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Summary: RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 ELECTRONIC CITATION: 2000 FED App. 0159P (6th Cir.) File Name: 00a0159p.06 UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT _ ; MEDICAL BILLING, INC., Plaintiff-Appellee, Nos. 98-3561/3564 REICH, SEIDELMANN & JANICKI, > Plaintiff-Appellee/ Cross-Appellant, v. MEDICAL MANAGEMENT SCIENCES, INC.; JAMES F. THACKER; WILLIAM J. Defendants-Appellants/ DEZONIA, JR., Cross-Appellees. 1 Appeal
Summary: RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 ELECTRONIC CITATION: 2000 FED App. 0159P (6th Cir.) File Name: 00a0159p.06 UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT _ ; MEDICAL BILLING, INC., Plaintiff-Appellee, Nos. 98-3561/3564 REICH, SEIDELMANN & JANICKI, > Plaintiff-Appellee/ Cross-Appellant, v. MEDICAL MANAGEMENT SCIENCES, INC.; JAMES F. THACKER; WILLIAM J. Defendants-Appellants/ DEZONIA, JR., Cross-Appellees. 1 Appeal f..
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RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2000 FED App. 0159P (6th Cir.)
File Name: 00a0159p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
;
MEDICAL BILLING, INC.,
Plaintiff-Appellee,
Nos. 98-3561/3564
REICH, SEIDELMANN &
JANICKI, >
Plaintiff-Appellee/
Cross-Appellant,
v.
MEDICAL MANAGEMENT
SCIENCES, INC.; JAMES F.
THACKER; WILLIAM J.
Defendants-Appellants/
DEZONIA, JR.,
Cross-Appellees.
1
Appeal from the United States District Court
for the Northern District of Ohio at Cleveland.
No. 94-01567—Kathleen McDonald O’Malley,
District Judge.
Argued: December 13, 1999
Decided and Filed: May 8, 2000
1
2 Medical Billing, et al. v. Nos. 98-3561/3564
Medical Mgmt. Sciences, et al.
Before: MERRITT and SILER, Circuit Judges;
BECKWITH, District Judge*.
_________________
COUNSEL
ARGUED: Daniel L. Brockett, SQUIRE, SANDERS &
DEMPSEY, Cleveland, Ohio, for Appellants. Christopher P.
Johnson, BROBECK, PHLEGER & HARRISON, New York,
New York, for Appellees. ON BRIEF: Daniel L. Brockett,
Robin G. Weaver, SQUIRE, SANDERS & DEMPSEY,
Cleveland, Ohio, for Appellants. Christopher P. Johnson,
Caryn G. Mazin, BROBECK, PHLEGER & HARRISON,
New York, New York, for Appellees.
BECKWITH, D. J., delivered the opinion of the court, in
which SILER, J., joined. MERRITT, J. (pp. 16-18), delivered
a separate opinion concurring in part and dissenting in part.
_________________
OPINION
_________________
SANDRA S. BECKWITH, District Judge. Reich,
Seidelmann & Janicki (“RS&J”) is a radiology practice. Until
September 1992, Medical Billing, Inc. (“MBI”), which is
owned by Drs. Reich and Seidelmann, performed billing
services for RS&J and two other small affiliated practices. In
1992, Medical Management Sciences, Inc. (“MMS”) began
soliciting RS&J’s billing business. In September 1992, MBI
and MMS entered into three agreements. The two of those
agreements that are relevant to this appeal are the Billing
Services Agreement and the Asset Purchase Agreement.
*
The Honorable Sandra S. Beckwith, United States District Judge for
the Southern District of Ohio, sitting by designation.
18 Medical Billing, et al. v. Nos. 98-3561/3564 Nos. 98-3561/3564 Medical Billing, et al. v. 3
Medical Mgmt. Sciences, et al. Medical Mgmt. Sciences, et al.
