SOUTHERN COLORADO MRI, LTD., a Colorado limited partnership, Plaintiff-Appellee/Cross-Appellant. v. MED-ALLIANCE, INC., formerly known as ImageAmerica, Inc., Defendant-Appellant/Cross-Appellee.
Nos. 97-1375, 97-1393.
United States Court of Appeals, Tenth Circuit.
Jan. 28, 1999.
166 F.3d 1094 | 1999 CJ C.A.R. 805
Richard B. Podoll (Robert A. Kitsmiller, with him on the briefs), Podoll & Podoll, P.C., Denver, Colorado, appearing for Plaintiff-Appellee/Cross-Appellant.
Before TACHA, McWILLIAMS, and HENRY, Circuit Judges.
TACHA, Circuit Judge.
This breach of contract diversity action arises from negotiations for the sale of a magnetic resonance imaging (“MRI“) clinic by plaintiff Southern Colorado MRI, Ltd. (“SCMRI“), a Colorado partnership, to a new Tennessee partnership comprised of general partner MedAlliance, Inc., f/k/a ImageAmerica, Inc. (“MedAlliance“) and limited partners St. Mary-Corwin Hospital (“St. Mary“) and Parkview Episcopal Hospital (“Parkview“). The deal collapsed just prior to closing. SCMRI filed suit against MedAlliance, alleging the parties had formed a contract that MedAlliance had breached. After a bench trial, the district court, applying Colorado law, determined that the parties had formed a contract. It also found MedAlliance liable for 60% of the difference between the total sale price and the market price for the clinic, reasoning that MedAlliance had agreed in the contract to purchase 60% of the MRI clinic. We take jurisdiction pursuant to
Background
SCMRI is a partnership comprised of doctors and subsidiaries of Parkview and St. Mary. The partnership owned an MRI facility in Pueblo, Colorado, but, when Congress passed legislation in 1992 prohibiting physicians from referring patients to facilities in which the physicians owned an interest, SCMRI decided to sell its facility. SCMRI formed a liquidation committee and solicited offers. In November 1992, the liquidation committee sent interested parties a “normalization letter” establishing certain parameters and requirements for any offer. MedAlliance and Medical Ventures, Inc. (“MVI“) submitted proposals consistent with the normalization letter, and SCMRI decided to pursue further negotiations with these companies in late 1992. SCMRI was most interested in MedAlliance, which had made a higher initial proposal, but MedAlliance expressed dissatisfaction with the three year non-competition provision in the normalization letter. MedAlliance was concerned about potential competition from the Pueblo hospitals, St. Mary and Parkview. The parties agreed in January 1993 to avoid this problem by structuring the deal to have MedAlliance purchase the facility jointly with the Pueblo hospitals. Soon thereafter, SCMRI pursued negotiations exclusively with MedAlliance.
On July 6, MedAlliance sent SCMRI a letter revising the purchase price from $4,250,000 to $3,500,000, based on its due diligence inquiry and current market conditions. The letter stated:
ImageAmerica is prepared to value SCMRI at $3,500,000 and to purchase 60% for $2,100,000 in cash. This revised proposal is contingent upon a response from ... SCMRI ... no later than Monday, July 12, 1993 and a Closing Date no later than August 2, 1993.... If either of these dates cannot be met, we will respectfully withdraw our offer as we cannot continue to “hold” the cash needed for this deal.
Jt.App., vol. 5, at 1731. The next day, July 7, SCMRI sent a reply to MedAlliance to “formally accept the terms outlined in [MedAlliance‘s] letter of July 6th for [its] acquisition of the Southern Colorado MRI, Ltd.” Id. at 1736. The “acceptance” letter also indicated that counsel for the parties would work to “begin finalization of the Asset Purchase Agreement” and “complete ... review” of the partnership agreement between MedAlliance and the hospitals. Id. While the closing documents were largely completed by this time, the parties continued to trade drafts of relevant documents through the rest of July. The MedAlliance board of directors formally approved the acquisition and drafts of transactional documents on July 12, 1993.
On July 26, MedAlliance sent a letter requesting new language in the non-competition agreement. The new language was substantially identical to that originally proposed by MedAlliance in late 1992 but which it had abandoned after the parties had revised the deal to include the hospitals. SCMRI rejected the proposed change and unsuccessfully sought to compromise with MedAlliance in an effort to salvage the deal. The deal did not close on August 2, as planned, and MedAlliance broke off negotiations in late September. After it became apparent that the deal with MedAlliance and the hospitals would not reach fruition, SCMRI approached MVI to determine whether it was still an interested buyer. On October 11, 1993, MVI offered $2,125,000 for the MRI clinic. SCMRI rejected this offer and continued to operate the facility until it closed at the end of 1995. The partnership netted $2,041,184 from the operation of the facility from August 1993 through December 1995.
