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Independent Healthcare Management v. City of Bruce

December 18, 1998

INDEPENDENT HEALTHCARE MANAGEMENT, APPELLANT INC.
v.
THE CITY OF BRUCE, MISSISSIPPI APPELLEE



Before McMILLIN, P.j., Coleman, And Southwick, JJ.

The opinion of the court was delivered by: McMILLIN, P.j.

DATE OF JUDGMENT: 04/02/96

TRIAL JUDGE: HON. DON GRIST

COURT FROM WHICH APPEALED: CALHOUN COUNTY CHANCERY COURT

NATURE OF THE CASE: CIVIL - CONTRACT

TRIAL COURT DISPOSITION: APPELLANT ORDERED TO LEAVE PREMISES AND PAY $64,115.73 DAMAGES AND $3,127.65 IN ATTORNEY'S FEES

DISPOSITION: AFFIRM IN PART, REVERSE AND REMAND IN PART, AND REVERSE AND RENDER IN PART - 12/18/98

¶1. This case involves a dispute over the obligations of Independent Health Care Management, Inc. (IHC) as lessee arising under a lease of a health care facility from the owner, the City of Bruce. The City filed an action in the Chancery Court of Calhoun County seeking a declaratory judgment that IHC had defaulted under the lease and that the City was entitled to have the remaining term of the lease canceled. The City also sought monetary damages and attorney's fees in the action. The chancellor held in favor of the City on all aspects of the case and IHC has appealed. We affirm in part, reverse and remand in part, and reverse and render in part.

I.

Facts

¶2. The City of Bruce owned a health care facility that included a building and equipment suitable for operation of a critical care hospital facility, an emergency room, and an extended care nursing home. Due to circumstances unexplained in the record, the facility was not fully operational in 1992. IHC and the City entered into negotiations toward the goal of having the facility reopened under the management of IHC. Several alternatives were explored before the parties settled on an arrangement whereby IHC would lease the facilities for a primary term of five years with the possibility of an extension for an additional five years. The terms of the agreement were reduced to writing in a lease agreement executed by the parties.

¶3. The City of Bruce was not interested in profiting monetarily from the lease. Rather, the City's primary interest was in having a viable health care facility operating in the City. This fact is best evidenced by two considerations. First, the City passed a general obligation bond issue for $500,000 to be expended on needed improvements and equipment acquisitions that would be used by IHC under the lease terms. Second, the lease provided that IHC's rental payment for the initial term of the lease for all facilities and equipment, including the $500,000 in improvements and acquisitions financed by the bond issue, would be ten dollars per year.

¶4. IHC began immediate operation of the nursing home and reopened the hospital. The emergency room did not reopen immediately, but it was ultimately opened about one year after the lease term commenced. Although the nursing home facility appeared to be operating satisfactorily, all did not go well with the remaining aspects of the operation. Within seventeen months of opening the emergency room facility, IHC closed it down once again, apparently because it could not be operated profitably. A few months later, IHC formally indicated its intention to also shut down the critical care hospital facility, leaving only the nursing home enterprise in operation. However, upon objection from city officials, IHC formally recanted its decision to close the hospital.

¶5. During the time that IHC was proceeding with the closing of the hospital facility, it stopped accepting patients. When this occurred, a local doctor who had been serving as chief of staff for the hospital severed his relationship with the institution. After IHC reversed its decision, this doctor refused to resume his position, citing certain perceived problems with the hospital's operation that had the potential to endanger a patient's well-being. IHC reduced its hospital support staff to a skeleton crew and there were no staff doctors living in the immediate vicinity. There is evidence in the record that the support staff was only adequate to properly handle two patients at a time. As the facts would have it, this staffing level actually proved to be more than adequate, since the record indicates that from October 1995, through the trial of this case in March 1996, not one patient had been admitted to the hospital.

¶6. During this period, IHC underwent a periodic review by the state licensing facility. In order to have a medical doctor as chief of staff for the facility, IHC named a doctor who was affiliated with another IHC operation in Holly Springs as chief of staff of the Bruce facility, though the two operations were some sixty miles apart. There was evidence that this chief of staff only went to Bruce one day a month for staff meetings, never attended a patient in the Bruce community, and never admitted a patient to the Bruce facility.

¶7. After some unsatisfactory negotiations in which IHC attempted to purchase the facility from the City, the City filed this action seeking authority to retake possession of the property. In its complaint, the City set out three specific acts of default by IHC that it contended entitled it to the remedy of cancellation of the lease. Those three acts of default were (a) the closing of the emergency room, (b) a defacto closing of the critical care hospital facility, and (c) the removal from the leased premises of certain equipment belonging to the City and covered under the lease.

¶8. The chancellor found, as a matter of fact, that IHC was in material breach of its obligations under the lease and ordered the lease terminated. He issued a lengthy written finding in which he listed multiple transgressions by IHC that, according to the chancellor, warranted termination of the lease.

¶9. In support of its claim for monetary damages, the City called a member of the board of aldermen who testified to some extent regarding the terms of the City's repayment obligation on the $500,000 bond issue. In reliance on this evidence, the chancellor awarded damages to the City for the breach of the lease in the amount of $64,115.73.

¶10. In support of its claim for attorney's fees, the City submitted to the court a statement from its attorneys. This submission occurred after the trial was concluded and showed a charge to the City for representation in this matter of $3,127.65. The chancellor, without additional hearing, awarded the City attorney's fees in that amount. ¶11. IHC has now appealed, raising four issues.

II.

The First Issue: Whether IHC Committed a Material Breach of the Lease

ΒΆ12. This aspect of the case actually involves two separate propositions of some gravity together with some peripheral issues that can be disposed of summarily. The first issue is a pure question of law as to whether the closing of the emergency room operation was a material breach justifying lease termination. The second issue is a pure question of fact as to whether IHC did, in fact, cease to operate the critical care hospital facility in contravention of its obligation under the lease. We will consider these ...


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