G. Steven Hammond, M.d. v. The Everett Clinic, Pllc ( 2021 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION ONE
G. STEVEN HAMMOND, M.D., ) No. 80772-2-I
)
Appellant, )
)
v. )
)
THE EVERETT CLINIC, PLLC, ) UNPUBLISHED OPINION
f/k/a THE EVERETT CLINIC, P.S., )
a limited liability corporation, )
)
Respondent. )
)
VERELLEN, J. — A party is bound by the contract he knowingly and
voluntarily signs. Dr. G. Steven Hammond argues the litigation release he signed
should be avoided because he was misled into signing it. Because Hammond fails
to establish any misrepresentation or that his reliance on the alleged
misrepresentation was reasonable, the trial court did not err by concluding the
release barred his claims.
Hammond contends the court abused its discretion when it denied a motion
to amend his complaint to add a misrepresentation claim under the Securities Act
of Washington, chapter 21.20 RCW. Because Hammond fails to establish any
misrepresentation occurred, the court did not abuse its discretion by denying the
motion as futile.
No. 80772-2-I/2
Therefore, we affirm.
FACTS
For many years, The Everett Clinic’s (TEC) Buy-Sell Agreement with its
physicians required that they purchase shares of stock in the company and hold
the shares while employed. When a physician left, TEC would buy the shares
back at their original purchase price. The Buy-Sell Agreement also imposed an
ongoing duty for the next 15 years on TEC to the former physician-shareholder. If
“all of the outstanding stock of [TEC] is sold to one or more third parties and any
one or more related transactions,” then TEC would distribute part of the proceeds
to the former shareholder equal with current shareholders.1
In 2015, TEC and DaVita HealthCare Partners, Inc., decided to merge.
TEC’s board of directors sent its former shareholders a letter notifying them of the
transaction. A current shareholder could be entitled to $1,000,000. But for former
shareholders, “it is the Board’s assessment” that the transaction would not trigger
TEC’s duty to share the proceeds “[b]ecause a merger is neither a dissolution nor
a sale of stock.”2 However, because “opinions on the application of the Buy-Sell
Agreement may differ with respect to the merger transaction,” TEC offered to pay
each former shareholder $350,000 in exchange for signing a litigation release
“from any and all claims . . . arising under the Buy-Sell Agreement.”3
1 Clerk’s Papers (CP) at 124.
2 CP at 368.
3 CP at 501-02.
2
No. 80772-2-I/3
Hammond worked for TEC until he left in 2004. In December of 2015, he
received the letter and an enclosed packet of information—the release agreement,
a copy of the Buy-Sell Agreement, and a detailed merger summary—read them
several times; discussed them with his wife, an attorney, and a physician still
employed by TEC; and decided to sign the release. Hammond received $350,000
from TEC and invested it.
In April of 2017, a group of former shareholders who had decided against
signing the release won in arbitration against TEC. The arbitrator concluded the
merger with DaVita triggered TEC’s duty to share the proceeds pursuant to the
Buy-Sell Agreement and awarded the group just over $30,000,000, or about
$1,000,000 each. Because of their success, Hammond decided TEC had misled
him about the nature of its transaction with DaVita and filed a complaint alleging
breach of the Buy-Sell Agreement and seeking to void the release agreement.
As litigation progressed, Hammond amended his complaint and moved to
do so for a third time. He also moved for partial summary judgment. TEC moved
for summary judgment on all claims on the basis of Hammond’s signed release
and opposed the third motion to amend, arguing it was futile. The court agreed
with TEC, granted its motion for summary judgment, denied Hammond’s motion
for partial summary judgment as moot, and denied his third motion to amend as
futile. The court awarded TEC attorney fees and costs.
Hammond appeals.
