Iron Mound, LLC v. Nueterra Healthcare Management, LLC
298 Kan. 412
| Kan. | 2013Background
- Iron Mound and ASC Group, LLC (successor Nueterra) formed ASC Midwest, LLC by an Operating Agreement (Mar. 26, 1999); Company members were Iron Mound and Nueterra.
- Section 10.2 of the Operating Agreement allocated percentages of revenues for services performed by Nueterra, including a special split (20% to Iron Mound) for Manhattan management agreements "contemplated on the date of the execution of this Agreement."
- Nueterra entered Management Agreement I with Manhattan Surgical Center shortly after formation; that contract ran five years and could auto-renew. The Company was dissolved in May 2001; Section 15.2 governed liquidation of assets (including any fee streams).
- Nueterra continued paying Iron Mound under Section 10.2(c) until Management Agreement I expired and was replaced by a new Management Agreement II (Feb. 7, 2006), which Nueterra treated as a separate agreement and stopped sharing fees from.
- Iron Mound sued for breach of contract seeking its 20% share of fees from Management Agreement II. The district court granted summary judgment for Nueterra; the Court of Appeals reversed, finding Section 10.2(c) ambiguous and remanding. The Kansas Supreme Court granted review.
Issues
| Issue | Plaintiff's Argument (Iron Mound) | Defendant's Argument (Nueterra) | Held |
|---|---|---|---|
| Whether Section 10.2(c) required Nueterra to pay a share of fees from Management Agreement II | The Agreement’s use of "contemplated" could cover any Manhattan agreements, so Nueterra must pay as long as it receives fees from Manhattan | The clause applies only to the specific management agreement(s) contemplated when the Operating Agreement was executed (Management Agreement I); a new agreement is not covered | Held for Nueterra: Operating Agreement unambiguously does not apply to Management Agreement II |
| Whether the Operating Agreement survived dissolution such that its fee-sharing provisions bound post-dissolution agreements | Rights should continue based on parties’ conduct and Section 15.2 liquidation provisions | Operating Agreement terminated on dissolution; absent express survival language, rights do not extend to new contracts after dissolution | Held for Nueterra: Operating Agreement could not apply to contracts formed after company ceased to exist |
| Whether the Operating Agreement was ambiguous, permitting consideration of extrinsic evidence (post-termination conduct) | The text is ambiguous; post-dissolution payments show intent to continue fee-sharing | The contract is clear when read as a whole; extrinsic evidence cannot alter an unambiguous contract | Held for Nueterra: Contract unambiguous when read in full; Court of Appeals erred to rely on conduct |
| Whether Management Agreement I’s fee stream as a company asset affects rights under a later, separate agreement | The fee stream was an asset and may show continuing entitlement to fees from subsequent agreements | Even if Management Agreement I’s fees were a company asset, a later separate agreement cannot be an asset of a dissolved company | Held for Nueterra: Management Agreement I’s status as an asset during liquidation does not bind or create rights in Management Agreement II |
Key Cases Cited
- Scott v. Hughes, 294 Kan. 403 (summary judgment standard and appellate review)
- Shamberg, Johnson & Bergman, Chtd. v. Oliver, 289 Kan. 891 (summary judgment burden on nonmoving party)
- Investcorp, L.P. v. Simpson Investment Co., L.C., 267 Kan. 840 (contract interpretation; read whole instrument)
- Osterhaus v. Toth, 291 Kan. 759 (de novo review of written contract interpretation)
- Central Natural Resources v. Davis Operating Co., 288 Kan. 234 (use of extrinsic evidence when contract ambiguous)
- Carrothers Constr. Co. v. City of South Hutchinson, 288 Kan. 743 (definition of ambiguity)
- Metropolitan Life Ins. Co. v. Strnad, 255 Kan. 657 (construe provisions together)
- Marshall v. Kansas Med. Mut. Ins. Co., 276 Kan. 97 (court will not strain to find ambiguity)
- Litton Financial Printing Div. v. NLRB, 501 U.S. 190 (survival of rights upon contract termination requires clear intent)