The proper standard of review of motions for judgment as Pursuant to the Billing Services Agreement, MMS agreed
a matter of law in the Sixth Circuit for diversity cases is the to perform billing services for RS&J and the other medical
standard for a directed verdict employed by the state whose practices formerly served by MBI. MBI agreed to pay MMS
substantive law governs the action, in this case, Ohio. See fifteen percent of the amounts it collected for services
Potti v. Duramed Pharmaceuticals, Inc., 938 F.2d 641, 645 performed by RS&J. That percentage was well in excess of
(6th Cir. 1991). Under Ohio law, a court must consider the the market rate of 9.5%. MMS promised to perform billing
evidence in the light most favorable to the party against whom and collection services and to remit payments received in a
the motion is made, and may grant the motion only if, taking timely fashion.
the evidence in this light, there is but one reasonable
conclusion as to the proper verdict. See
id. Two other provisions of the Billing Services Agreement are
of particular relevance here. MMS promised to pay MBI a
It is not possible to say that there is only one reasonable volume bonus for amounts billed by RS&J in excess of their
conclusion as to the proper verdict in this case when the previous billings (hereinafter, the “Volume Bonus”). MMS
entirety of the evidence which the jury considered is also agreed to guarantee increased revenue collections and to
examined. The decision of the jury should stand because the pay MBI the difference between the amounts it guaranteed
evidence shows that not only has neither party demonstrated and the amounts it actually collected1 (hereinafter, the
that they are clearly in the right, but in fact both parties have “Collection Bonus”).
called attention to each other’s numerous mistakes and
ambiguities both in word and in action. The jury heard the Pursuant to the Asset Purchase Agreement, MMS agreed to
evidence and were in a better position to weigh its credibility pay MBI $2.7 million for its assets, which are described with
than this court. In fact, the trial judge indicated that based on particularity in Schedule 1 to the agreement. Then, in
her review of the whole record the evidence was “somewhat Schedule 9 to the Asset Purchase Agreement, the parties to
equivocal,” and indicated that if the parol evidence were the agreement allocated the purchase price as follows:
included, then she believed the decision of the jury should $10,000 for certain used office furniture and $2.69 million for
stand. I agree, and for that reason I would REVERSE the a “Covenant Not To Compete in any radiology billing
decision of the district court vacating the jury’s decision. services activity by MBI, its Shareholders, officers and other
principals.” The Covenant Not To Compete provision of the
Asset Purchase Agreement provides as follows:
Commencing on the Closing Date and ending on the
expiration of the term or upon the termination for
whatever reason of the Billing Services Agreement,
seller, its shareholders and officers and other principals
agree to not, on its own behalf or in conjunction with any
other individual, company or other entity or person,
1
The calculation of revenue collected was to be performed on the
basis of a unit described in the agreement as a relative value unit or RVU.
4 Medical Billing, et al. v. Nos. 98-3561/3564 Nos. 98-3561/3564 Medical Billing, et al. v. 17
Medical Mgmt. Sciences, et al. Medical Mgmt. Sciences, et al.
directly or indirectly, manage, operate, control, be an Given that I believe the parole evidence was admissible, the
agent for, participant in, or be connected in any manner district court’s judgment as a matter of law should have been
with the ownership, operation or control of any reviewed by taking into account all of the information that
corporation, partnership, proprietorship or other business was before the jury when they made their determination. No
entity primarily engaged in the provision of collection or party to this litigation has articulated to this court a clear
billing services for radiology firms. This Covenant Not equitable argument that they are in the “right.” Medical
To Compete is the essence of the value of this agreement Billing admitted in its paperwork to a potential buyer that the
to MMS. Of the $2,700,000 payable hereunder, rate it was being charged under the Medical Management
$2,690,000 is being paid for said Covenant Not To billing services contract was “above market,” indicating that
Compete. the company understood the game it was playing with
Medical Management. In addition, the potential sale of the
While the Asset Purchase Agreement makes reference to the Reich, Seidelman & Janicki practice during the same month
Billing Services Agreement, it does not recite that the two as their first attempt to terminate the Medical Management
agreements are integrated or in any other fashion suggest that contract gives an observer pause as to their intentions, not to
the terms or recitals of the Billing Services Agreement are mention the evidence that Drs. Reich and Seidelman may
incorporated in the Asset Purchase Agreement. have intended to pocket the $2.7 million and construct a
reason to terminate as soon as possible. Finally, the jury
The agreements became effective in October 1992. The seems to have found plausible the idea that Drs. Reich and
term of the Billing Services Agreement was 6 years. Seidelman were attempting to hide from their partner Janicki
the fact that they had been receiving premium rates,
In August 1993, sooner than one year after the effective essentially skimming off the top of their radiology practice,
date of the two agreements, MBI gave notice of termination and that they therefore wished for Medical Management to
of the Billing Services Agreement and accused MMS of continue to bill at the above-market which they had been
failing to perform services as promised. The parties met to charging in order not to alert Dr. Janicki to the difference in
discuss the notice. One topic of discussion was MBI’s pricing once the billing was outsourced.
entitlement to a Volume Bonus and a Collection Bonus.