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No. 80772-2-I/4
ANALYSIS
I. Summary Judgment
We review a grant of summary judgment de novo, engaging in the same
inquiry as the trial court.4 Summary judgment is appropriate when there are no
issues of material fact and the movant is entitled to judgment as a matter of law.5
All facts and inferences are viewed in a light most favorable to the nonmoving
party.6 We can affirm on any ground supported by the record.7
Hammond argues he should be allowed to avoid the release because TEC
misrepresented the nature of its transaction with DaVita by calling it a “merger”
when “the end result (to the trained eye) was still a stock sale.”8 As explained in
his motion for partial summary judgment, “[TEC] failed to inform Plaintiffs the
substance of the DaVita transaction was a sale of stock, not simply a merger, and
therefore, contrary to the assertions in [TEC’s] letter, the Buy-Sell Agreement did
apply.”9
4
Dowler v. Clover Park Sch. Dist. No. 400, 172 Wn.2d 471, 484, 258 P.3d
676 (2011) (citing Harris v. Ski Park Farms, Inc., 120 Wn.2d 727, 737, 844 P.2d
1006 (1993); RAP 9.12).
5
Washington Fed. Sav. & Loan Ass’n v. Alsager, 165 Wn. App. 10, 13, 266
P.3d 905 (2011) (citing CR 56(c)).
6 Id. (citing Schaaf v. Highfield, 127 Wn.2d 17, 21, 896 P.2d 665 (1995)).
7Id. at 14 (citing King County v. Seawest Inv. Assoc., LLC, 141 Wn. App.
304, 310, 170 P.3d 53 (2007)).
8 Appellant’s Br. at 23.
9 CP at 302.
4
No. 80772-2-I/5
“The whole panoply of contract law rests on the principle that one is bound
by the contract which he voluntarily and knowingly signs.” 10 Releases are
contracts and are governed by the same rules.11 If one party enters a contract due
to the other’s misrepresentation, then the contract can be voidable.12 The party
seeking to avoid the contract must prove (1) he agreed to the contract due to the
other party’s misrepresentation, (2) the assertion was fraudulent or material, and
(3) he reasonably relied upon the misrepresentation.13
A “misrepresentation” is an assertion of fact that is false under the
circumstances.14 A misleading factual assertion can be made by an affirmative
factual representation, an omission, or a statement of opinion.15
10Skagit State Bank v. Rasmussen, 109 Wn.2d 377, 381, 745 P.2d 37(1987) (quoting Nat’l Bank of Wash. v. Equity Inv., 81 Wn.2d 886, 912-13, 506
P.2d 20 (1973)).
11 See Del Rosario v. Del Rosario, 152 Wn.2d 375, 382, 97 P.3d 11 (2004)
(explaining personal injury releases are interpreted as contracts) (citing Beaver v.
Estate of Harris, 67 Wn.2d 621, 627-28, 409 P.2d 143 (1965)).
12
Yakima County (W. Valley) Fire Prot. Dist. No. 12 v. City of Yakima, 122
Wn.2d 371, 390, 858 P.2d 245 (1993) (citing Skagit State Bank, 109 Wn.2d at
384; RESTATEMENT (SECOND) OF CONTRACTS § 164(1) (1981)).
13 Brinkerhoff v. Campbell, 99 Wn. App. 692, 697, 994 P.2d 911 (2000)
(citing Fire Prot. Dist., 122 Wn.2d at 390).
14 Restatement (Second) of Contracts § 159 cmt. a; see Fire Prot. Dist., 122
Wn.2d at 390 (“A misrepresentation is ‘an assertion that is not in accord with the
facts.’”) (quoting RESTATEMENT (SECOND) OF CONTRACTS § 159)).
15 See Skagit State Bank, 109 Wn.2d at 384 (explaining when an affirmative
misrepresentation of fact can allow avoidance); Brinkerhoff, 99 Wn. App. at 698
(explaining misrepresentations can be made by omission); RESTATEMENT (SECOND)
OF CONTRACTS § 168 (explaining misrepresentations can be made by statements
of opinion).
5
No. 80772-2-I/6
Hammond asserts TEC’s letter made affirmative misrepresentations by
describing a reverse triangular merger when TEC’s transaction with DaVita was
actually an acquisition. A reverse triangular merger is a “merger in which the
acquiring corporation's subsidiary is absorbed into the target corporation, which
becomes a new subsidiary of the acquiring corporation.”16 TEC’s letter described
the proposed merger:
[A] subsidiary of a newly formed Washington professional services
corporation will merge with and into TEC, with TEC being the
surviving corporation in the merger. As a result of this merger, the
newly formed professional services corporation (the “Company”) will
own 100% of the shares in TEC (making the Company the sole
shareholder of TEC), the shares held by the current TEC
shareholders will be extinguished, and initially the TEC shareholders
will receive non-voting shares in the Company. This merger will be
followed by a complex series of steps transferring the non-practice
assets of TEC to the Company, converting TEC into a professional
limited liability company and, upon the closing of a subsequent
merger, making the Company a wholly-owned subsidiary of
DaVita. . . .