SCMRI filed suit on May 19, 1995, alleging breach of contract, promissory estoppel, and breach of preliminary agreement to negotiate in good faith. The district court dismissed the promissory estoppel and good faith claims, but, after conducting a bench trial, the court concluded in an oral ruling that the parties had formed a contract. The court based its ruling on the course of dealing between the parties, the circulation of transactional documents, and an exchange of letters between MedAlliance and SCMRI on July 6 and 7, 1993. It found these letters, the drafted documents, and the parties’ discussions established the existence of a contract on July 7. Additionally, the court concluded that the letter of intent, which clearly contemplated an “executed” asset purchase agreement to finalize the deal, did not prevent the parties from contracting because, according to the court, the parties either waived or amended this provision of the letter of intent. Since the contract existed as of July 7, the court found MedAlliance‘s attempt to change the non-compete language later in the month constituted a breach.
Once it determined MedAlliance had breached the contract, the court concluded that Colorado law required that the plaintiff receive expectancy contract damages, measured at the time of breach. The court used the MVI October offer of $2,125,000 as the market price at the time of breach. It then took 60% of the contract price of $3,500,000 and subtracted 60% of the market price to arrive at the damage award of $825,000. The district court limited the damages to 60% because it determined that MedAlliance was responsible only for that portion of the contract price. It stated: “[T]he fact that the two hospitals were going to in effect purchase the remaining 1.4 million ... appears to this Court to be separate and distinct from the defendant‘s breach of contractual duties.” Jt.App., vol. 8, at 3249.
I. Contract Formation
We begin with defendant‘s arguments regarding contract formation. We review the district court‘s findings of fact for clear error. See
MedAlliance, SCMRI, and the hospitals entered into a letter of intent that included various provisions anticipating the “execution of a definitive purchase agreement.” Jt.App., vol. 4, at 1560. In fact, the letter of intent listed the execution of such an agreement as a condition to closing. MedAlliance asserts that this provision was still in force during the negotiations in July 1993 and expressed an intent by the parties not to be bound until they formally signed all the documents at a closing.
Colorado law makes clear that, even when parties initially agree in writing not to be bound in contract until they sign an asset purchase agreement, those parties may later bind themselves without signing a formal agreement. See Moore, 892 P.2d at 372 (“[E]ven if the parties agree to formalize their agreement by a writing, the determination whether they became bound by their agreement before they execute such a writing is dependent upon their intent.“) (citing Coulter v. Anderson, 144 Colo. 402, 357 P.2d 76 (Colo.1960)). Parties to an initial agreement may modify or waive it in part or in whole by subsequent words and actions. See id. The touchstone inquiry in these situations is whether the parties manifested an intent to be bound in contract. See id. Therefore, even where a letter of intent exists, the ultimate question of whether the parties formed a contract remains “a question of fact to be determined by all of the surrounding circumstances.” Id.
The district court found that the actions of the parties, the drafting of the transaction documents, and especially the letters of July 6 and 7, indicate the parties’ willingness to be bound on July 7. The court concluded that the letters, written just after completion of due diligence review, reflected a desire by the parties to reach final agreement immediately. In fact, several witnesses at trial testified that they understood the parties had reached a binding agreement. Additionally, the court found the material terms of the contract, including price, non-competition language, closing date, and structure of the deal, were settled by July 7, 1993. Moreover, the actions of the parties after July 7 provided the court with corroborating support for a finding of contract. During this time, the parties circulated closing documents, and MedAlliance established a new buyer subsidiary, arranged for financing from its bank, and reviewed employee benefit programs at SCMRI in preparation for assuming ownership.
“A finding of fact is not clearly erroneous unless ‘it is without factual support in the record, or if the appellate court, after reviewing all the evidence, is left with the definite and firm conviction that a mistake has been made.’ ” Las Vegas Ice & Cold Storage Co. v. Far West Bank, 893 F.2d 1182, 1185 (10th Cir.1990) (quoting LeMaire ex rel. LeMaire v. United States, 826 F.2d 949, 953 (10th Cir.1987)). The district court‘s findings are amply supported in the record, and we find no clear error in its conclusion that the parties had formed a contract.
MedAlliance correctly notes that an implied waiver of a contractual right must “be free from ambiguity and clearly manifest the intention not to assert the benefit.” Tripp v. Parga, 847 P.2d 165, 167 (Colo.Ct.App.1992); Burman v. Richmond Homes Ltd., 821 P.2d 913, 919 (Colo.Ct.App.1991); Richmond v. Grabowski, 781 P.2d 192, 195 (Colo.Ct.App.1989). To the extent the district court‘s decision relied upon a waiver theory, the record supports a conclusion that SCMRI and MedAlliance clearly and unambiguously waived their right to be bound only by a written purchase agreement. Cf. Burman, 821 P.2d at 919-20 (finding plaintiff impliedly waived provision of real estate purchase agreement requiring delivery of commitments for title insurance policies prior to closing because plaintiff did not object to failure to deliver commitments); Richmond, 781 P.2d at 195 (finding contractor did not waive contractual provision that home owner purchase property insurance for work where only evidence of waiver was that contractor began work without receiving a copy of the owner‘s insurance policy). Therefore, we conclude that the district court committed no reversible error in finding that a valid contract existed between MedAlliance and SCMRI as of July 7, 1993.
