Parker v. Tumwater Family Practice Clinic
PUBLISHED IN PART. DO NOT CITE UNPUBLISHED PORTION. SEE RAP 10.4(h).
Court of Appeals Division II
State of Washington
Opinion Information Sheet
Docket Number: 28323-9-II
Title of Case: Michael R. Parker, Appellant v. Tumwater
Family Practice Clinic etal Respondents
File Date: 09/16/2003
SOURCE OF APPEAL
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Appeal from Superior Court of Thurston County
Docket No: 99-2-01659-6
Judgment or order under review
Date filed: 12/21/2001
JUDGES
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Authored by David H Armstrong
Concurring: Christine Jan Quinn-Brintnall
Karen G Seinfeld
COUNSEL OF RECORD
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Counsel for Appellant(s)
Charles Kenneth Wiggins
Attorney at Law
241 Madison Ave N
Bainbridge Island, WA 98110-1811
Counsel for Respondent(s)
Stephen Jacob Bean
Attorney at Law
320 N Columbia St
PO Box 2317
Olympia, WA 98507-2317
Cecilia Marie Clynch
Attorney at Law
PO Box 2317
Olympia, WA 98507-2317
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION II
MICHAEL R. PARKER, No. 28323-9-II
Appellant,
v.
TUMWATER FAMILY PRACTICE PART PUBLISHED OPINION
CLINIC; SEAN T. ATTERIDGE and
BEVERLY ATTERIDGE; ELLEN MARTIN
and "JOHN DOE" MARTIN; JON T.
PETERSON; and GAPP ASSOCIATES,
Respondents.
ARMSTRONG, J. -- Dr. Michael Parker practiced medicine with three partners.
Parker and two of his medical partners also owned the Clinic's building in
a partnership. The medical partners expelled Parker under the partnership
"without cause" provision even though he had notified the partners that he
might be entitled to disability benefits as authorized by the partnership
agreement. On the same day the medical partners expelled Parker from the
medical practice, the building partnership--without consulting Parker as
required by the building partnership agreement--lowered the rent it charged
the practice. Parker sued. The trial court granted the defendants partial
summary judgment, ruling that the medical partnership was entitled to expel
Parker without cause despite his recent alleged disability. After a bench
trial, the court ruled that the building partners technically breached the
building partnership agreement but found that the breach caused Parker no
damages. Parker appeals all of these rulings. We hold that the trial
court erred by finding no damages, and it erred by granting summary
judgment on the issue of Parker's expulsion. Accordingly, we remand for
trial.
FACTS
Dr. Michael Parker was a partner in the Tumwater Family Practice
Clinic along with Dr. Atteridge, Dr. Martin, and Dr. Gomez. After Dr.
Gomez was expelled from the medical practice, the three remaining doctors
formed an additional partnership, GAPP, to construct a new medical building
for the Clinic. The partners obtained a Small Business Association (SBA)
loan to finance the building.
SBA rules required the partnership interests in GAPP and the Clinic to
be identical, and they prohibited GAPP from making a profit off the rent it
charged the Clinic. The partners agreed in writing that the Clinic would
pay GAPP a monthly rent of $13,166, and that the rent would increase over
time. At this rate, GAPP did make a profit. Each of the three GAPP
partners took $3,000 monthly in excess rent that GAPP received. Ultimately
GAPP collected $17,909.67 per month, which was fair market rent for the
building.
Dr. Peterson joined the Clinic partnership, but not GAPP. Martin and
Atteridge wanted to let Peterson buy an interest in GAPP, but Parker
refused unless the partners removed the "expulsion without cause" provision
from the Clinic's partnership agreement. The partners refused to do so.
On April 8, 1999, Atteridge, the managing partner of the Clinic (and
GAPP), informed Parker by letter about a partnership meeting, scheduled for
April 15, for the purpose of possibly expelling Parker from the Clinic
partnership. After receiving the letter, Parker suffered a major
depression, began seeing a psychiatrist, and did not return to work. On
April 13, Parker wrote to Atteridge and the Clinic informing them that his
doctor advised him not to work until further notice. He also said that he
was unable to attend the upcoming meeting and asked his partners to delay
any vote on his expulsion. The Clinic's partnership agreement allows any
partner who cannot attend a meeting to request a delay in voting or to give
his proxy to another partner.
The Clinic refused to delay the vote and expelled Parker from the
medical partnership. Atteridge informed Parker's patients by letter that
Parker requested a leave of absence, was not expected to return, and was no
longer seeing patients.
On the same day that the Clinic expelled Parker, Atteridge and Martin,
acting as partners of GAPP, lowered the Clinic's rent from $17,909 to
$6,627. The GAPP partnership agreement requires that management decisions
"shall be made by unanimous agreement of the partners." Ex. 1 sec. 6.1.