Upon closing of the subsequent merger between the DaVita
subsidiary and the Company, we anticipate payment of merger
proceeds will be made to the current TEC shareholders in exchange
for their Company stock received in the initial merger.[17]
The merger summary attached to the letter described the transaction in more
detail.
Both the letter and merger summary use plain English to describe a reverse
triangular merger resulting in DaVita acquiring TEC. The documents explain how
100 percent of the shares in TEC would change ownership to a newly formed
16 BLACK'S LAW DICTIONARY 1185 (11th ed. 2019).
17 CP at 367-68.
6
No. 80772-2-I/7
company, and DaVita would gain possession of those shares when the newly
formed company merged with a DaVita subsidiary. The merger summary explains
that DaVita would pay around $385 million in consideration for TEC and that each
of the current shareholders would be entitled to approximately $800,000 to
$1,000,000 of the proceeds. Hammond provides no evidence to show this
transaction did not occur or that it occurred differently than described. TEC did not
affirmatively misrepresent the facts of its transaction.
Hammond also argues TEC misrepresented its transaction by omitting TEC
and DaVita’s communications and internal deliberations about the deal. An
omission amounts to a misleading assertion of fact when the speaker knows
revealing the information will prevent a mistaken belief by the other party or will
prevent a previous factual statement from becoming a material or fraudulent
misrepresentation.18 A contracting party also has an obligation to disclose
information when it has a “relation of trust and confidence” with the other.19
18RESTATEMENT (SECOND) OF CONTRACTS § 161(a)-(c); see Brinkerhoff, 99
Wn. App. at 698 (an omission “is equivalent to an assertion that the fact does not
exist ‘where he knows that disclosure of the fact would correct a mistake of the
other party as to a basic assumption on which that party is making the contract’”)
(quoting Mitchell v. Straith, 40 Wn. App. 405, 410-11, 698 P.2d 609 (1985)).
19 RESTATEMENT (SECOND) OF CONTRACTS § 161(d); see Basin Paving, Inc. v.
Port of Moses Lake, 48 Wn. App. 180, 184, 737 P.2d 1312 (1987) (when
negotiating a release, the paving company had an obligation to disclose the port’s
accidental overpayment from an earlier contract). Assuming that Basin Paving
stands for the proposition that the duties of good faith and fair dealing alone
compelled TEC to disclose additional information, as discussed below, Hammond
fails to show those disclosures would have been material or prevented fraud.
Hammond also asserts a genuine issue of material fact exists about
whether TEC owed him duties as a fiduciary. He relies upon his proffered
corporate law expert, attorney Scott Milburn, to assert this poses a genuine issue
7
No. 80772-2-I/8
Whether characterized as a merger or acquisition, TEC accurately
described its proposed transaction with DaVita. Hammond fails to explain how
providing additional details about, for example, TEC’s efforts to refer to the
transaction as a “merger” rather than an “acquisition,” would have changed the
accuracy of TEC’s description of its impending transaction with DaVita. Providing
additional details about TEC’s reason for holding back between $75.5 million and
$136 million “to satisfy . . . any claims that may be asserted by former
shareholders,”20 would also have not changed the accuracy of TEC’s portrayal of
its transaction with DaVita. Because revealing the allegedly omitted facts would
not have materially changed the facts disclosed, Hammond fails to establish an
omission by TEC caused a material misrepresentation or fraud.21 Thus,
Hammond’s real argument is that TEC misled him by asserting former
of material fact. See, e.g., Appellant’s Br. at 35 (“Here, at a minimum there was a
genuine issue of material fact whether TEC breached these [fiduciary] duties to Dr.
Hammond. After all, expert Milburn opined that TEC did.”). Although Hammond’s
proffered expert opined, for example, TEC’s “fundamental misrepresentation of the
transaction constitute[d] a breach of the contractual duty of good faith and fair
dealing,” CP at 1194, experts’ legal opinions on the ultimate legal issues before
the court are inadmissible and not considered as evidence on summary judgment.
