The Charlotte-Mecklenburg Hospital Authority et al v. OptumHealth Care Solutions, Inc.

Filing 82

ORDER finding Plaintiffs have failed to satisfy their burden of proving that Defendant breached a contract. Plaintiffs, therefore, are not entitled to declaratory relief.. Signed by Chief Judge Frank D. Whitney on 8/29/17. (clc)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
DOCKET NO. 3:16-cv-00193-FDW-DCK
THE CHARLOTTE-MECKLENBURG
HOSPITAL AUTHORITY d/b/a
CAROLINAS HEALTHCARE SYSTEM;
CAROLINAS PHYSICIANS NETWORK,
INC.; MANAGED HEALTH
RESOURCES, INC.,
Plaintiffs,
vs.
OPTUMHEALTH CARE SOLUTIONS,
INC.,
Defendant.

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ORDER

THIS MATTER is before the Court following a bench trial held before the undersigned on
June 19-20, 2017. Plaintiffs brought this action against Defendant for breach of a transplant
services contract and seeking a declaratory judgment regarding the construction of the contract.
Essentially, the parties dispute the application of increased rates for transplant surgeries and an
escalator clause included in a third amendment to the contract. The heart of this dispute is whether
the increased rates and escalator clause apply to (1) all transplant services performed after the
effective date of the amendment (Plaintiffs’ position) or (2) only those transplant services provided
to a patient whose initial consult took place after the effective date of the amendment (Defendant’s
position).
Following a hearing on April 6, 2017, the Court denied Plaintiffs’ Motion for Summary
Judgment (Doc. No. 59) concluding the contract was ambiguous. After hearing and weighing the
evidence presented at trial, including documentary evidence and the testimony of seven witnesses
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presented over two days, and reviewing both parties’ proposed findings of fact and conclusions of
law (Docs. No. 80, 81), the Court finds Plaintiffs have failed to establish by a preponderance of
the evidence that Defendant breached the parties’ contract. The following constitutes the Court’s
findings of fact and conclusions of law. See Fed. R. Civ. P. 52(a)(1).
I.

