Marquette General Hospital v. Excalibur Medical Imaging, LLC

Filing

OPINION filed : The judgment of the District Court is AFFIRMED, decision not for publication. Alice M. Batchelder, Chief Circuit Judge; Martha Craig Daughtrey, Circuit Judge (Authoring),, and John M. Rogers, Circuit Judge.

Case: 12-1170

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NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 13a0539n.06
No. 12-1170

FILED
Jun 03, 2013

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

MARQUETTE GENERAL HOSPITAL,
Plaintiff-Appellee,
v.
EXCALIBUR MEDICAL IMAGING, LLC,
Defendant-Appellant.

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DEBORAH S. HUNT, Clerk

ON APPEAL FROM THE UNITED
STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MICHIGAN

Before: BATCHELDER, Chief Circuit Judge; DAUGHTREY and ROGERS, Circuit Judges.

MARTHA CRAIG DAUGHTREY, Circuit Judge. Three months after answering a
breach-of-contract complaint filed by plaintiff Marquette General Hospital, the defendant,
Excalibur Medical Imaging, LLC, sought leave to amend its original answer to include
counterclaims alleging racial discrimination and maintenance of a hostile work environment
under 42 U.S.C. § 1981. The district court denied Excalibur’s motion to amend, and the
parties subsequently submitted a stipulated judgment in favor of the plaintiff hospital that
nevertheless “expressly preserve[d] [the defendant’s] right to appeal the Court’s denial of
its motion to amend its answer to add counterclaims against the Hospital.” Upon entry of
judgment in favor of the hospital, Excalibur filed this appeal, challenging the propriety of
the denial of the motion to amend. For the reasons set out below, we affirm the district
court’s judgment.

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Marquette General Hospital v. Excalibur Medical Imaging, LLC
FACTUAL AND PROCEDURAL BACKGROUND

Recognizing a need for a local provider of radiological services in the Marquette
(Michigan) community, in 2008, Marquette General Hospital entered into a Radiology
Service Agreement (the “service contract”) with Excalibur Medical Imaging, LLC, a New
Jersey company. At the same time, the two parties also executed a Line of Credit Loan
Agreement (the “loan contract”), pursuant to which the hospital established a $2.6 million
line of credit for Excalibur that would allow the imaging company to pay business expenses
“arising in connection with the Borrower’s private medical practice.” It is the loan contract,
and that contract only, that is the subject matter of the complaint filed in this action.

By September 2009, the hospital found it necessary to commence an investigation
into the practices of Dr. Arthur Greene, the managing member of Excalibur. Before the
completion of that investigation, the hospital, Excalibur, and Greene, desiring “to bring
about an orderly termination of the Radiology Agreement and to settle any and all claims
and disputes between them in connection with the Radiology Agreement,” signed a
Separation Agreement and Release. In pertinent part, paragraph 8(b) of that settlement
agreement provided:

Excalibur and Dr. Greene, including any rights Dr. Greene may hold as the
Managing Member of Excalibur, hereby release and discharge [Marquette
General Hospital] from any and all claims, actions, causes of action,
obligations, demands, damages, liabilities, complaints, costs, attorney fees,
and expenses of every kind, nature, and description, whether administrative,
in law or in equity, known or unknown, suspected or unsuspected, fixed or

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contingent, which Dr. Greene or Excalibur has or may have against
[Marquette General Hospital] for breach of the Radiology Agreement.

The settlement agreement also specifically recognized the separate existence of the
loan contract and provided that nothing in the release altered the obligation of Excalibur
to continue its payments to Marquette General Hospital under that financial arrangement.
Indeed, when Excalibur ceased making the required payments pursuant to the loan
contract in February 2011, the hospital filed this diversity breach-of-contract complaint in
May 2011, seeking payment from Excalibur in the amount of almost $1.5 million.

Excalibur filed a timely answer to the complaint in June 2011, denying the breach-ofcontract allegation and raising numerous affirmative defenses, including unclean hands,
estoppel, undue influence, unconscionability, impossibility, justification, unjust enrichment,
prevention of performance, forced resignation, and breach by the plaintiff. No facts were
asserted to support any of the defenses. Three months later, on September 19, 2011,
Excalibur filed a motion for leave to amend its earlier answer to add a counterclaim against
the hospital. Specifically, Excalibur sought to allege that the hospital terminated the
service contract with Excalibur as a result of racial animus, in violation of the protections
afforded under the provisions of 42 U.S.C. § 1981. Furthermore, the defendant attempted
to assert a second counterclaim for creation of a racially hostile work environment, also in
violation of 42 U.S.C. § 1981.

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Specifically, the grounds alleged for Excalibur’s counterclaims revolved around
allegations that Dr. Greene, an African-American physician, had been subjected to
unspecified obscene language and racial epithets by Dr. Christopher Mehall, an
independent contractor with Marquette General Hospital. Without further elaboration,
Excalibur also alleged that a Dr. Ouimette, another physician who contracted with
Marquette General Hospital, “repeatedly and continually failed to respect Dr. Greene’s
position as department chair” and was “known to make racially offensive comments about
Dr. Greene in the workplace.”

The motion to amend was referred to a magistrate judge, who acknowledged that
courts “should freely give leave [to amend a pleading] when justice so requires.” Fed. R.
Civ. P. 15(a)(2). Nevertheless, the magistrate judge denied Excalibur’s motion because
“the Separation Agreement prohibits claims by Excalibur or Dr. Greene against plaintiff
based upon the [service] contract, and the asserted counterclaims are unique to individuals
who are not parties to this action.”

