Genesee Associates v. Ron Disney ( 2005 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 05-1103
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Surgical Synergies, Inc., *
*
Plaintiff, *
*
v. *
*
Genesee Associates, Inc., * Appeal from the United States
* District Court for the Eastern
Defendant/Third Party * District of Missouri.
Plaintiff - Appellant, *
*
v. *
*
Ron Disney; Mike Bingham, *
*
Third Party Defendants - *
Appellees. *
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Submitted: October 14, 2005
Filed: December 29, 2005
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Before ARNOLD, MURPHY, and GRUENDER, Circuit Judges.
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GRUENDER, Circuit Judge.
Third-party plaintiff Genesee Associates, Inc. (“Genesee”) appeals the order
of the district court1 granting judgment on the pleadings to third-party defendants Ron
Disney and Mike Bingham on Genesee’s indemnification claim. For the reasons
discussed below, we affirm the judgment of the district court.
I. BACKGROUND
Genesee is in the business of providing management services for outpatient
surgery centers. Before March 2002, Disney and Bingham collectively owned 100%
of Genesee’s stock. Beverly Kirchner, the president of Genesee since at least 1999,
purchased all of Genesee’s stock from Disney and Bingham in March 2002.
Genesee derives most of its income from a contract to provide management
services to the New Iberia Surgery Center (“New Iberia”). In mid-2001, Genesee
considered a potential merger with Surgical Synergies, Inc. (“SSI”), another provider
of services to outpatient surgery centers.2 While the companies investigated the
potential for a merger, SSI assumed part or all of Genesee’s duty to provide
management services to New Iberia. At the same time, Kirchner and other Genesee
employees performed the tasks of SSI employees. After a few months, Genesee and
SSI decided not to complete the merger. By no later than January 30, 2002, SSI made
a demand to Genesee for payment for the services SSI performed on the New Iberia
contract on behalf of Genesee during the merger investigation period.
1
The Honorable Stephen N. Limbaugh, United States District Judge for the
Eastern District of Missouri.
2
SSI, the plaintiff below, is not involved in this appeal.
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Kirchner began negotiating with Disney and Bingham to buy Genesee in early
2002. In March 2002, Kirchner purchased 100% of Genesee’s stock from Disney and
Bingham by executing a stock purchase agreement. Kirchner again considered
completing the merger with SSI after she purchased Genesee, but those plans were
never finalized.
Two paragraphs of the stock purchase agreement are at issue in this case:
6.4 Other than obligations Genesee may have under the management
contract between Genesee and New Iberia Surgery Center (the
“Management Contract”), Genesee has no other liabilities, whether
contingent or otherwise. Genesee has not assigned or otherwise
transferred any rights or obligations under the Management Contract,
and Genesee is not in default of any of its legal obligations under the
Management Contract. Accounts receivable from New Iberia are a
Genesee asset which accrue to Genesee.
***
10.2(a) Disney and Bingham, jointly and severally, agree to defend,
indemnify, protect and hold harmless Kirchner, and her successors and
assigns, from and against any damages, debts, liabilities, costs, losses
and expenses incurred by Kirchner as a result of any breach of this
Agreement by Disney and/or Bingham, or a breach by Disney and/or
Bingham of any of the representations or warranties made by them in
this Agreement.
SSI brought suit against Genesee in Missouri state court for payment for the
services SSI performed on behalf of Genesee on the New Iberia contract during the
merger investigation period. Genesee removed the case to federal district court based
on diversity of citizenship. After Kirchner assigned her rights under the stock
purchase agreement to Genesee, Genesee filed a third-party complaint against Disney
and Bingham. Genesee claimed that the existence of any liability to SSI would breach
¶ 6.4 of the stock purchase agreement and that Disney and Bingham were bound to
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indemnify Genesee, as Kirchner’s assignee, under ¶ 10.2(a) for any amounts deemed
owed to SSI.
Genesee settled SSI’s claim for an undisclosed sum. Disney and Bingham
moved for judgment on the pleadings on Genesee’s third-party indemnification claim,
and Genesee in turn moved for summary judgment against Disney and Bingham on
that claim. The district court elected to grant Disney and Bingham’s motion for
judgment on the pleadings, considering the stock purchase agreement as part of the
pleadings and finding that (1) the plain language of the stock purchase agreement
disclosed Genesee’s liability to SSI, so the liability to SSI could not constitute a
breach, and (2) Genesee did not plead a loss by Kirchner sufficient to trigger the
indemnification provision. Genesee appeals, arguing that the pleadings present an
issue of material fact as to whether a breach occurred and that they allege a loss to
Kirchner.
