Health Care Foundation of Greater Kansas City, Missouri v. HM Acquisition, LLC and HCA, Inc.
2017 Mo. App. LEXIS 32
Mo. Ct. App.2017Background
- Health Midwest (a nonprofit) sold hospitals to HM Acquisition/HCA under a 2002 Asset Purchase Agreement (APA); HCA guaranteed HM Acquisition’s obligations.
- APA Section 5.1 required HCA to “spend or commit to spend” $300M in the first two years and $50M in each of the next three years (total $450M) on capital expenditures; Section 5.14 required annual reports; Section 5.15 provided remedies and payment of shortfalls if amounts were not met. Section 14.18 made HCA guarantor.
- A Missouri Attorney General settlement required creation of the Foundation to receive 80% of sale proceeds and attached a Joinder Agreement making the Foundation a transferee and binding it to post-closing APA obligations; the Joinder gave the Foundation remedies (including specific performance).
- The Foundation sued HCA (2009) seeking accounting, declaratory relief, and specific performance, disputing whether HCA could credit new-hospital construction (Lee’s Summit, Independence) and alleged improper “commitments” counted toward Section 5.1.
- After bench trial and a special-master accounting, the trial court found HCA breached the APA, awarded $239,444,825 in shortfalls plus prejudgment interest and fees (totaling about $433.7M). HCA appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to sue under Joinder | Foundation: Joinder made it a transferee with remedial rights to enforce APA shortfalls | HCA: Joinder only imposed obligations, not assignment of rights, so Foundation lacks standing | Held: Foundation had standing as a consented transferee with remedial authority to enforce APA (Point I denied) |
| Necessary party (Health Midwest) | Foundation: Not required; equitable relief can proceed without co‑obligee | HCA: Health Midwest, as original co‑obligee, must be joined | Held: Health Midwest was not a necessary party for equitable relief; joinder not required (Point II denied) |
| Meaning of “capital expenditures” / credit for new construction | Foundation: credit should be limited to expenditures on existing Facilities | HCA: term unambiguous, includes new construction and thus credits for new hospitals | Held: "Capital expenditures" is unambiguous and includes new construction; HCA entitled to credit for GAAP‑capitalized new construction, but trial court’s other findings on temporal breaches and commitments remained relevant (Point III granted in part) |
| “Commit to spend” / Annual Report commitments & damages (temporal shortfalls, prejudgment interest, compound interest) | Foundation: annual reports and Section 5.15 permit recovery for temporal shortfalls; prejudgment and compound interest appropriate | HCA: Annual report statements suffice as commitments; total spending > $450M so temporal shortfalls should not produce penalties; prejudgment and compounded interest improper | Held: Mere statements in Annual Reports did not satisfy GAAP‑based “commit to spend”; temporal covenants are independent (shortfalls recoverable under Section 5.15); trial court erred awarding prejudgment interest (amount not liquidated) and erred in awarding compound interest (no fiduciary or contractual consent) (Points VI, VII, VIII, IX resolved accordingly) |
Key Cases Cited
- Murphy v. Carron, 536 S.W.2d 30 (Mo. banc 1976) (standard of review in bench trials)
- Dunn Indus. Group, Inc. v. City of Sugar Creek, 112 S.W.3d 421 (Mo. banc 2003) (cardinal rules of contract interpretation; avoid readings rendering provisions meaningless)
- Comm’r v. Idaho Power Co., 418 U.S. 1 (U.S. 1974) (capital expenditures include costs of construction of capital facilities)
- Klotz v. St. Anthony’s Med. Ctr., 311 S.W.3d 752 (Mo. banc 2010) (admission of evidence without objection waives exclusionary objections; admissible extrinsic evidence may be considered in contract disputes)