties dispute the nature and legal effect of Advances's business form. We refer to the entity as a " joint venture," per the titles of the two joint venture agreements in the record. Our usage is not meant to imply any legal or factual distinction between the joint venture form and the partnership form. We discuss that issue below. Both agreements stated that the " sole purpose" of Advances was to acquire, develop, and manage property for the " production of income and profit." But it also appears undisputed that, as the defendants alleged in the superior court, the members specifically entered into the joint venture agreement " to construct a building to be used for professional services."

The persons who were the original Advances joint venturers were also the shareholders of a separate corporation, Alaska Surgery Center, Inc., that was then operating an ambulatory surgical center on Rhone Circle in Anchorage; that surgery center had been in operation since approximately 1976. Alaska Surgery Center, Inc. has been known by different names, including " Surgery Center, Inc." and " Surgery Center." We refer to it as " Alaska Surgery Center, Inc.," the name the corporation adopted in 1983, or as " Alaska Surgery Center" for short. The plaintiffs allege here, as did the defendants below, that the joint venturers started the Advances joint venture primarily to construct a new facility that could house a new ambulatory surgery center.

As amended in 1982, AS 18.07.031 required anyone intending to spend $1 million or more on the construction of a health care facility to first obtain a certificate of need (CON) from the Alaska Department of Health and Social Services (DHSS).[2] In about 1982 Advances and Alaska Surgery Center, Inc. jointly applied to DHSS for a CON to construct an

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ambulatory surgical center on Laurel Street in Anchorage so Alaska Surgery Center could relocate from Rhone Circle. Dr. Raymond Gills sent DHSS a letter on behalf of Alaska Surgery Center, Inc., stating in part that the space at Rhone Circle would no longer be used for outpatient surgery once that space was vacated.

In February 1983 DHSS issued to both Alaska Surgery Center, Inc. and Advances a CON for the " construction of a new facility and the relocation and expansion of the Surgery Center...." The CON approved a maximum expenditure of $2,809,400 for the new facility. Advances then constructed a new ambulatory surgical facility in Condominium A of 4001 Laurel Street; Advances was the owner of that condominium.

In late 1984 or early 1985 the individuals who were the Alaska Surgery Center, Inc. shareholders (and who were also the Advances joint venturers) sold a majority of their shares in Alaska Surgery Center, Inc. to a health care operating company called AlternaCare.[3] At the same time, the Advances joint venture negotiated a twenty-year lease with Alaska Surgery Center, Inc. for Condominium A at 4001 Laurel Street. In effect, the joint venture leased the space for the surgery center to AlternaCare for twenty years. The joint venturers also entered into a twenty-year non-competition agreement between themselves and AlternaCare that prohibited Advances and the former shareholders of Alaska Surgery Center, Inc. from directly or indirectly engaging in the ambulatory surgery center business " at any location within a 25 mile radius of the current site of the Center or within the Municipality of Anchorage, whichever is smaller." The lease and the non-competition agreement both expired in 2005.

The ownership of Alaska Surgery Center, Inc. changed, and in 1996 HealthSouth acquired a majority interest in the corporation. Around the same time, HealthSouth also acquired an eleven percent interest in the Advances joint venture. Thus, by the mid-nineties, the joint venturers included the six physicians who are plaintiffs here and Dr. McGuire and HealthSouth.

When HealthSouth acquired the corporation in 1996, Alaska Surgery Center, Inc. had approximately nine years remaining on its Laurel Street lease with Advances. In June 1998 HealthSouth hired Dr. McGuire as a consultant to help relocate the Alaska Surgery Center Before its lease expired. After plaintiffs filed suit in 2003, Dr. McGuire testified by deposition that he believed that, to relocate the surgery center from Laurel Street, HealthSouth would have to either build a new facility for less than $1 million or apply for a new CON. Because he believed at the time that getting a new CON would be " difficult," Dr. McGuire informed HealthSouth that " the best and most likely successful outcome would be legislative."

Therefore, around 1999, Dr. McGuire and HealthSouth informed the other joint venturers that they intended to lobby the Alaska legislature either to repeal the CON requirement or to raise the CON threshold from $1 million to $7 million. The plaintiffs later asserted in their complaint that they had " no objection" to either of these proposed legislative changes.