MMS alleged, and the jury that eventually tried the matter Medical Management, in turn, indicated to the IRS that it
found, that Defendants Thacker and DeZonia, who are purchased a covenant not to compete and some office
principals in MMS, induced MBI to withdraw its notice of furniture, not a “premium billing contract,” showing their
termination by promising to abide by Arthur Andersen’s own knowledge that this was more than a purchase of the
calculations of RVU’s in the future. In any event, MMS right to bill at a 15% rate--at least in form. The information
continued to perform billing services for RS&J after the which they were sanctioned for not disclosing to Medical
meeting, giving rise to an inference, at least, that the Billing Billing during this litigation also tends to show that they
Services Agreement was not terminated in 1993. believed they had purchased a covenant not to compete. And,
importantly, they have working against them a letter
In August 1994, Dr. Reich, a principal in both RS&J and indicating that they understood the risk that they could lose
MBI, sent a second notice of termination of the Billing the $2.7 million purchase price upon termination. The
Services Agreement. He accused MMS of failing to perform decision of the jury could not have been an easy one to make.
the promised services, in the manner promised, and of
16 Medical Billing, et al. v. Nos. 98-3561/3564 Nos. 98-3561/3564 Medical Billing, et al. v. 5
Medical Mgmt. Sciences, et al. Medical Mgmt. Sciences, et al.
_____________________________________________ withholding the Volume and Collection Bonuses to which
MBI was entitled under the Billing Services Agreement.2 On
CONCURRING IN PART, DISSENTING IN PART that same date, MBI and RS&J initiated the lawsuit giving
_____________________________________________ rise to this appeal. They claimed, primarily, that MMS had
breached the Billing Services Agreement by failing to pay the
MERRITT, Circuit Judge, concurring in part and dissenting Volume and Collection Bonuses.3 MBI and RS&J also
in part. While I concur in Sections II.B. and II.C., I disagree claimed that they had been fraudulently induced to withdraw
with the majority’s holding in Section II.A. that the district the first notice of termination by MMS’s officials’ promise to
court should have entered judgment for Medical Billing on be bound by Arthur Andersen’s calculation of RVU’s for
the basis that Medical Management was not entitled to the purposes of determining the amount to which MBI was
$1.8 million jury award because the Asset Purchase entitled by way of the Collection Bonus. The jury found that
Agreement was unambiguous on its face. It is clear from MMS had fraudulently induced MBI to withdraw the notice
Ohio law that unless facial ambiguities infected the Asset of termination and awarded MBI $289,000 in compensatory
Purchase Agreement, parole evidence should not have been damages.
admitted and considered by the jury. It is my contention,
however, that facial ambiguities did indeed infect these two MMS asserted a counterclaim for breach of the Asset
documents. Purchase Agreement. MMS argued that the $2.69 million
payment had been intended as an up-front payment by MMS
The Billing Services Agreement clearly states that the of money it would earn back during the six-year term of the
services provided by Medical Management will be “in partial Billing Services Agreement by virtue of the 15% service fee,
consideration for” the Asset Purchase Agreement. It is which was well in excess of the market rate. MMS alleged
unclear from the face of the documents what was intended by that Drs. Reich and Seidelmann wanted the deal to be
that language. In addition, paragraph three of the section of structured in that fashion so that money would go to MBI,
the Asset Purchase Agreement outlining the obligations where they would collect it, rather than to RS&J over time in
between the parties is entitled “Billing Services Agreement,” the form of lower billing services fees, in which case Dr.
and describes the billing services arrangement between the Janicki would share it. MMS claimed, on that basis, that it
two parties. A jury could reasonably construe the inclusion of was entitled to the return of that portion of the payment that
that paragraph as conditioning performance of the Asset was attributable to the approximately four years remaining on
Purchase Agreement on performance of the Billing Services the Billing Services Agreement when MBI terminated it.
