Johnson Regional Medical Cntr. v. Dr. Robert Halterman , 867 F.3d 1013 ( 2017 )

United States Court of Appeals
For the Eighth Circuit
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No. 16-3068
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Johnson Regional Medical Center
lllllllllllllllllllll Plaintiff - Appellee
v.
Dr. Robert Halterman
lllllllllllllllllllll Defendant - Appellant
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Appeal from United States District Court
for the Western District of Arkansas - Ft. Smith
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Submitted: February 7, 2017
Filed: August 15, 2017
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Before SMITH, Chief Judge1, BENTON and SHEPHERD, Circuit Judges.
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SHEPHERD, Circuit Judge.
1
The Honorable Lavenski R. Smith became Chief Judge of the United States
Court of Appeals for the Eighth Circuit on March 11, 2017.
Dr. Robert Halterman appeals the district court’s2 grant of summary judgment
to Johnson Regional Medical Center (JRMC) in this breach of contract suit and the
district court’s subsequent award of $64,931.81 to JRMC. Having jurisdiction under
28 U.S.C. § 1291, we affirm.
I. Background
The essential facts are undisputed. In early 2013, JRMC recruited Halterman
to work as a full-time obstetrician and gynecologist (OB/Gyn) at its Clarksville,
Arkansas facilities. On March 20, 2013, Halterman executed three documents with
JRMC: (1) a “Physician Recruitment Agreement” (Recruitment Agreement), (2) a
Promissory Note (Note) in favor of JRMC in the principal amount of $50,000.00 plus
interest payable in monthly installments, and (3) a “Physician Employment
Agreement” (Employment Agreement). After he signed the documents, JRMC
advanced Halterman $50,000 in three installments beginning in April 2013 as a
“Signing Advance.” The Recruitment Agreement provided that the monthly
payments under the promissory note would be forgiven as long as Halterman’s
employment at JRMC continued. Further, the Recruitment Agreement provided that,
absent prior termination, it would continue in full force until the final payment on the
Note was made or forgiven, except that obligations which extend beyond this period
would survive termination of the agreement.
However, Halterman’s employment with JRMC only lasted around five
months—with Halterman beginning work on July 31, 2013, and resigning by letter
on December 23, 2013. Halterman cited an injury to his shoulder as the reason for
his resignation.
2
The Honorable P.K. Holmes, III, Chief Judge, United States District Court for
the Western District of Arkansas.
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In response to Halterman’s resignation letter, JRMC informed him by letter
dated January 17, 2014, that it accepted his resignation and terminated his
employment “pursuant to . . . the Employment Agreement” as of the date of his
resignation letter. JRMC, in the same letter, informed Halterman that its monthly
forgiveness of his Signing Advance loan payments ceased and it demanded payment
of the remaining balance of “[t]hirty-five thousand eight hundred fifty two and 30/100
($37,894.00) [sic].”3 Halterman failed to make any payments. He began working
elsewhere as a hospitalist during the spring of 2014.
JRMC filed suit against Halterman alleging that (1) he failed to pay the balance
of the Note when due (Count 1), and (2) he breached the terms of the Employment
Agreement (Count 2). The suit was originally filed in the Circuit Court of Johnson
County, Arkansas, but was removed to the United States District Court for the
Western District of Arkansas by Halterman under diversity jurisdiction. The parties
filed cross-motions for summary judgment on Count 1, and Halterman filed a
summary judgment motion on Count 2. The district court granted JRMC’s summary
judgment motion on Count 1 and denied Halterman’s summary judgment motions.
JRMC then voluntarily dismissed Count 2. On June 9, 2016, the district court
awarded judgment totaling $64,931.81 to JRMC, including $37,894.88 in principal
owed under the Note, $21,696.00 in attorney’s fees, $3,849.93 in accrued interest to
the date of the order, and $1,491.00 in additional costs. Halterman appeals the
district court’s grant of summary judgment to JRMC and its award of attorney’s fees
and costs. We affirm.
II. Analysis
We review “the district court’s grant of summary judgment and its
interpretation of state contract law de novo.” Thornton Drilling v. Nat’l Union Fire
3
We note that there is a difference of $2,041.70 between the numerals in
parentheses and the spelled-out number in the text.
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Ins. Co., 537 F.3d 943, 945 (8th Cir. 2008). “Summary judgment is proper if the . . .