In January 2000 a lobbyist hired by Dr. McGuire and HealthSouth worked with legislators to introduce House Bill 297, which proposed requiring CONs only for projects with proposed costs exceeding $7 million. But the proposal to raise the CON threshold met with opposition. By March 2000 the sponsor statement for HB 297 indicated that the bill had been revised to provide " a solution to the immediate problem without raising the $1,000,000 floor." The revised bill proposed allowing a health care facility to relocate to a new site without obtaining a CON as long as there was no increase in the services offered. As revised, HB 297 proposed in part adding this subsection to AS 18.07.031:

(c) Notwithstanding (a) of this section, a person who is lawfully operating a health care facility that is an ambulatory surgical

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facility at a site may make an expenditure of any amount in order to relocate the services of that facility to a new site in the same community without obtaining a certificate of need as long as neither the bed capacity nor the number of categories of health services provided at the new site is greater. However, notwithstanding the expenditure threshold in (a) of this section, a person may not use the site from which the health care facility relocated for another health care facility unless authorized under a certificate of need issued by the department.

The legislature enacted the bill as so revised; the governor signed it into law in April 2000.[4] The last sentence of the subsection was deleted when subsection .031(c) was amended in 2004.[5]

In 2001 HealthSouth, relying on the new CON exception created in 2000 by AS 18.07.031(c), relocated Alaska Surgery Center from 4001 Laurel Street to the Lake Otis Professional Center. Dr. McGuire, Louise Bjornstad, and HealthSouth each acquired an ownership interest in Lake Otis Professional Center, LLC, the company that owned the Lake Otis Professional Center. HealthSouth's lease of the Laurel Street facility did not expire until 2005 and HealthSouth apparently continued to pay rent to the Advances joint venture through the end of the lease. The defendants assert that the Laurel Street surgery center space has remained vacant since Advances regained possession when the lease expired in 2005.

Five of the joint venturers sued Dr. McGuire, HealthSouth, Louise Bjornstad, Alaska Surgery Center, Inc., Alaska Surgery Center, Ltd., and Lake Otis Professional Center, LLC in April 2003.[6] Another plaintiff was added later. The six plaintiffs are the appellants in the appellate caption. Their March 2004 amended complaint asserted eight claims: (1) fraud by intentional misrepresentation; (2) fraud by deception; (3) negligent misrepresentation; (4) conversion; (5) conspiracy to commit fraud; (6) breach of fiduciary duty; (7) breach of contract; and (8) economic duress.

The superior court granted complete summary judgment for all the defendants in October 2006. The court concluded in part that the plaintiffs had not demonstrated how " choosing to move rather than extending [the] lease" breached any duty owed by defendants McGuire and HealthSouth. The court then awarded all of the defendants attorney's fees under Alaska Civil Rules 68 and 82.

The plaintiffs appeal.

III. DISCUSSION

A. Standard of Review

We review grants of summary judgment de novo, drawing all factual inferences in favor of, and viewing the facts in the light most favorable to, the non-prevailing party.[7] Summary judgment is appropriate if there is no genuine issue as to any material fact and the prevailing party is entitled to judgment as a matter of law.[8] A party opposing summary judgment need not prove that it will prevail at trial, but only that there is a triable issue of fact.[9] Any evidence sufficient to raise a genuine issue of material fact, " so long as it amounts to more than a scintilla of contrary evidence," is sufficient to oppose summary judgment. [10]

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The applicability of a legal doctrine presents a question of law to which we apply our independent judgment, adopting the rule of law that is most persuasive in light of precedent, reason, and policy.[11] Questions of contract interpretation generally raise questions of law that we review de novo.[12] Fact questions may be created if the meaning of the contract language depends on conflicting extrinsic evidence.[13] Summary judgment is inappropriate if there is an unresolved material factual dispute about the intent of the contracting parties.[14] The parties' expectations must be gleaned not only from the contract language, but also from extrinsic evidence, including evidence of the parties' conduct, goals sought to be accomplished, and surrounding circumstances when the contract was negotiated.[15]