Parker sued the Clinic and GAPP, as well as Atteridge, Martin, and
Peterson individually, under a variety of theories. The trial court
dismissed on summary judgment all claims based on the medical partnership
agreement, ruling that the Clinic followed the correct procedures in
expelling Parker and that the partnership agreement did not require the
partners to delay a vote when requested by a partner.
After a bench trial on the claims related to GAPP, the court ruled that
Atteridge technically breached the GAPP agreement when he and Martin
decided, without Parker's agreement, to lower the rent. But it found that
this breach did not damage Parker because the rent reduction simply brought
the partners into compliance with their SBA agreement. It also found that
Atteridge and Martin did not breach their fiduciary duty by unilaterally
lowering the rent.
ANALYSIS
I. Findings of Fact
Parker challenges the trial court's findings of fact 8, 9, 11, 12, and
14. We review a trial court's findings to determine whether substantial
evidence supports them. Holland v. Boeing Co., 90 Wn.2d 384, 390, 583 P.2d
621 (1978). "Substantial evidence" is evidence sufficient to persuade a
"fair-minded person" that the fact is true. Holland, 90 Wn.2d at 390-91.
Finding 8 states that the partners became concerned that the "mirror
image" between GAAP and the Clinic did not exist and that they violated SBA
rules when they included Peterson in the Clinic but not GAAP. It also
states that the partners, including Parker, discussed the problem that the
rent exceeded GAPP's obligations for mortgage payments, taxes, and
maintenance and, thus, violated the SBA regulations. Minutes from the
Clinic's February partnership meeting show that this issue was discussed.
And the person who took the minutes testified that this issue was also
discussed at the March partnership meeting, although she did not record it.
Substantial evidence supports this finding.
Finding 9 states that Parker was expelled from the Clinic in April
1999, under the partnership agreement, and that he remains a partner in
GAPP. Parker challenges the way he was expelled. We discuss this issue
below.
Finding 11 states that GAPP lowered the rent the Clinic paid, after
Parker was expelled, to comply with SBA rules. Atteridge testified that
this is why he lowered the rent. He believed that he did not need Parker's
permission to do this because the higher rent agreement broke the law and
he had a duty to rectify the problem. Substantial evidence supports this
finding.
Finding 12 states that GAPP's lowering of the rent was to comply with
SBA rules and was not a breach of good faith, fair dealing, or fiduciary
duty. Instead, Atteridge (on behalf of GAPP) acted out of a "legitimate
and good faith concern" that GAPP comply with the SBA rules. Clerk's
Papers (CP) at 463. Atteridge's testimony supports this finding. We need
not consider this finding, as discussed below in section III.
Finding 14 states that Parker presented insufficient evidence that he
was damaged by the technical breach and that the court will not award
Parker damages. This is a legal conclusion that we discuss in section II.
II. Damages
Parker argues that the trial court should have awarded him damages
after it correctly found that Atteridge and Martin breached the GAPP
partnership agreement by reducing the Clinic's rent without his consent.
Generally, an injured party damaged by a breach of contract may
recover all damages that accrue naturally from the breach and be returned
to "as good a pecuniary position as he would have had if the contract had
been performed." Eastlake Constr. Co. v. Hess, 102 Wn.2d 30, 39, 686 P.2d
465 (1984). Here, the other GAPP partners breached the GAPP partnership
agreement when they lowered the Clinic rent without consulting Parker.
Parker is entitled to a damage award that would return him to the position
he would be in had there been no breach. The lease required the Clinic to
pay GAAP $13,166 in monthly rent. This was raised to $16,532 by December
1994. GAPP also received rent money from other tenants in the building.
Each of the three partners in GAPP received $3,000 a month from the excess
rent until April 1999. Since Parker presumably would have opposed lowering
the rent, his damages include the monthly $3,000 he would have received
under the old agreement, beginning from the April 1999 breach.
In its written conclusions, the trial court ruled that the evidence
was insufficient to support a damage award to Parker. But in oral
comments, the court explained that Parker probably did not prove damages
and that the remedy was for the parties to try to reach a unanimous
decision about the rent. Ten months after this ruling, the parties
returned to court because they could not agree, and Parker moved for
reconsideration. The trial court clarified that it had previously denied
damages because it was unsure how the SBA would treat the issue.1 It said
the excess rent was just a different way of paying the Clinic partners for
their work for that group; and it would be unfair to give Parker damages
because he no longer produced any of the Clinic's income. The court
suggested that it may have awarded damages if Parker had continued to
produce income with which the Clinic paid GAPP.