Agreement, especially when combined with the language
which indicates that the Billing Services Agreement was At the summary judgment phase of the proceedings below
“partial consideration” for the Asset Purchase Agreement. I and in the post-trial phase, the district court concluded that
find the terms to be ambiguous on their face, and thus I would
uphold the jury’s verdict on the basis that it was not error for
2
the jury to consider the extensive extrensic evidence it had The Billing Services Agreement provided for termination by MBI
before it when it concluded that Medical Management was upon failure by MMS to pay a Volume Bonus to which MBI was entitled.
entitled to a $1.8 million jury award. 3
The jury agreed that MMS had failed to pay the Volume and
Collection Bonuses to which MBI was entitled. It awarded MBI damages
in excess of $900,000, and MMS has not appealed that award.
6 Medical Billing, et al. v. Nos. 98-3561/3564 Nos. 98-3561/3564 Medical Billing, et al. v. 15
Medical Mgmt. Sciences, et al. Medical Mgmt. Sciences, et al.
the Asset Purchase Agreement was ambiguous. The court did beneficiary of the Billing Services Agreement. The district
not specifically identify any ambiguities in the Asset Purchase court’s decision in that regard is AFFIRMED.
Agreement but made references to inconsistencies between
the Asset Purchase Agreement and the Billing Services III
Agreement. The court also made special note of the
following provision of the Asset Purchase Agreement, which For these reasons, the district court’s decision on MBI’s
the district court termed an “integration clause”: Rule 50(b) motion is VACATED, in part, and, on remand,
the district court is instructed to enter judgment in favor of
This Agreement sets forth the entire agreement and MBI with respect to MMS’s claim for breach of the Asset
understanding between the parties as to the subject matter Purchase Agreement. The district court’s decision denying
of this Agreement and merges or supersedes all prior MMS’s Rule 50(b) motion with respect to MBI’s claim for
discussions, agreements and undertakings of every kind fraudulent inducement is REVERSED with instructions to
and nature between them with respect to the subject enter judgment in favor of MMS with respect to that claim.
matter of this Agreement, and neither party to this The denial of RS&J’s Rule 50(b) motion with regard to its
Agreement may be bound by any condition, definition, claim as an intended third-party beneficiary of the Billing
warranty or representation other than expressly provided Services Agreement is AFFIRMED.
for in this Agreement.
On that basis, the court permitted a trial on MMS’s
counterclaim at which the parties presented extrinsic evidence
of their intentions regarding the portion of the $2.7 million
payment that was not intended as the purchase price for used
office furniture.
MMS offered evidence that suggested that Dr. Reich, in
particular, wanted an agreement pursuant to which RS&J
would pay exorbitant billing fees that MBI would recoup
through a large up-front payment from MMS. Such an
agreement would inure to the benefit of Drs. Reich and
Seidelmann, who owned MBI, at the expense of Dr. Janicki.
MMS suggested that Drs. Reich and Seidelmann insisted on
the ruse of a payment for a covenant not to compete in order
to hide their true intentions. MMS offered circumstantial
evidence to suggest that Dr. Reich later attempted to
terminate the Billing Services Agreement because he wanted
to sell RS&J’s practice and the higher billing rate was causing
RS&J’s profits to be depressed.
14 Medical Billing, et al. v. Nos. 98-3561/3564 Nos. 98-3561/3564 Medical Billing, et al. v. 7
Medical Mgmt. Sciences, et al. Medical Mgmt. Sciences, et al.
C. RS&J’s Claim for Breach of Contract MBI offered evidence that suggested that the payment was,
in fact, for a covenant not to compete. In any event, however,
RS&J asserted a claim for breach of the Billing Services the jury was persuaded that the payment had been intended as
Agreement against MMS. The basis for the claim was that an up-front payment in exchange for a higher billing rate and
RS&J was an intended third-party beneficiary to that awarded MMS damages in an amount representing the
agreement and that RS&J had suffered a loss as a result of the “unearned” portion of the up-front payment: $1,868,000.
breach of the agreement by MMS. The district court
submitted the question of whether RS&J was an intended RS&J also asserted a claim, as an intended third-party
third-party beneficiary of the Billing Services Agreement to beneficiary, for breach of the Billing Services Agreement by
the jury, which found that it was not. The district court MMS. At trial, the jury found, in addition to the findings set
denied RS&J’s Rule 50(b) motion with respect to its claim for forth above, that RS&J was not entitled to damages for
breach of the Billing Services Agreement. MMS’s breach of the Billing Services Agreement and that
RS&J was not a third-party beneficiary of that agreement.