II. DISCUSSION
The district court concluded that ¶ 6.4 of the stock purchase agreement, which
identified “obligations Genesee may have under the management contract between
Genesee and New Iberia Surgery Center,” disclosed the contested obligation to SSI.
As an initial matter, we find that the district court reached this conclusion based on
knowledge of the case gleaned from matters outside the pleadings.3 Where the district
3
The district court properly considered the stock purchase agreement along with
the pleadings because it was attached to the complaint and was “necessarily embraced
by the pleadings.” Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir.
1999) (quoting Piper Jaffray Cos. v. Nat’l Union Fire Ins. Co., 967 F. Supp. 1148,
1152 (D. Minn. 1997)); see also Silver v. H&R Block, Inc., 105 F.3d 394, 397 (8th Cir.
1997) (finding two published statements were properly considered with the pleadings
for purposes of a motion to dismiss because the entire lawsuit was based on the
statements and the parties did not dispute their content). However, the district court’s
determination of the parties’ understanding of the liabilities disclosed by ¶ 6.4 of the
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court considers matters outside the pleadings, a motion for judgment on the pleadings
“shall be treated as one for summary judgment.” Fed. R. Civ. P. 12(c). However, any
error in a district court’s failure to treat a motion for judgment on the pleadings as one
for summary judgment “is harmless if the nonmoving party had an adequate
opportunity to respond to the motion and material facts were neither disputed nor
missing from the record.” Kerr v. Fed. Emergency Mgmt. Agency, 113 F.3d 884, 885
(8th Cir. 1997) (quoting Gibb v. Scott, 958 F.2d 814, 816 (8th Cir. 1992)). In this
case, as a result of Genesee’s competing motion for summary judgment, both parties
addressed the meaning of ¶ 6.4 of the stock purchase agreement in multiple briefs and
exhibits and, as discussed below, no disputed material facts remain. Therefore, we
find harmless any error in the district court’s decision not to convert Disney and
Bingham’s motion for judgment on the pleadings to one for summary judgment.
Because the district court considered matters outside the pleadings, we review
this case under the summary judgment standard, viewing the facts in the light most
favorable to the nonmoving party and affirming if there is no genuine issue of material
fact and the moving party is entitled to a judgment as a matter of law. Forest Park II
v. Hadley, 408 F.3d 1052, 1057 (8th Cir. 2005). In this diversity case, we apply the
laws of the forum state, Missouri, to determine which state’s law governs our
interpretation of the stock purchase agreement. Highwoods Props. v. Exec. Risk
Indem., Inc., 407 F.3d 917, 920 (8th Cir. 2005). “The Missouri courts generally
enforce contractual choice-of-law provisions.” PVI, Inc. v. Ratiopharm GmbH, 253
F.3d 320, 329 (8th Cir. 2001) (citing Rheem Manufacturing Co. v. Progressive
Wholesale Supply Co., 28 S.W.3d 333, 339 (Mo. Ct. App. 2000)). Paragraph 16 of
the stock purchase agreement provides that it is to be governed by the substantive law
of Texas.
stock purchase agreement required reference to exhibits introduced by the parties on
Genesee’s competing motion for summary judgment. These briefs and exhibits are
outside the pleadings.
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The decisive question in this case is whether, under ¶ 6.4 of the stock purchase
agreement, Kirchner assumed the risk of a liability to SSI as an “obligation[] Genesee
may have under the management contract between Genesee and New Iberia Surgery
Center.” Under Texas law, “a contract is ambiguous if it is susceptible to more than
one reasonable interpretation.” Frost Nat’l Bank v. L&F Distribs., Ltd., 165 S.W.3d
310, 312 (Tex. 2005) (per curiam). The court decides whether a contract is ambiguous
as a question of law, “looking at the contract as a whole in light of the circumstances
present when the parties entered the contract.” Friendswood Dev. Co. v. McDade +
Co., 926 S.W.2d 280, 282 (Tex. 1996) (per curiam).
At the time the stock purchase agreement was drafted, the parties were aware
that SSI had assumed all or part of Genesee’s duties under the New Iberia
management contract during the merger investigation period and that SSI had
demanded payment for that work. In light of the circumstances present when the
parties entered the contract, the phrase “obligations Genesee may have under the
management contract between Genesee and New Iberia Surgery Center” is susceptible
to two reasonable interpretations: referring either to (1) the Genesee obligations that
may have been specifically identified in the New Iberia management contract, or (2)
the Genesee obligations arising under the New Iberia management contract, including
liabilities to SSI arising from SSI’s performance of Genesee’s duties under the New
Iberia management contract. Therefore, ¶ 6.4 of the stock purchase agreement is
ambiguous.