[record] . . . show[s] that there is no genuine issue as to any material fact and that the
movant is entitled to judgment as a matter of law.” Torgerson v. City of Rochester,
643 F.3d 1031, 1042 (8th Cir. 2011) (en banc) (internal quotation marks omitted)
(citing Fed. R. Civ. P. 56(c)(2)). In conducting our review, we view “the facts in the
light most favorable to the nonmoving party and giv[e] that party the benefit of all
reasonable inferences that can be drawn from the record.” Holt v. Howard, 806 F.3d
1129, 1132 (8th Cir. 2015) (internal quotation marks omitted). “Where the record
taken as a whole could not lead a rational trier of fact to find for the non-moving
party, there is no genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986) (internal quotation marks omitted).
Here, Halterman argues that all three of the documents that he executed with
JRMC constitute a single contract. He next contends that his performance under that
contract was excused by (1) JRMC’s breach of contract, (2) JRMC’s fraudulent
inducement related to misrepresentations regarding Halterman’s on-call requirements,
and/or (3) his shoulder injury. Finally, he asserts that the district court erred in
awarding attorney’s fees and costs to JRMC.
A. The “Contract”
The parties agree that Arkansas substantive law governs. However, the parties
contest whether the three documents executed in connection with Halterman’s
employment at JRMC should be considered separately or as a single contract. We
agree with the district court that the documents constitute two separate contracts—(1)
the Employment Agreement, and (2) the Recruitment Agreement incorporating the
Note. “When two instruments are executed contemporaneously, by the same parties
in the course of the same transaction, they should be considered as one contract for
purposes of interpretation, in the absence of a contrary intention.” Stokes v. Roberts,
711 S.W.2d 757, 759 (Ark. 1986). To look for a contrary intention, “courts may
acquaint themselves with the persons and circumstances and place themselves in the
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same situation as the parties who made the contract” and “may also consider the
construction the parties themselves place on the contract.” Id.
The record supports the conclusion that the Recruitment Agreement and the
Note were meant by the parties to function as a single contract. Both documents were
signed on the same date. Each document refers to the other expressly and
incorporates the other by its terms. For example, the Note states that “the annual
installments of principal and interest shall be forgiven as set forth in Article IV of the
Physician Recruitment Agreement.” Likewise, the Recruitment Agreement (1) refers
to the “Physician’s execution of the Note” laying out the dates for the three
installment payments under the Note, (2) sets out the terms of repayment of “the
Note,” and (3) specifies the terms of “[f]orgiveness of the Note.” The two documents
are clearly not mutually exclusive and work together to manage distribution,
repayment, and incremental forgiveness of the $50,000 signing advance loan made
to Halterman. Thus, the Recruitment Agreement and the Note are to be considered
as a single contract. See id.4
In contrast, differences in the Recruitment Agreement and the Employment
Agreement show that the parties intended that the two documents act as separate
contracts. See PC Scale, Inc. v. Roll Off Servs., Inc., 379 S.W.3d 649, 653 (Ark. Ct.
App. 2010) (applying Arkansas and California law to determine that four interrelated
documents were not a single contract because of inconsistent provisions found
therein). First, the two documents have different durations. Specifically, the
Recruitment Agreement states that it remains in effect “until the date that final
payment on the Note is made or forgiven, unless terminated pursuant to its terms.”
In contrast, the Employment Agreement’s duration is “three years from the Effective
Date . . . , subject to earlier termination.”
4
Where applicable, we use the term “Recruitment Agreement” throughout the
remainder of this opinion to refer to both the Recruitment Agreement and the Note.
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Second, both agreements contain independent merger clauses. The
Recruitment Agreement’s merger clause is entitled “Entire Agreement” and states that
“this Agreement constitute[s] the entire agreement between the parties with regard to
the subject matter hereof and thereof.” Likewise, the Employment Agreement
paragraph 23 is titled “Entire Agreement,” and says “[t]his Agreement . . . contains
the entire agreement between the parties concerning the subject matter hereof.” Since
each document expressly states that it is the entire agreement between the parties, the
parties’ intention again appears to be that these two documents act as separate
contracts.
Third, each agreement contains different promises and obligations. The
Employment Agreement sets out Halterman’s “Physician duties and responsibilities,”
including the location of his practice, malpratice coverage, compensation package,
assignment of his fees, and other terms of his employment. In contrast, the
Recruitment Agreement sets out the terms of forgiveness of Halterman’s “Signing
Advance” loan received pursuant to the Note as well as other terms related to
recruiting Halterman to Arkansas. Thus, the Employment Agreement and the
Recruitment Agreement serve two independent functions—one to recruit Halterman
to JRMC and the other to govern his employment once on site at JRMC.