Nothing in the court's reasoning justifies its failure to award Parker
damages that would return him to his position before the breach. Eastlake
Constr., 102 Wn.2d at 39. The Clinic paid fair market rent for its
building space before the rent reduction. And the Clinic continued to
occupy the same space after the rent reduction. Whether Parker was still
an income producing member of the Clinic has no bearing on the Clinic's
obligation to pay the agreed upon rent. The two partners' rent reduction
simply took income to which GAPP was entitled and transferred it to the
Clinic. This breach of the GAPP agreement entitles Parker to damages of
$3,000 a month.
But the other GAPP partners argue that the partners were violating the
law, the SBA regulations, and the SBA's standard operating procedures by
paying the excess rent. Parker was not damaged, they contend, because he
agreed in the original lease and GAPP partnership not to make a profit off
the rent and because he had an affirmative obligation to comply with the
loan documents and the SBA rules.
Generally, contracts that violate a statute are illegal and
unenforceable. Smith v. Skone & Connors Produce, Inc., 107 Wn. App. 199,
207, 26 P.3d 981 (2001), review denied, 145 Wn.2d 1028 (2002). But "{i}f a
contract violates a business statute or regulation, the contract is not
void unless the act expressly provides for invalidation of conflicting
contract provisions." Smith, 107 Wn. App. at 208. The GAPP partners cite
two cases in support of their "illegal agreement" argument, but both cases
dealt with contracts that called for criminal conduct. Hederman v. George,
35 Wn.2d 357, 360, 212 P.2d 841 (1949) (agreement to privately sell stock
was gross misdemeanor); Sinnar v. Le Roy, 44 Wn.2d 728, 730, 270 P.2d 800
(1954) (agreement to provide beer license was of serious nature because it
concerned a matter exclusively within the realm of the state). But if the
agreement violates any rules at all, it violates business statutes or
regulations. Under Smith, the agreement is therefore void only if the
statutes or regulations specifically deem it invalid. Smith, 107 Wn. App.
at 208.
Atteridge and Martin claim that the agreement violates a federal
regulation, the SBA's standard operating procedures, and the loan document.
These rules and documents prohibit GAPP from charging rent that exceeds the
costs of debt service, maintenance, taxes, and insurance. GAPP would be
ineligible for the SBA loan if the rent exceeded these costs. But a
violation of the rules is not a crime as in Hederman and Sinnar. Nor do
the rules specifically provide that the loan becomes invalid if GAPP
violates the rules. Rather, a violation of the rules allows the SBA to
accelerate or terminate the loan or foreclose on the building. We conclude
that the agreement to pay excess rent was not an illegal, unenforceable
contract.2 The trial court should have awarded Parker damages of $3,000
per month since the breach.
Moreover, even if the partnership agreement was illegal, Atteridge and
Martin are not in a good position to raise this argument. "Courts will not
allow themselves to be used for the purpose of conferring benefits upon
litigants who plead the illegality of a contract into which they entered,
when there has been a part performance of the contract, and when the
relative positions of the contracting parties have been changed." In re
Field's Estate, 33 Wash. 63, 78, 73 P. 768 (1903). Atteridge and Martin
accepted the benefits of the excess rent agreement until
their dispute with Parker arose. Then they repudiated the agreement as
illegal. But this repudiation harmed only Parker. Atteridge and Martin no
longer received their $3,000 per month from GAPP; but as partners in the
Clinic, they kept the excess rent previously paid to GAPP, presumably as
additional Clinic profit. By thus manipulating the income between GAPP and
the medical partnership, Atteridge and Martin sought to enrich themselves
at Parker's expense--precisely the kind of conduct the cases have
condemned. Walsh v. Brousseau, 62 Wn. App. 739, 745-46, 815 P.2d 828
(1991).
A majority of the panel having determined that only the foregoing
portion of this opinion will be printed in the Washington Appellate Reports
and that the remainder shall be filed for public record pursuant to RCW
2.06.040, it is so ordered.
III. Fiduciary Duty
Parker next contends that Atteridge and Martin breached their duties
of trust, good faith, and fair dealing, and their fiduciary duty to him,
when they lowered the rent without his consent. Because we find that the
trial court erred by failing to award Parker damages, we need not consider
this issue.
IV. Disability Provision v. Expulsion Provision
Parker next challenges the court's conclusion that the Clinic properly
expelled him and its grant of partial summary judgment dismissing all
claims related to the Clinic. He contends that the partnership agreement
required the Clinic to proceed under the disability clause rather than the
expulsion-without-cause provision.
Summary judgment is proper if there is no genuine issue of material
fact and the moving party is entitled to judgment as a matter of law. CR
56(c). We review a summary judgment de novo, considering the evidence in
the light most favorable to the nonmoving party. Iwai v. State, 129 Wn.2d
84, 96, 915 P.2d 1089 (1996).