RS&J contends that the district court should have granted
it a new trial on its breach of contract claim because the jury’s After the jury returned its verdict, the district court granted
finding that RS&J was not an intended third-party beneficiary a motion pursuant to Rule 50(b) of the Federal Rules of Civil
of the Billing Services Agreement was without support in the Procedure pursuant to which MBI argued that MMS was not
record and contrary to law. We note, however, that the entitled to damages for breach of the Asset Purchase
district court did not merely ask the jury whether RS&J was Agreement. The court continued in its belief that the Asset
an intended third-party beneficiary, but it also asked whether Purchase Agreement was ambiguous with respect to the
RS&J suffered any damages from the breach of the Billing nature of the $2.7 million payment. The trial judge
Services Agreement if it was an intended third-party concluded, however, that the jury should not have been
beneficiary. The jury gave a negative response to that permitted to consider all extrinsic evidence but should have
question. Accordingly, to the extent that the jury’s finding been limited to consideration of the parties’ post-agreement
concerning RS&J’s damages finds support in the record, course of conduct. The court then concluded, based largely
RS&J was not prejudiced, even if the jury incorrectly upon MMS’s income tax return and 1993 financial statement,
concluded that RS&J was not an intended third-party that MMS believed the payment to be for a covenant not to
beneficiary of the Billing Services Agreement.5 compete and not an up-front payment for an increased billing
rate as the jury had concluded. On that basis, the court
Because we find support in the record for the jury’s finding concluded that MMS was not entitled to damages for the
that RS&J did not suffer damages as a result of MMS’s breach of the Asset Purchase Agreement. The district court
breach of the Billing Services Agreement, we conclude that declined to grant judgment as a matter of law with respect to
the district court did not err in denying RS&J’s Rule 50(b) RS&J’s claim for breach of the Billing Services Agreement
motion with regard to its claim as an intended third-party or MBI’s claim for fraudulent inducement.
I
MBI, MMS, and RS&J have appealed from the district
5
It is, perhaps, noteworthy that RS&J did not object to the form of court’s orders and opinions. The district court permitted
the interrogatories to the jury.
8 Medical Billing, et al. v. Nos. 98-3561/3564 Nos. 98-3561/3564 Medical Billing, et al. v. 13
Medical Mgmt. Sciences, et al. Medical Mgmt. Sciences, et al.
those appeals on an interlocutory basis. The issues are that the jury was presented with evidence of damages flowing
summarized here for the sake of clarity and ease of from the fraud.
comprehension.
The damages MBI identifies did not arise uniquely from
MMS appeals the district court’s ruling on MBI’s Rule MMS’s fraudulent promise to rely on Arthur Andersen’s
50(b) motion in which the court essentially set aside the jury’s calculations. The Billing Services Agreement entitled MBI to
verdict on MMS’s claim for breach of the Asset Purchase a Collection Bonus. If MMS failed to pay that bonus,
Agreement. MMS argues that the district court erred by whether because it manipulated the numbers provided to
considering grounds for relief under Rule 50(b) that were not Arthur Andersen or for any other reason, it breached the
raised in an earlier motion under Rule 50(a); by substituting Billing Services Agreement. MBI’s damages for unpaid
its own judgment for that of the jury regarding which extrinsic Collection Bonus money flow from that breach. Accordingly,
evidence was critical; and by making its decision by the damages identified by MBI as supporting the jury’s award
considering only part of the evidence that was submitted at on its fraudulent inducement claim are not of the type
trial. MMS also appeals the district court’s failure to set recognized as fraud damages under Ohio law.
aside, on MMS’s Rule 50(b) motion, the jury’s verdict on
MBI’s fraudulent inducement claim. MMS contends that This court perceives only one element of damages that
MBI failed to submit evidence of tort damages that are could have arisen uniquely from the fraud. Because MBI was
distinct from its damages for breach of the contract that was induced to withdraw its notice of termination of the Billing
fraudulently induced. Services Agreement, it continued to pay MMS fifteen percent
of the amounts it collected for services performed by RS&J
RS&J appeals the district court’s denial of its Rule 50(b) until it finally terminated the Billing Services Agreement in
motion for judgment as a matter of law on the jury’s findings 1994. To the extent that that rate was in excess of the market
that it was not a third-party beneficiary of the Billing Services rate for similar services, the difference between fifteen
Agreement and did not suffer damages as a result of its percent and the market rate would constitute damages arising
breach. RS&J contends that the jury’s finding concerning its from MMS’s fraud that did not also arise from its breach of
status as a third-party beneficiary was erroneous as a matter the Billing Services Agreement.