Fourth, each agreement contains different triggers for termination. The
Recruitment Agreement gives the Hospital the option to terminate for breach, death
or permanent disability, or if federal law jeopardizes the agreement. In contrast, the
Employment Agreement sets out many other reasons for termination including drug
or alcohol abuse, embezzlement, performance or quality insufficiencies, and other
issues related to Halterman’s employment. It also allows for either party to terminate
the contract without cause with 60 days prior written notice—a provision clearly not
in the Recruitment Agreement.
Therefore, for these reasons, we find that the Recruitment Agreement and the
Employment Agreement are two separate contracts. JRMC voluntarily dismissed
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Count 2, which implicated the Employment Agreement; so, we focus on the
Recruitment Agreement in our discussion below.
B. Halterman’s Performance Was Not Excused
Under the terms of the Note, Halterman borrowed $50,000 from JRMC and
agreed to repay that principal balance plus interest in 24 monthly payments. The
Note expressly incorporates the loan-forgiveness terms specified in the Recruitment
Agreement, such that for every month that Halterman practiced as an OB/Gyn
physician at JRMC, the hospital agreed to discharge that month’s payment as it
became due. See Ark. Code Ann. § 4-3-117 (stating that the obligation of a party to
pay a promissory note “may be modified [or] supplemented . . . by a separate
agreement of the obligor and a person entitled to enforce the instrument”).
This arrangement persisted for five months. Halterman does not deny that,
accounting for the payments forgiven during that time, he owed $37,894.88 to JRMC
when he resigned absent a legal defense. To that end, Halterman alleges that JRMC’s
fraudulent misrepresentations in negotiating his call-coverage obligations constituted
a breach of the duty of good faith and fraud in the inducement. He further contends
that JRMC breached the contract and that his shoulder injury prevented him from
fulfilling his duties. But, even assuming that these contentions are true, Halterman
fails to explain why any of them would allow him to keep the remainder of the loan
proceeds.
Halterman’s obligation to pay the remaining debt under the Note is not excused
by his allegations of fraud or breach of the duty of good faith. Halterman cites no law
supporting his assertion that he is entitled to keep the loan proceeds if JRMC
fraudulently induced him to sign the Recruitment Agreement. To the contrary,
Arkansas law specifies the proper course of action under such circumstances:
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An executory contract which has been procured by fraud is not
binding upon the party against whom the fraud has been perpetrated. He
may, after discovering the fraud, either perform it or rescind it, and if
with knowledge of the fraud he elects to perform it this is equivalent to
his making a new contract, and to permit him, under those circumstances
to recover for a fraud would be to do violence to every rule upon which
compensatory damages are allowed.
McDonough v. Williams, 92 S.W. 783, 787 (Ark. 1905) (emphases added).
Halterman resigned, choosing not to perform. This left rescission as his only option.
“It is an elementary principle of law that if one would rescind his contract, he must
return or offer to return the consideration which induce[d] its execution.” Rhodes v.
Survant, 192 S.W.2d 880, 883 (Ark. 1946). Thus, to the extent that Halterman
pursues the remedies extended to this situation under Arkansas law, he is still
obligated to return the remainder of the principal.5
Halterman’s vague breach of contract defense is likewise insufficient to
discharge his duty to repay the loan. Section 5.1(a) of the Recruitment Agreement
specifies that it shall “remain in effect until the date that final payment on the Note
is made or forgiven, unless terminated pursuant to its terms.” Section 5.1(b) then
provides that JRMC has the option to terminate the contract upon any breach of the
contract by Halterman. Because neither party contests that the contract is, in fact,
terminated, we then look to the contract’s language to determine the effect of that
termination. See McCuistion v. City of Siloam Springs, 594 S.W.2d 233, 235 (Ark.
1980) (stating that where “there is substantial evidence that a contract existed[,] [the
court] must . . . look to the terms of the contract for any measure of damages”).
Section 5.1(d) provides as follows: “Upon termination of this Agreement, Hospital’s
5
Significantly, Halterman has not asserted a cause of action against JRMC for
breach of contract, nor does he expressly seek rescission. In practical effect,
however, the remedy he seeks is rescission plus the ability to keep the remainder of
the signing advance. There is no legal avenue that leads to this outcome.