The Clinic partnership agreement provided that a disabled partner
would receive a gradually decreasing draw, could have his interest
purchased by the remaining partners, and would continue to receive a share
of laboratory and x-ray profits. But a partner who was expelled from the
partnership without cause would have no continuing interest in the
partnership. Although the expelled partner would receive his net capital
in the partnership, he would receive no x-ray and lab profits. A partner
could be expelled without cause by a three-quarters vote. Three of the
four Clinic partners voted at the April 15 meeting to expel Parker.
Parker contends that the partners were bound to act under the disability
provision as soon as he told them that he was disabled on April 13. The
partnership agreement permits expulsion "not withstanding the fact that
grounds may exist for expulsion for cause." CP at 28. But the agreement
is silent as to the interplay between the disability clause and the
expulsion clause.
When interpreting a contract, the court seeks to ascertain the
parties' intent. Berg v. Hudesman, 115 Wn.2d 657, 663, 801 P.2d 222
(1990). The court may consider extrinsic evidence about the circumstances
under which the contract was made to determine such intent. Berg, 115
Wn.2d at 667. A partnership agreement should be read as a whole and
construed in light of the history of the partnership and its purpose.
Ashley v. Lance, 75 Wn.2d 471, 451 P.2d 916 (1969). And courts should
attempt to harmonize clauses that seem to conflict and interpret the
agreement in a way that gives effect to all of the contract provisions.
Turner v. Wexler, 14 Wn. App. 143, 146, 538 P.2d 877 (1975); Mayer v.
Pierce County Med. Bureau, Inc., 80 Wn. App. 416, 423, 909 P.2d 1323
(1995).
Moreover, specific provisions in the contract control over general
ones. Foote v. Viking Ins. Co., 57 Wn. App. 831, 834, 790 P.2d 659 (1990).
Because the parties likely paid closer attention to specific or exact terms
than general language, we assume that the specific language better
expresses the parties' intent. Foote, 57 Wn. App. at 834-35. In Foote,
the question was whether income continuation benefits in an insurance
contract applied when the insured died in the accident. The general
definition of bodily injury included death, but the definition of income
continuation benefits applied only to those who were injured, not to those
who died. Foote, 57 Wn. App. at 834. The court found that the specific
language controlled and was not made ambiguous by the apparently
conflicting general definition of bodily injury. Thus, the court held that
income benefits did not apply when the insured had died.
Applying Foote to this case, the specific language found in the
disability clause controls over the general expulsion-without-cause
provision. The disability clause applies in a specific situation and for a
limited time. The expulsion-without-cause provision is written as a broad,
catch-all clause. Thus, under at least one rule of contract
interpretation, the disability clause would take priority over the
expulsion-without-cause provision.
We conclude that issues of material fact exist as to what the parties
intended as to the relationship between the disability clause and
termination-without-cause provision.3 We, therefore, remand for a trial on
the issue. The court may consider the circumstances under which the
contract was formed, the parties' conduct since then, and any other
extrinsic evidence as to the parties' intent. Berg, 115 Wn.2d at 667. The
rule that a specific provision usually controls over a general provision is
simply one tool the court can use in determining intent.
V. Request to Delay Vote
Finally, Parker contends that the Clinic partnership agreement
required the partners to delay the expulsion vote once he requested such
delay. Because we find that the trial court erred by granting summary
judgment for the Clinic, we need not consider this issue. Moreover,
nothing in the plain meaning of the agreement suggests that granting the
request is mandatory. The agreement provides that "{i}f a Partner cannot
be present for a meeting, he or she can request a delay of voting on any
issue, or give his or her proxy to one other Partner." CP at 19.
We reverse and remand for trial on the issue of what the partners intended
in the partnership agreement's termination provisions and for an award of
damages to Parker for the GAPP partners' breach of the building partnership
agreement.
Armstrong, J.
We concur:
Seinfeld, J.
Quinn-Brintnall, A.C.J.
1 After the bench trial was done, the SBA approved of the higher rent.
2 Moreover, the SBA has since approved the higher rent payments. Parker
did not offer this evidence, however, until well after the bench trial was
completed. The other GAPP partners were unable to question SBA about the
details of their approval. Apparently because of this, the trial court
considered SBA's approving letter but gave it little or no weight and said
it did not change the court's decision on damages.
3 At oral argument, counsel for the Clinic said that if Parker had been in
an automobile accident on the way to the meeting regarding his expulsion,
and the evidence clearly showed that he was disabled by the accident, it
would be a "different issue." But the only difference is the legitimacy of
the disability. This, again, suggests that the parties may have intended
the disability clause to control over the termination-without-cause
provision, but that the expelling partners did not believe that Parker was
really disabled.