of law and that the evidence of record does not support the
jury’s finding that RS&J did not suffer damages as a result of MBI has not identified evidence of such damages that was
MMS’s breach of the Billing Services Agreement. introduced at trial, nor has it identified any other element of
damages that flowed from the fraud but not from the breach
II of contract. Accordingly, the district court erred in denying
MMS’s motion pursuant to Rule 50(b) for judgment with
A. MMS’s Claim for Breach of the Asset Purchase respect to MBI’s claim for fraudulent inducement. Its
Agreement decision in that regard is REVERSED with instructions to
enter judgment in favor of MMS with respect to the
The district court applied Ohio law to the parties’ contract fraudulent inducement claim.
claims. Under Ohio law, if the language of a contract is clear
and unambiguous, a court may not resort to construction of
that language. See Hybud Equip. Corp. v. Sphere Drake Ins.
Co. Ltd., 64 Ohio St. 3d 657, 665,
597 N.E.2d 1096, 1102
12 Medical Billing, et al. v. Nos. 98-3561/3564 Nos. 98-3561/3564 Medical Billing, et al. v. 9
Medical Mgmt. Sciences, et al. Medical Mgmt. Sciences, et al.
MBI contends that the issue is resolved by reference to the (1992), cert. denied, 507 U.S. 987 (1993); Karabin v. State
district court’s instructions to the jury. Specifically, MBI Automobile Mut. Ins. Co.,
10 Ohio St. 3d 163, 167, 462
identifies the following instruction: N.E.2d 403, 406 (1984). Only where the language of a
contract is unclear or ambiguous or the circumstances
If you find fraud, however, and you also find that surrounding the agreement endow the language with special
foreseeable damages flowed from that fraud, you may meaning will extrinsic evidence be considered to give effect
award all damages that you find to have been proven by to the parties’ intentions. See Shifrin v. Forest City
the greater weight of the evidence, both direct and Enterprises., Inc., 64 Ohio St. 3d 635,
597 N.E.2d 499,
consequential. In this regard, I emphasize that any syllabus (1992). Words in a contract must be given their
damages you award on this claim must proximately flow plain and ordinary meaning unless manifest absurdity results,
from the fraud and not from a breach of contract, if any, or unless some other meaning is clearly evidenced from the
that you find occurred. face or overall content of the document. See Alexander v.
Buckeye Pipe Line Co., 53 Ohio St. 2d 241,
374 N.E.2d 146,
MBI argues that the district court’s instruction was syllabus ¶2 (1978). This court reviews de novo the district
sufficiently clear that the jury’s understanding that it could court’s rulings on Rule 50 motions. See Jackson v. Quanex
only award such damages as flowed from the fraud must be Corp.,
191 F.3d 647, 658 (6th Cir. 1999).
presumed. See Morgan v. Shirley,
958 F.2d 662, 668 (6th
Cir. 1992)(citing Francis v. Franklin,
471 U.S. 307, 324 n.9 The Asset Purchase Agreement is not ambiguous as regards
(1985)). MBI’s argument is correct if evidence of damages the nature of the $2.69 million payment by MMS. In both
flowing from the fraud and separate from the damages Schedule 9 and the Covenant Not To Compete provision of
flowing from the breach of contract was before the jury. that agreement, $2.69 million of the purchase price is allotted
to the covenant not to compete. Moreover, the covenant not
At trial, MBI introduced internal records from MMS to compete was unambiguously made effective only for the
related to the calculation of RVUs for 1993. Those term of the agreement or until the Billing Services Agreement
documents, which were apparently prepared in mid-19934, was terminated. No provision of the Asset Purchase
reflect an estimation by MMS that MBI would be entitled to Agreement required that a portion of the purchase price be
a Collection Bonus in excess of $700,000 for 1993. MMS did refunded in the event that MBI terminated the Billing
not pay MBI a Collection Bonus in that amount. MBI argues Services Agreement before the end of its stated term.
that the documents demonstrate that MMS had manipulated Accordingly, the district court should have concluded that
the data it provided to Arthur Andersen before it promised to MBI was entitled to judgment with respect to MMS’s claim
rely on Arthur Andersen’s calculations. On the basis of those for breach of the Asset Purchase Agreement on the ground
documents and certain testimony related to them, MBI argues that the agreement was unambiguous and did not require that
MBI refund any portion of the purchase price.