King County Fire Prot. Dists. No. 16, No. 36 & No. 40 v. Hous. Auth. of King
County, 123 Wn.2d 819, 826, 872 P.2d 516 (1994) (citing Wash. State Physicians
Exch. & Ass’n v. Fisons Corp., 122 Wn.2d 299, 344, 858 P.2d 1054 (1993);
Dunlap v. Wayne, 105 Wn.2d 529, 535, 716 P.2d 842 (1986)).
20 CP at 374.
21 See Kaas v. Privette, 12 Wn. App. 142, 149, 529 P.2d 23 (1974) (omitting
facts “vital and material to a transaction” can make a contract voidable) (citing
Sorrell v. Young, 6 Wn. App. 220, 491 P.2d 1312 (1971)).
8
No. 80772-2-I/9
shareholders would have no right to share in the merger’s proceeds under the
Buy-Sell Agreement.22
TEC’s letter asserted that “[b]ecause a merger is neither a dissolution nor a
sale of stock, it is the Board’s assessment that those provisions of the Buy-Sell
Agreement are not applicable and there are no payment rights for former
shareholders.”23 TEC argues the allegedly misleading statement in the letter was
merely a legal opinion surrounded by accurate facts.
When an opinion creates a misleading impression by implying the existence
of facts reasonably known to the speaker but unknown or undisclosed to the
listener, the opinion can amount to a misleading factual assertion.24 A legal
opinion can be misleading under the same circumstances.25 But a legal opinion is
not misleading when limited to “the legal consequences of a state of facts” without
commenting on the facts themselves.26 Thus, the question is whether TEC’s
22 Significantly, Hammond admitted in an interrogatory that the only alleged
misrepresentation inducing him to sign the release was TEC telling former
shareholders “that the transaction was a ‘merger,’ and that because it was a
‘merger,’ the payout provisions for our stock ownership under the Buy-Sell
[A]greement did not apply.” CP at 548. In both another interrogatory, CP at 531,
and a deposition, CP at 427-28, Hammond confirmed the only alleged
misrepresentation that caused him to sign was TEC’s assertion that its merger
with DaVita did not require paying former shareholders.
23 CP at 368.
24 RESTATEMENT (SECOND) OF CONTRACTS § 168 cmt. d.
25See RESTATEMENT (SECOND) OF CONTRACTS § 170 (legal opinions are
analyzed under the same rules as other opinions).
26 RESTATEMENT (SECOND) OF CONTRACTS § 170 cmt. b.
9
No. 80772-2-I/10
assertion about the Buy-Sell Agreement being inapplicable was mere opinion or a
misleading factual assertion.
Hammond does not dispute that the Buy-Sell Agreement conditioned TEC’s
obligation to pay stock sale proceeds to former shareholders in “the event that all
of the outstanding stock of [TEC] is sold to one or more third parties and any one
or more related transactions.”27 TEC concluded its reverse triangular merger with
DaVita did not satisfy this condition, so it had no obligation to pay former
shareholders. TEC’s statement was a mere legal opinion because its assertions
were limited to the effect of the merger on the Buy-Sell Agreement and did not
comment implicitly or explicitly on the facts of the merger. Although Hammond
disputes what the legal effect of TEC’s merger with DaVita should have been, he
does not show the substance of TEC’s merger with DaVita differed from the
transaction described in the letter.28 Because TEC’s assertion was limited to a
legal opinion, it was not a factual misrepresentation. Hammond fails to show
TEC’s letter contained misrepresentations of fact.
27 CP at 385.
28 Hammond asserts that TEC’s opinion misstated facts because, for
example, TEC’s board president “knew that the transaction was designed to obtain
an equity payment for current shareholders in exchange for their shares of stock.”
Reply Br. at 13 (citing CP at 1161). But this fact was disclosed to Hammond in
TEC’s letter and the attached materials. CP at 368, 373. He also asserts TEC’s
opinion was misleading because it “was loath to acknowledge the transaction was
an acquisition of TEC stock.” Reply Br. at 14. Even if TEC had characterized its
transaction with DaVita differently, that characterization would not have changed
the structure of the transaction itself, which TEC’s letter described in detail.
Hammond fails to demonstrate a material fact, as opposed to an opinion, about
the merger that was obscured by TEC’s legal opinion.