If a contract is ambiguous, extrinsic evidence is admissible “to give the words
of a contract a meaning consistent with that to which they are reasonably susceptible.”
Nat’l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 521 (Tex. 1995) (per
curiam). The extrinsic evidence in this case shows that Kirchner assumed the risk of
a liability to SSI under ¶ 6.4 of the stock purchase agreement. Approximately one
week before the execution of the stock purchase agreement, Disney sent an e-mail to
Kirchner’s attorney describing an agreement among Disney, Bingham and SSI
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principal Mike Ribaudo that Disney and Bingham would leave assets in Genesee
sufficient to cover fees owed to SSI at the time of the sale to Kirchner. See Third-
Party Defendant’s Memo in Opposition to Third-Party Plaintiff’s Motion for
Summary Judgment, Exhibit F. The e-mail and attached spreadsheet show how
Disney and Bingham structured Genesee’s accounts prior to the execution of the stock
purchase agreement so that Genesee would have sufficient funds to pay SSI’s claim
after the purchase by Kirchner. Id.
Genesee attempts to show a disputed material fact by arguing that there is no
evidence Kirchner agreed that the money Disney and Bingham left in Genesee would
be used to pay SSI. Genesee cites deposition testimony from Disney in which Disney
admits Kirchner never committed to pay SSI the money Disney and Bingham left in
Genesee for that purpose. See Third Party Plaintiff’s Response to Third Party
Defendants’ Memo in Opposition to Third-Party Plaintiff’s Motion for Summary
Judgment, at 10-13 and Exhibit F. However, it is not material whether Kirchner
intended to admit Genesee’s liability to SSI and pay on demand after she assumed
ownership of Genesee. It is only material that Kirchner knew that under the stock
purchase agreement, Disney and Bingham left money in Genesee to cover the
management fees claimed by SSI under the New Iberia management contract “[i]f she
chose to pay them.” Id. at 11-12. Consequently, Kirchner knew that Disney and
Bingham had no intention of bearing the risk of any potential liability to SSI after the
stock purchase agreement was executed. It would not have been reasonable for
Kirchner to conclude that the phrase “obligations Genesee may have under the
management contract between Genesee and New Iberia Surgery Center” excluded
Genesee’s liabilities to SSI arising from SSI’s performance of Genesee’s duties under
the New Iberia management contract.
In addition, a fax from Disney and Bingham’s attorney to Kirchner’s attorney
just prior to the execution of the stock purchase agreement shows that an earlier draft
of ¶ 6.4 expressly referred to Kirchner as assuming the risk of “obligations Genesee
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may have under the management contract between Genesee and SSI (‘Management
Contract’).” Id., Exhibit I. Genesee contends that the removal of “SSI” from ¶ 6.4 of
the penultimate draft of the stock purchase agreement evidences Kirchner’s intent not
to assume the risk of a liability to SSI. This contention is not supported by the
circumstances. The fax states that Disney and Bingham felt that “SSI” should be
changed to “New Iberia” in the final draft of ¶ 6.4 only because “there is no SSI
management contract.” Id. First, it was Disney and Bingham, not Kirchner, who
suggested replacing “SSI” with “New Iberia,” so the change yields no evidence about
Kirchner’s intent. Second, the evidence shows that Disney and Bingham replaced
“SSI” with “New Iberia” because ¶ 6.4 refers to a “Management Contract,” but there
was no formal management contract with SSI governing its involvement with New
Iberia. Disney and Bingham felt that if “SSI” were named as the antecedent reference
to the “Management Contract,” it might erroneously imply that Kirchner assumed the
risk of SSI’s claims only if those claims were based on a separate formal agreement
with SSI. In other words, the drafting change was made to strengthen, not cancel, the
inclusion of SSI’s potential claims under the New Iberia management contract in the
liabilities disclosed by ¶ 6.4.
In summary, Genesee raises no genuine issue of material fact as to whether
Kirchner assumed the risk of a liability to SSI under ¶ 6.4 of the stock purchase
agreement. Therefore, Disney and Bingham are entitled to judgment as a matter of
law on Genesee’s claim that they breached the stock purchase agreement. Because
Genesee can prove no breach of the stock purchase agreement, the indemnity
provision in ¶ 10.2(a) cannot be invoked, and we need not consider whether Genesee
successfully pleaded an individual loss by Kirchner as required by that provision.
Accordingly, we affirm the judgment of the district court.
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III. CONCLUSION
We conclude that the district court did not err in granting judgment to Disney
and Bingham on Genesee’s third-party indemnification claim. Therefore, we affirm
the judgment of the district court.
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