We review a superior court's award of attorney's fees for an abuse of discretion.[16] We will conclude there has been an abuse of discretion if, after reviewing the whole record, we are left with a definite and firm conviction that the superior court erred in its ruling. [17] Whether a superior court applied the law correctly in awarding attorney's fees is a question of law that we review de novo.[18] We apply the independent standard of review in deciding whether a superior court correctly determined a settlement offer's compliance with Rule 68.[19]

B. Whether It Was Error To Grant Summary Judgment to the Joint Venturer Defendants on the Fiduciary Duty Claim

The plaintiffs argue that the superior court erred by granting summary judgment to the two joint venturer defendants (HealthSouth and Dr. McGuire) on the fiduciary duty claim.[20] This claim primarily concerns the joint venturer defendants' role in relocating the surgery center from the Laurel Street facility owned by the joint venture to a facility not owned by the joint venture at a time AS 18.07.031(c) effectively prevented operation of a replacement surgery center at the Laurel Street address. The plaintiffs contend that the joint venture agreement as written imposed fiduciary duties relevant here. They also argue that these genuine issues of material fact exist: (1) whether joint venturers Dr. McGuire and HealthSouth owed the other joint venturers a fiduciary duty; (2) whether Dr. McGuire and HealthSouth breached that duty; and (3) whether the plaintiffs suffered damages as a result.

1. The scope of Dr. McGuire and HealthSouth's fiduciary duties

The plaintiffs contend preliminarily that the joint venture agreement created a fiduciary relationship and that the joint venturers

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owed each other a duty to act without fraud or deceit and with full disclosure at all times. They also argue that there are genuine issues of material fact concerning the scope of fiduciary duties owed by Dr. McGuire and HealthSouth. Dr. McGuire and HealthSouth respond that Advances was a joint venture, not a partnership, and assert that this distinction is " significant" because the scope of duties owed between partners is generally broader than that owed between joint venturers.

a. Whether the form of Advances matters

In granting summary judgment, the superior court noted that the parties disagreed about whether partnership or joint venture law determined the scope of fiduciary duties owed. The superior court did not resolve this disagreement, having ruled there was no breach of any fiduciary duty.

Because joint ventures and partnerships both involve fiduciary relationships, the outcome of this appeal does not turn on whether Advances was a partnership or a joint venture.[21] Instead, the scope of any duties the members owed each other is principally determined by the terms of the 1982 joint venture agreement. We assume the 1982 agreement is the applicable agreement. That is the agreement signed by Dr. McGuire, and no one suggests any later joint venture agreement exists or applies.

That said, there seems to be little justification for distinguishing between a partnership and a long-term joint venture like Advances when determining the scope of fiduciary duty owed. Advances was created primarily to construct the 4001 Laurel Street building and to own and manage the portion of the building (Condominium A) containing a surgery center that would generate long-term profits for the joint venturers. Advances is a profit-sharing enterprise formed to facilitate not just a single transaction or project relatively brief in duration, but rather a long-term, and potentially lucrative, business arrangement. Although we have indicated that fiduciary duties owed between partners may often be broader than those owed between joint venturers, [22] we have been referred to no authority that would make such a distinction relevant in this case.[23]

It also does not matter that, unlike the 1981 agreement, the 1982 amended agreement did not explicitly state that general partnership law would apply to the extent the agreement did not provide otherwise. The joint venture was a form of partnership; the only question is whether the agreement's terms and purposes gave rise to or foreclosed particular purported duties of loyalty and care.

Under Alaska's Uniform Partnership Act

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(UPA),[24] the scope of duties owed between partners is largely determined by the partnership agreement.[25] The UPA also governs relations between and among partners " [t]o the extent the partnership agreement does not otherwise provide." [26] According to AS 32.06.404, partners owe each other the duties of loyalty and care.[27] The duty of loyalty requires a partner to refrain from competing in the conduct of the partnership business and to account for any property, profit, or benefit derived by the partner from the appropriation of a partnership opportunity.[28] A partner must discharge this duty and any other duties under the partnership agreement and exercise any rights " in accordance with the obligation of good faith and fair dealing." [29] According to AS 32.06.960, the partnership ...


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