10
No. 80772-2-I/11
Even assuming TEC’s legal opinion was an actionable misrepresentation,
Hammond fails to show his reliance on it was reasonable. A party seeking
avoidance of a contract must prove his reliance on the misrepresentation was
reasonable.29 Whether a party’s reliance was reasonable depends upon the
circumstances.30
In Skagit State Bank v. Rasmussen, the Supreme Court concluded a farmer
was bound by a mortgage contract he signed as a guarantor.31 The farmer signed
the contract without reading it, relying instead on his “long-time close friend and
business partner” to describe the contract’s legal effect.32 The contract stated that
each signatory’s property could be taken to repay the loan in the event of a
default.33 The court concluded the farmer’s reliance on his friend was not
reasonable.34 Their friendship and former business relationship “alone d[id] not
justify [the farmer’s] reliance.”35 The farmer’s reliance was also not reasonable
because, among other reasons, he knew his friend was a borrower on the loan.36
29
Skagit State Bank, 109 Wn.2d at 384 (citing RESTATEMENT (SECOND) OF
CONTRACTS § 164(1)).
30 Id.
31 109 Wn.2d 377, 378, 745 P.2d 37 (1987).
32 Id. at 385.
33 Id. at 383.
34 Id. at 386.
35 Id. at 385.
36 Id. at 386.
11
No. 80772-2-I/12
Here, Hammond read the letter from TEC and its accompanying materials,
including the release, “several times.”37 He spoke with an attorney for legal advice
about the entire packet of materials. He spoke with a physician at TEC to discuss
the impending merger, the proposed release, and the $350,000 offer. The
physician told Hammond a group of former shareholders were going to challenge
the release. Hammond also knew current TEC shareholders had a financial
interest in completing the transaction because the letter told him current
shareholders could receive around $1,000,000 from the merger. TEC itself
warned Hammond its assertion about the Buy-Sell Agreement was “the Board’s
assessment” and that “opinions on the application of the Buy-Sell Agreement may
differ with respect to the merger transactions.”38
Like Skagit State Bank, Hammond knew the entity opining about the
transaction had a financial interest adverse to his own. Unlike Skagit State Bank,
Hammond did not have a longstanding friendly relationship with TEC, TEC warned
Hammond it was providing an opinion with which former shareholders could
disagree, and Hammond knew other former shareholders actually disagreed.
Because the circumstances show Hammond had ample warning that the allegedly
misleading opinion should not be relied upon, his reliance on it was not
reasonable.
37 CP at 409-10.
38 CP at 368-69.
12
No. 80772-2-I/13
Hammond fails to show the trial court erred by upholding the release and
granting summary judgment for TEC. Necessarily, the court also did not err by
denying Hammond’s motion for partial summary judgment on the same topic as
moot.39
II. Motion to Amend
Hammond moved to amend his complaint by adding a claim under
RCW 21.20.010 of the Securities Act of Washington. The court denied his motion
as futile.
We review denial of a motion to amend for abuse of discretion.40 A court
abuses its discretion where its decision rests on untenable grounds or was made
for untenable reasons.41 A trial court does not abuse its discretion by denying a
motion to add a futile claim.42
To establish a prima facie claim under RCW 21.20.010, a plaintiff must
demonstrate, at least, “‘(1) a fraudulent or deceitful act committed (2) in connection
39
See Orwick v. City of Seattle, 103 Wn.2d 249, 253, 692 P.2d 793 (1984)
(“A case is moot if a court can no longer provide effective relief.”) (citing State v.
Turner, 98 Wn.2d 731, 733, 658 P.2d 658; In re Cross, 99 Wn.2d 373, 377, 662
P.2d 828 (1983)).
40
Wilson v. Horsley, 137 Wn.2d 500, 505, 974 P.2d 316 (1999) (citing
Sprague v. Sumitomo Forestry Co., 104 Wn.2d 751, 763, 709 P.2d 1200 (1985);
Lincoln v. Transamerica Inv. Corp., 89 Wn.2d 571, 577, 573 P.2d 1316 (1978)).