FINDINGS OF FACT

A. Background
1. Defendant and its predecessor in interest, United Resource Network (“U.R.N.”), established
and maintain a network of transplant centers. Hospital transplant programs, such as that
operated by Plaintiffs, contract with Defendant to be included in a transplant network that
Defendant offers to certain payors, including large employer groups, reinsurers and health
plans. The payors contract with Defendant to obtain access to transplant services. (Trial Tr.
Vol. I, pp. 160-63.)
2. Under Defendant’s contracts with both the payors and providers, the payor has the financial
responsibility for all Transplant Health Services rendered by the provider. (Pls.’ Ex. No. 1,
§ 3.1.)
3. Providers submit claims for reimbursement for Transplant Health Services to Defendant, and
Defendant adjudicates the claim according to the transplant services agreement with the
provider. Defendant forwards the claim to the payor with financial responsibility for the claim
for payment based on the payment terms and rates set forth in the transplant services
agreement. (Trial Tr. Vol. I, p. 165.)
4. Transplant Health Services are expensive and can trigger stop loss or reinsurance provisions.
(Trial Tr. Vol. I, pp. 164-65.)
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5. Due to a patient’s health status or having been placed on a wait list for an organ, several years
may elapse between a patient’s initial consult and the date the transplant surgery is performed.
(Trial Tr. Vol. I, p. 165.)
6. Insurers and other payors require predictable Transplant Health Services costs to properly
underwrite and establish reserves. (Trial Tr. Vol. I, pp. 164-65, 182.)
7. Relevant here, there are two types of pricing schemes that can be used for transplant services
agreements:
a. Under Case Effective Date pricing, the payment terms applicable to a patient, including
the rate for the transplant surgery, become effective on the date of the patient’s initial
consult with the provider, and those payment terms continue to apply for the life of the
case. (Trial Tr. Vol. I, pp. 166-68, 180, 198-99; Trial Tr., Vol. II, p. 43.)
b. Under Date of Service pricing, the rates paid to a provider for services rendered to an
individual patient are the rates in place at the time a transplant surgery is actually
performed, regardless of the amount of time between the patient’s initial consult with
the provider and the time of surgery. (Id.)
B. The Terms of the Original Transplant Services Agreement
8. Effective April 22, 2005, Plaintiffs entered into a Transplant Services Agreement (“TSA”) with
U.R.N., Defendant’s predecessor. (Pls.’ Ex. No. 1.)
9. Russell Guerin signed the TSA for Plaintiffs on March 29, 2005, and Kevin O’Brien signed
the TSA for U.R.N. on April 13, 2005. (Id.)
10. The TSA provided for coverage and payment of pre- through post-organ transplant services to
covered transplant patients (“Members”), including the organ transplant itself. (Id.)
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11. The relevant provisions of the TSA are as follows:
a. Section 1.3 of the TSA identifies three “Periods of Care” for a patient: “PreTransplant,” “Transplant,” and “Post-Transplant.” (Pls.’ Ex. No. 1.) Section 1.3
specifies when the three Periods of Care begin and end, but it does not delineate when
the rates applicable to any Period of Care begin or end. (Trial Tr. Vol. I, pp. 201-02.)
b. Section 3.2 specifies the rate for the Transplant Period, which is called the “Case Rate
Payment.” A table in Section 3.2 lists the specific Case Rate for kidney, liver, and heart
transplants. (Id.)
c. Section 1.2 specifically defines the Case Rate Payment as “The fixed fee payment made
to Provider for Transplant Health Services provided to a Member during the Transplant
Period” and “represents payment in full for all such services.” (Id. (emphasis added).)
d. The last sentence of Section 2.2, which specifies when payment terms in the TSA attach
and for how long, (Trial Tr., Vol. I, p. 200), provides: “The payment terms begin at the
time of the Member’s Case Effective Date, and not before, and will continue to apply
as long as the Member is on Provider’s active status to receive, or has already received,
a Transplant.” (Pls.’ Ex. No. 1 (emphasis added).) Pursuant to Section 2.2, the Case
Effective Date remains in place as long as the case is open, including through the
transplant. (Trial Tr., Vol I, p. 174).
e. Section 1.1 of the TSA defines “Case Effective Date” as “the date the rates in this
Agreement become effective for the Member’s case, which shall be the earlier of the
Member’s initial consult with Provider for a transplant or the initiation of diagnostic
testing related to the Transplant for the Member.” (Pls.’ Ex. No. 1.) The Case Effective
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Date is a standard term that delineates the date on which reimbursement rates and other
terms shift from the Member’s underlying health plan to the TSA. (Trial Tr. Vol. I, pp.
167-68.)
f. The “payment terms” referenced in Section 2.2 are the payment terms contained in
Section 3, which include rates applicable to Transplant Health Services rendered during
each of the three Periods of Care. (Trial Tr. Vol. I, pp. 200-01.)
g. The last sentence of Section 7.1 of the TSA states: “Provider may give U.R.N. thirty
(30) days prior written notice before the end of the term that Provider intends to
renegotiate the reimbursement terms outlined in Section 3.” (Pls.’ Ex. No. 1.)
h. Finally, Section 7.2 of the TSA states, in part, that the agreement can be terminated “by
either U.R.N. or [Plaintiffs] upon ninety (90) days prior written notice.” (Id.)
12. Plaintiffs never invoked their rights under Section 7.1 of the TSA and did not seek to
renegotiate the reimbursement terms outlined in Section 3 during the first seven (7) years of
the parties’ relationship. (Trial Tr. Vol. I, p. 175.)
13. Thus, between 2005 and 2013, the Case Rates in the TSA remained unchanged.
14. Plaintiffs also never terminated the TSA for any reason under Section 7.2, including
dissatisfaction with reimbursement rates received under the TSA. (Trial Tr. Vol. I, p. 127.)
15. The terms of the TSA reflect that the parties intended and agreed to use a Case Effective Date,
not Date of Service, pricing scheme. The specific terms of the TSA that reflect Case Effective
Date pricing are the definition of Case Effective Date found in Section 1.1 and the last sentence
of Section 2.2. (Trial Tr. Vol. I, pp. 166, 169, 202, 220, 239-40; Trial Tr. Vol. II, pp. 43-44).