The hospital then moved for summary judgment on its loan-contract claim. Despite
all the affirmative defenses raised initially, Excalibur stipulated to entry of judgment in the
hospital’s favor but “expressly preserve[d] its right to appeal the Court’s denial of its motion
to amend its answer to add counterclaims against the Hospital.” In light of the stipulation,
the district court entered judgment in favor of the hospital and against Excalibur in the

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amount of $1,520,911.56. Excalibur then filed a timely notice of appeal from that judgment
and from the order denying the motion to amend its answer.

DISCUSSION

Rule 15(a)(1)(A) of the Federal Rules of Civil Procedure provides that, prior to trial,
a plaintiff or defendant “may amend its pleading once as a matter of course within . . . 21
days after serving it.” Otherwise, “a party may amend its pleading only with the opposing
party’s written consent or the court’s leave,” which should be given freely “when justice so
requires.” Fed. R. Civ. P. 15(a)(2). Leave to amend may be denied, however, where the
court finds “undue delay, bad faith or dilatory motive on the part of the movant, repeated
failure to cure deficiencies by amendments previously allowed, undue prejudice to the
opposing party by virtue of allowance of the amendment, futility of the amendment, etc.”
Foman v. Davis, 371 U.S. 178, 182 (1962).

In denying the defendant’s motion to amend in this case, the magistrate judge
decided that the proposed counterclaims “could arguably [have] provide[d] an excuse or
defense for the breach of [services] contract claim,” were it not for the fact that, in the
settlement agreement, Excalibur “waived all defenses or claims against the plaintiff hospital
arising out of the [services contract].” On appeal, Excalibur challenges that ruling,
contending that the court’s interpretation of the release in the settlement agreement was
too broad. Excalibur concedes that the counterclaims “do arise out of the contractual
relationship of the [services contract]” but insists that “they do not arise out of a breach of
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that agreement.” (Emphasis added.) This argument puts too fine a point on the ruling by
the magistrate judge – Excalibur clearly alleged by counterclaim that racial animus forced
him to terminate his company’s arrangement with the hospital, resulting in a breach of the
services contract. Even more significant, however, is the fact that Excalibur did not
challenge the magistrate judge’s alternative ground for denying the motion to amend, i.e.,
that “the asserted counterclaims are unique to individuals who are not parties to this action”
– namely “Dr. Greene [and] the two doctors that allegedly caused the hostile racially
charged work environment.”

The hospital contends that by challenging only one of the bases for denial of the
motion to amend, Excalibur has waived its right to appeal the ruling on the motion to
amend, citing White Oak Property Development, LLC v. Washington Township, 606 F.3d
842, 854 (6th Cir. 2010), and United States v. Thornton, 609 F.3d 373, 380 (6th Cir. 2010),
for the proposition that failure to challenge an alternative ground supporting a district
court’s ruling results in abandonment of the entire issue on appeal. In Thornton, for
example, the defendant appealed a district court’s denial of a motion to suppress evidence.
The trial court had ruled the evidence admissible both because Thornton had no
reasonable expectation of privacy in the house where drugs were found and because the
search warrant for the house was supported by probable cause. Thornton, 609 F.3d at
379-80. Because Thornton challenged only the determination that he lacked standing to
assert a claim under the Fourth Amendment – and not the probable-cause finding – this

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court ruled that “any challenge to the district court’s holding that there was probable cause
has been waived, and there is no utility in addressing the standing issue.” Id. at 380.

Not surprisingly, Excalibur offers a second interpretation of the magistrate judge’s
opinion that would not result in a waiver of its opportunity to appeal the denial of the motion
for leave to amend. According to that argument, “the District Court did not base its
decision on two alternative reasons, but rather one reason, namely that the Separation
Agreement prohibits Excalibur or Dr. Greene from bringing claims against [the hospital]
based upon the contract.” Excalibur contends that the magistrate judge’s additional
discussion in his ruling regarding the nonparty status of Greene, Mehall, and Ouimette was
based upon an understanding “that Dr. Greene individually has a valid claim against Drs.
Mehall and Ouimette individually,” but that “there was no real need to address this issue
further” because “the Separation Agreement would have no effect on that action.”
Excalibur also theorizes that “[b]ecause there is no individual claim by Dr. Greene against
Drs. Mehall and Ouimette, this is not an alternative reason for the District Court’s denial of
Excalibur’s Motion to Amend, for which Excalibur needed to argue against in this appeal.”

In the alternative, Excalibur argues in its reply brief that if it is determined that there
were, in fact, two bases for the magistrate judge’s decision, it should be allowed a second
opportunity to address that alternate decisional ground. But, as the hospital points out,
“[w]e have consistently held . . . that arguments made to us for the first time in a reply brief
are waived.” Sanborn v. Parker, 629 F.3d 554, 579 (6th Cir. 2010), cert. denied, 132 S.Ct.

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498 (2011) (citing Am. Trim, L.L.C. v. Oracle Corp., 383 F.3d 462, 477 (6th Cir.2004)). We
see no reason to depart from that rule in this case.

Moreover, the magistrate judge ruled correctly in denying the defendant’s motion
to amend on the ground that “the asserted counterclaims [we]re unique to individuals who
are not parties to this action.” As noted above, denial of a motion to amend is appropriate
if the court finds that the proposed amendment would be futile. Because the counterclaims
could not be maintained against the parties to this action, and the party pursuing the
counterclaims – Excalibur – did not attempt to join the necessary parties under Rules 19
and 20 of the Federal Rules of Civil Procedure, allowing the amendment obviously would
have been futile, as the court properly held.

CONCLUSION

For the reasons set out above, we AFFIRM the district court’s judgment.

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