II. Damages
We review the amount of a damage award for clear error and questions of law de novo. See, e.g., Dill v. City of Edmond, Okla., 155 F.3d 1193, 1209 (10th Cir.1998). The methodology a district court uses in calculating a damage award, such as determining the proper elements of the award or the proper scope of recovery, is a question of law.3 See Bartlett v. New York State Bd. of Law Exam‘rs, 156 F.3d 321, 331-32 (2d Cir.1998) (“We review the method of calculation of damages de novo and the actual calculation of damages for clear error.” (internal citations omitted)); In re Air Crash Disaster Near Cerritos, Cal., on August 31, 1986, 982 F.2d 1271, 1275 (9th Cir.1992) (“When a legal determination such as the proper elements of an award of damages is reviewed, a de novo standard is applied.“)
A.
MedAlliance assigns error to the district court because it did not subtract from the damages calculated by the court the $2,041,184 in profits SCMRI realized after the breach. Defendant asserts that SCMRI received an improper double recovery because it was awarded expectancy damages and also retained post-breach profits from the clinic. We disagree. Colorado follows the general contract law rule that a benefit to the plaintiff as a result of a breach reduces the plaintiff‘s damages accordingly. See Wells Aircraft Parts Co. v. Allan J. Kayser Co., 118 Colo. 197, 194 P.2d 326, 330 (Colo.1947); Wickland v. Snyder, 39 Colo.App. 403, 565 P.2d 976, 977 (Colo.Ct.App.1977); see also Restatement (Second) of Contracts, § 347(c) & cmt. d (1981); 22 Am.Jur.2d Damages § 522 (1988). However, this rule is not implicated in the instant case because the district court‘s method of calculating damages takes into account SCMRI‘s post-breach profits.
B.
On cross-appeal, SCMRI argues that the district court erred in awarding only 60% of the loss that resulted from the failed deal. We agree. Colorado law generally provides for damages that “place the parties in the same financial position they would have occupied had the contract terms been fulfilled.” See Colorado Nat‘l Bank of Denver v. Friedman, 846 P.2d 159, 174 (Colo.1993) (quoting Republic Nat‘l Life Ins. Co. v. Red Lion Homes, Inc., 704 F.2d 484, 488 (10th Cir.1983)). In carrying out this requirement, the court must apply the familiar principle of foreseeability that dates back to Hadley v. Baxendale, 9 Exch. 341 (Eng.1854). See Uinta Oil Refining Co. v. Ledford, 125 Colo. 429, 244 P.2d 881, 885 (Colo.1952) (“Damages must be such as may reasonably be supposed to have been within the contemplation of the parties to the agreement at the time of the execution thereof, and the natural and proximate consequences of a breach thereof.“); Western Union Tel. Co. v. Trinidad Bean & Elevator Co., 84 Colo. 93, 267 P. 1068, 1069 (Colo.1928); Republic Nat‘l, 704 F.2d at 488. We find that the district court failed to apply this principle and therefore erred as a matter of law when it determined damages.
It is unclear whether the district court found a contract between only MedAlliance and SCMRI or between those two parties and the hospitals.6 We need not resolve this matter, however, for the loss of the full value of the deal was clearly foreseeable by all parties, regardless of whether the hospitals’ purchase constituted a separate contract or a part of one large agreement. If a contract existed among all four parties, the defendant‘s breach affected the entire contract. If the contract was just between two parties, they specifically made it in the context of an overall deal that included the hospitals, as the letter of intent, the testimony of the parties, and the circulation of a draft partnership agreement show. MedAlliance and SCMRI would not have entered into a contract for 60% of the clinic without an assurance that the hospitals would purchase the other 40%. Conversely, the hospitals would not have contributed their 40% to the purchase of SCMRI until MedAlliance agreed to buy the remaining 60%. Consequently, the collapse of the entire deal was foreseeable and proximately resulted from MedAlliance‘s breach. Cf. Uinta Oil, 244 P.2d at 884-85 (upholding award of lost profits when they were a foreseeable consequence of breach of exclusive distributorship agreement); Republic Nat‘l, 704 F.2d 488-89 (applying Colorado law and finding lost profits award for buyer appropriate when seller breached contract to convey residential development lots and seller knew buyer had plans to develop property). MedAlliance‘s failure to perform denied SCMRI the benefit of the entire deal, not just MedAlliance‘s 60% share.
The judgment of the district court is AFFIRMED in all respects except for the calculation of damages awarded to the plaintiff. The damage award is REVERSED, and this case is REMANDED for entry of judgment consistent with this opinion.