41 Id. (citing State ex rel. Carroll v. Junker, 79 Wn.2d 12, 26, 482 P.2d 775(1971)).
42
Ino Ino, Inc. v. City of Bellevue, 132 Wn.2d 103, 142, 937 P.2d 154(1997) (citing MacLean v. First Nw. Indus. of Am., Inc., 96 Wn.2d 338, 345, 635
P.2d 683 (1981); Doyle v. Planned Parenthood of Seattle-King County, Inc., 31
Wn. App. 126, 131, 639 P.2d 240 (1982)).
13
No. 80772-2-I/14
with the offer, sale or purchase of any security.’”43 Hammond’s proposed claim
alleged TEC “deceived and misled Plaintiffs into believing that the transaction with
DaVita did not represent the sale of TEC common[ ] stock, and that their
respective Buy-Sell Agreements were inapplicable” when “the transaction with
DaVita had, as its central purpose, the complete acquisition by DaVita of 100% of
TEC common stock, and the Buy-Sell Agreement was fully applicable.”44
Hammond sought to avoid the release on the basis that TEC misrepresented its
transaction with DaVita as a merger and misrepresented its duty to share the
proceeds under the Buy-Sell Agreement.
There can be some nuances between securities fraud claims of
misrepresentation under RCW 21.20.010 and claims to avoid a contract due to
misrepresentation, but none of those nuances apply to the misrepresentations
alleged by Hammond. Hammond alleged the same misrepresentation as the
basis for his contract and Securities Act claims. Because, as discussed, TEC did
not mislead Hammond about its transaction with DaVita, adding this claim would
have been futile.45 The court did not abuse its discretion.46
43Fed. Home Loan Bank of Seattle v. Credit Suisse Sec. (USA) LLC, 194
Wn.2d 253, 267, 449 P.3d 1019 (2019) (internal quotation marks and emphasis
omitted) (quoting Kinney v. Cook, 159 Wn.2d 837, 842, 154 P.3d 206 (2007)).
44 CP at 293.
45 See Colvin v. Inslee, 195 Wn.2d 879, 901, 467 P.3d 953 (2020) (affirming
denial of a motion to amend a personal restraint petition as futile when the
plaintiffs failed to demonstrate they were unlawfully restrained).
46For the first time on appeal, Hammond argues the release should be
declared void due to overreach. The record does not show evidence TEC took
unfair advantage of Hammond. TEC did not misrepresent the nature of its
14
No. 80772-2-I/15
III. Attorney Fees
Hammond asks us to reverse the trial court’s award of attorney fees only in
the event he prevails on appeal. He does not challenge the basis of the court’s
decision. Because he has not prevailed, we do not reverse the trial court’s award.
TEC requests attorney fees from this appeal and argues it is entitled to fees
under section II.6 of the release agreement. Attorney fees may be awarded
pursuant to a contract.47 Whether a contract authorizes an award of fees is a
question of law we consider de novo.48
Section II.6 of the release governs dispute resolution and provides:
[A]ny and all disputes arising out of [or] related to this Agreement
shall be resolved in arbitration . . . . In the event there is a
disagreement regarding the interpretation, implementation, and/or
enforcement of this Agreement that is subsequently resolved in
arbitration, the substantially prevailing party shall be awarded
reasonable attorneys’ fees, arbitrator fees, costs and expenses.[49]
The provision’s plain language authorizes an award of attorney fees from disputes
resolved in arbitration. This is an appeal from a judicial proceeding, and the
parties did not arbitrate any of their dispute. TEC provides no authority that a fee
provision limited to arbitration has any application to this proceeding. Because the
transaction, and it allowed sufficient time for Hammond to read the letter and
enclosed materials several times and to discuss them with an attorney.
47
Deep Water Brewing, LLC v. Fairway Res. Ltd., 152 Wn. App. 229, 277,
215 P.3d 990 (2009) (citing Fisher Props., Inc. v. Arden-Mayfair, Inc., 106 Wn.2d
826, 849-50, 726 P.2d 8 (1986)).
48 Tradewell Grp., Inc. v. Mavis, 71 Wn. App. 120, 126, 857 P.2d 1053(1993).
49 CP at 503 (emphasis added).
15
No. 80772-2-I/16
plain language of the release agreement is inapplicable and TEC provides no
other basis for attorney fees, we deny TEC’s request for attorney fees from this
appeal.
Therefore, we affirm.
WE CONCUR:
16