Thursday, August 13, 2015
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C.A. Revives Damages Award in Suit Between Healthcare Companies
Panel Says Judge Erred in Using Equity Findings to Overturn Jury’s Verdict
By KENNETH OFGANG, Staff Writer
A trial judge erred in using her findings on equitable issues as a basis for rejecting a jury verdict on damages, the Court of Appeal for this district ruled yesterday.
Div. Four, in an opinion by Presiding Justice Norman Epstein, upheld a Los Angeles Superior Court jury’s findings that San Fernando Community Hospital, doing business as Mission Community Hospital, breached a contract with Darbun Enterprises, Inc., doing business as All Saints Healthcare. The ruling sends the case back to the trial court for a ruling on the defendant’s motion to reduce the jury’s award of nearly $295,000 to $270,000.
“[W]e hold that, in cases involving mixed issues of equity and law, a trial court may not act as a factfinder on issues it specifically reserves for jury determination,” the jurist said. “Here, in granting JNOV, the court improperly transformed its equitable finding of unenforceability as to specific performance into a finding of unenforceability as to the legal issue of damages.”
The litigation grew out of a 30-year lease signed in 2006, allowing Darbun to take possession of Mission’s North Tower, which it intended to redevelop into a subacute or long term care unit, although the lease said it could use the property for any lawful purpose other than the operation of a general hospital.
Lease Terms
The lease reflected the parties’ awareness that Darbun would have to make substantial investments in order to redevelop the property, accordingly providing that it would not have to pay rent before the facility was built and licensed. It also provided that failure to perform any of Darbun’s obligations, other than to pay rent, would not constitute a breach unless it failed to cure within 30 days of demand, or failed to complete any such cure “with dispatch.”
Darbun initially planned to develop a long term acute care hospital, but abandoned that plan when it concluded that the seismic improvements required would render the project unfeasible. It then proceeded to consider developing a skilled nursing facility, which it believed could be done without extensive seismic upgrades.
In late 2007, however, right around the time that Darbun submitted its preliminary plans to the Office of Statewide Health Planning and Development, Mission’s attorney told Darbun that Mission wanted to terminate the lease. But no written notice was given, and Darbun continued with its plans until October 2008, when Mission gave a 30-day notice of termination, the basis of which was unreasonable delay in completing improvements; the notice made no demand for cure.
In December 2008, Mission sent another notice, declaring that the lease was terminated on a different ground, failure to secure a license for the proposed skilled nursing facility.
Remedies Sought
Darbun filed suit in 2009, seeking specific performance and damages. The action was bifurcated into equitable and legal phases for trial before Judge Donna Fields Goldstein.
The judge explained, however, that she was “not going to go through the breach” and would not rule on “the merits of the breach of contract,” during the first, equitable phase of the trial.
During that phase, Darbun’s top managers testified that they could have operated a skilled nursing facility, either by having Mission obtain a license and transfer ownership to Darbun, which would then apply for its own license; or by applying for its own license without Mission’s cooperation, with attendant delays.
Mission’s attorneys confronted the witnesses with their statements in discovery, which did not mention any possibility of Darbun proceeding without Mission’s cooperation. The witnesses responded that they had proceeded under the assumption that Mission would cooperate because Mission could not collect rent before the facility accepted patients.
At the end of the phase, Goldstein said Darbun had “presented a curve ball” in suggesting they could obtain a license without Mission’s assistance. Based on the testimony, the judge said she was reserving ruling on specific performance and would either “use the jury as an advisory jury on breach or just simply [rule] when I’ve heard enough evidence to decide, I’ll let you know.”
She then told the panel, during jury selection, that it would be up to the jury to decide whether Mission improperly terminated the lease or did so with cause based on Darbun’s failure to perform.
Mission moved for nonsuit at the close of Darbun’s case-in-chief, which the judge granted as to specific performance but not as to the legal remedy of damages.
The judge found that specific performance could not reasonably be overseen by the court, and that there was “breach by plaintiff” in terms of timeliness of performance. She added that she would not credit the witnesses’ trial testimony regarding Darbun’s ability to obtain a license without Mission’s cooperation.
The jury trial resumed, and the jurors awarded $294,819.06 in damages.
The defendant moved for JNOV, and in the alternative to reduce the award by about $25,000 based on assertedly uncontroverted evidence that the amount of the award was excessive.
In granting JNOV, Goldstein cited her earlier findings that Darbun did not perform in a timely manner and had proceeded in a manner not contemplated by the lease. She explained that “the law is clear that findings by the Court in an equitable action are binding on the remaining portion to be tried by the jury.”
But Epstein, writing for the Court of Appeal, faulted the trial judge for “inconsistent and misleading statements, which resulted in confusion among the parties and complicated the issues on appeal,” making a “seemingly dispositive” ruling that there had been a breach, then telling plaintiff’s counsel it could attempt to “get your damages,” then finally concluding that its earlier finding of breach by plaintiff precluded the jury from awarding damages.
That disposition violated the plaintiff’s right to a jury trial on the breach-of-contract claim, the presiding justice concluded.
In an unpublished portion of the opinion, the court concluded that substantial evidence supported the jury verdict.
Attorneys on appeal were Bruce Sherman of Squires, Sherman & Bioteau for the plaintiff and Debra Albin-Riley and Steven A. Haskins of Arent Fo for the defendant.
The case is Darbun Enterprises, Inc. v. San Fernando Community Hospital, 15 S.O.S. 4066.
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