In short, the Asset Purchase Agreement unambiguously
4
Those documents include actual collections for the first five months provided that the purchase price was for used furniture and a
of 1993 and an estimate for June, giving rise to an inference that MMS covenant not to compete. MMS has not argued that MBI
created them after May 31, 1993 and before actual figures for June were violated the terms of the covenant not to compete while the
available. An inference that the documents predated the promise upon Billing Services Agreement was in effect. Accordingly,
which MBI’s fraudulent inducement claim is based is permissible.
10 Medical Billing, et al. v. Nos. 98-3561/3564 Nos. 98-3561/3564 Medical Billing, et al. v. 11
Medical Mgmt. Sciences, et al. Medical Mgmt. Sciences, et al.
MMS could not, as a matter of law, prove a breach of the Services Agreement, MBI would be entitled to recover the
Asset Purchase Agreement by MBI. The district court’s damages it proved. See Cohen v. Lamko, 10 Ohio St. 3d 167,
decision on MBI’s Rule 50(b) motion is VACATED, in part, 169,
462 N.E.2d 407, 409 (1984)(elements of fraud under
and, on remand, the district court is instructed to enter Ohio law); Spencer v. Huff, No. 97CA2543,
1998 WL 391948
judgment, consistent with this opinion, in favor of MBI with at *3 (Ohio Ct. App. July 2, 1999)(elements of fraudulent
respect to MMS’s claim for breach of the Asset Purchase inducement same as elements of fraud); Binsack v. Hipp, No.
Agreement. H-97-029,
1998 WL 334223 at *5 (Ohio Ct. App. June 5,
1998)(same).
B. MBI’s Fraudulent Inducement Claim
MMS’s specific contentions on appeal are that MBI did not
The jury found that MMS’s principals, Thacker and adduce evidence at trial from which the jury could properly
DeZonia, fraudulently induced MBI to withdraw its first have concluded that MBI suffered damages as a result from
notice of termination by promising to be bound by Arthur the fraudulent inducement that were distinct from its
Andersen’s calculations of RVU’s for purposes of contractual damages and that MBI did not offer evidence from
establishing the amount of future Collection Bonus payments. which the jury could have determined the amount of those
After the trial, MMS moved, pursuant to Rule 50(b), for damages without speculating. In ruling on MMS’s Rule 50(b)
judgment as a matter of law with regard to the fraudulent motion, the district court noted that MBI had argued that “it
inducement claim arguing that MBI failed to introduce was virtually impossible to arrive at appropriate calculations
evidence of damages arising from the alleged fraud that were in the face of MMS’s largely untraceable and unreversible
distinct from its damages resulting from the breach of the [sic] RVU manipulation.” The court further noted that MBI
Billing Services Agreement. The district court denied MMS’s had introduced evidence that MMS’s manipulation of the
Rule 50(b) motion with regard to that claim. RVUs was “neither fully traceable nor fully reversible.” The
district court denied MMS’s motion for judgment as a matter
MBI based its claim for fraudulent inducement upon the of law pursuant to Rule 50(b) with regard to the fraudulent
promise by MMS to abide by Arthur Andersen’s calculation inducement claim.
of RVUs for purposes of determining the Collection Bonus to
which MBI was entitled. MBI presented evidence at trial MBI concedes that any award of damages to MBI arising
from which the jury could have found that MMS was already from the fraudulent inducement must be separate and distinct
manipulating the data provided to Arthur Andersen for the from the damages awarded to MBI on its claim for breach of
purpose of minimizing the Collection Bonus when that the Billing Services Agreement. Ohio law goes further by
promise was made. On the basis of that evidence, the jury requiring that fraud damages be limited to the injury actually
could well have concluded that MMS omitted to tell MBI that arising from the fraud. The tort injury must be unique and
it intended to provide altered or inaccurate data to Arthur separate from any injury resulting from a breach of contract.
Andersen, even though that fact would have been material to See, e.g., Davison Fuel & Dock Co. v. Picklands Mather &
MBI in considering whether to exercise its right under the Co., 54 Ohio App. 2d 177, 182,
376 N.E.2d 965, 968 (Ohio
Billing Services Agreement to terminate that agreement. To Ct.App. 1977). MMS contends that MBI did not prove any
the extent that MBI was able to adduce evidence to show that damages arising from the fraudulent inducement that were
it suffered damages as a result of that omission, apart from the separate from MBI’s contract damages.
damages it suffered as a result of MMS’s breach of the Billing