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obligations hereunder shall cease, and all amounts advanced by Hospital pursuant to
this Agreement, plus accrued interest, less amounts repaid by Physician to Hospital
or forgiven pursuant to Article IV, shall become an obligation of Physician to
Hospital immediately due and payable.” Thus, applying the plain language of the
contract, the remaining balance became due and payable upon termination, cf. Bank
of Am., N.A. v. JB Hanna, LLC, 766 F.3d 841, 852-53 (8th Cir. 2014) (applying
Arkansas law and enforcing contractual obligation to pay loan in full on a specified
date), and Halterman directs us to nothing allowing him to retain the loan proceeds
in the event of an alleged breach by the Hospital.
We likewise find that Halterman’s shoulder injury does not allow him to retain
the loan proceeds. Both parties agree that Halterman sustained a shoulder injury that
prevented him from performing some of the procedures that he was hired to perform.
Under section 5.1(b)(ii) of the Recruitment Agreement JRMC had the right to
terminate the agreement because of “permanent disability preventing physician’s
performance” under the agreement. Further, under the Recruitment Agreement,
Halterman was obligated to “in good faith and with diligence, pursue [his] practice
on a full-time basis and . . . maintain regular office and practice hours.” However, he
abruptly resigned while JRMC was still forgiving repayments and honoring the
contract without engaging in any sort of good-faith negotiations with JRMC as to the
appropriate recourse. See Ark. Realtors Ass’n v. Real Forms, LLC, 442 S.W.3d 845,
854 (Ark. 2014) (stating that one pleading the defense of impracticability must “show
that he took virtually every action within his power to perform his duty under the
contract,” and “[i]t must be shown that the thing to be done cannot be effected by any
means” (internal quotation marks omitted)). In fact, just months later in the spring
of 2014, Halterman resumed work as a hospitalist at another facility suggesting that
his concern for permanent disability was overstated, and he failed to present evidence
that JRMC would not have accepted a similar level of performance in fulfillment of
his contract. Therefore, as with the above defenses, we conclude that Halterman’s
argument that his repayment of the loan should be forgiven because of his shoulder
injury fails as a matter of law.
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C. The Award of Attorney’s Fees to JRMC
“We review de novo the legal issues related to the award of attorney’s fees and
costs and review for abuse of discretion the actual award of attorney’s fees and costs.”
Sturgill v. United Parcel Serv., Inc., 512 F.3d 1024, 1036 (8th Cir. 2008) (internal
quotation marks omitted).
A “written agreement[] specifically providing for the payment of attorney’s
fees” is “enforceable in accordance with its terms” in Arkansas, “independent of the
statutory authorization providing for attorney’s fees under the circumstances covered
by Ark. Code Ann. § 16-22-308.” Griffin v. First Nat’l Bank of Crossett, 888 S.W.2d
306, 311 (Ark. 1994); see also Ark. Code Ann. § 16-22-308 (“In any civil action to
recover on . . . [a] promissory note . . . for labor or services, or breach of contract,
unless otherwise provided by law or the contract . . . , the prevailing party may be
allowed a reasonable attorney’s fee to be assessed by the court and collected as
costs.”).
Here, the Note provides, “[Halterman] agrees to pay . . . all costs and expenses
incurred by [JRMC] in connection with the collection and enforcement of this Note,
including, but not limited to, expenses and reasonable attorneys’ fees . . . .” The
terms of the Note control, as noted above, so Halterman is responsible for JRMC’s
reasonable “costs and expenses” in collection of the balance due on the Note.
Halterman argues unconvincingly that JRMC was not the “prevailing party” in the
Recruitment Agreement dispute and cites Arkansas Code Annotated section
16-22-308. However, under Griffin, the Note controls here, and regardless, JRMC
was clearly the prevailing party with regard to the dispute over the Recruitment
Agreement, and the district court has already discounted the attorney’s fees by 25%
to account for time spent solely on litigation of the Employment Agreement Count
(which was dismissed voluntarily).
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III. Conclusion
Finding no genuine issues of material fact and that JRMC is entitled to
judgment as a matter of law, we affirm the district court’s grant of summary judgment
to JRMC. We find no abuse of discretion with respect to the district court’s award
of attorney’s fees, and we affirm the judgment of the district court.
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