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16. Despite amending the TSA three times, as discussed in more detail below, the parties never
amended or modified Sections 2.2 or 1.1. (Pls.’ Ex. Nos. 2-4; Trial Tr. Vol. I, p. 78.)
17. A Date of Service contract typically uses specific language declaring that the contract is a Date
of Service contract and, therefore, would contain different terms than those in the TSA.
a. For example, a Date of Service contract would include a multi-year term with different
rates for different time periods. (Trial Tr. Vol. I, pp. 202-03; Trial Tr. Vol. II, p. 44.)
b. Also, in a Date of Service contract, the last sentence of Section 2.2 of the TSA would
have been deleted and modified to state that the provider would be paid based on the
rates in effect on the date of service (i.e., the transplant surgery). (Id.) Indeed,
including the last sentence of Section 2.2 would not make any sense if the parties had
intended Date of Service pricing because there would be no need to include a statement
that rates continued to apply beyond the date of service. (Id.)
18. Susan Davis, an Assistant Vice President for Contracting and Payor Relations for Plaintiffs,
could not identify a single managed care contract to which Plaintiffs are a party, including the
TSA, that specifies the applicable rate is the rate in effect when the services are performed.
(Trial Tr. Vol. I, pp. 82-83.) Davis testified that she “infers” date of service pricing for some
contracts “without regards to the language of the contracts.” (Id.)
19. Paul Harnett, another Assistant Vice President for Contracting and Payor Relations for
Plaintiffs, also testified Plaintiffs have consistently “inferred” the existence of Date of Service
pricing terms despite the absence of such terms in any agreement to which Plaintiffs are a
party. (Trial Tr. Vol. I, p 124).

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20. The TSA contains no language or terms stating Plaintiffs will be paid based on the rates in
place at the time a transplant is performed. (Pls.’ Ex. 1.)
C. Negotiation and Drafting of the TSA
21. The drafting and negotiation of the terms of the TSA show the parties intended and agreed to
use Case Effective Date pricing, not Date of Service.
22. To begin negotiating and drafting the TSA, Defendant forwarded an initial draft of the
agreement to Plaintiff, which was a template containing standard terms that were the typical
starting point for negotiations with new potential providers. (Def.’s Ex. No. 26; Tr. Vol. I, pp.
195-98.) Although Defendant “created” the document, all terms in the template were “subject
to negotiation” and any term could be modified as appropriate. (Id.)
23. The TSA was an extensively negotiated contract between two sophisticated commercial
entities with equal bargaining power. (Tr. Vol. I, pp. 172.)
24. Davis testified that Plaintiffs have “a large market share” and leverage in negotiating contracts.
(Tr. Vol. I, p. 82.)
25. The TSA contains a number of terms that were negotiated. (Trial Tr. Vol 1, p. 172).
26. The initial draft of the TSA contained Case Effective Date pricing terms, including the
definition of Case Effective Date in Section 1.1 and the last sentence of Section 2.2. (Def.’s
Ex. No. 26; Trial Tr. Vol. I, p. 198-199.) Andrew Theodotou, who negotiated the TSA for
Defendant, testified that these terms, which reflect Case Effective Date pricing, are included
in the template to meet “the market needs with [Defendant’s] payors [who] were requesting of
[Defendant] pricing certainty as they move forward with a lengthy process of treatment.” (Id.)

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Insurers and other payors require predictable Transplant Health Services costs to properly
underwrite and establish reserves. (Trial Tr. Vol. I, pp. 164-65, 182.)
27. After Defendant forwarded an initial draft of the agreement to Plaintiff, the parties exchanged
several redlined drafts of the agreement, (Def.’s Ex. Nos. 5, 20, 22, 26; Trial Tr. Vol. I, pp.
195-196), whereby both parties proposed changes to the terms of the TSA that were
incorporated into the final agreement. (Def.’s Ex. No. 22; Trial Tr. Vol. I, pp. 204-06.)
28. The only witnesses with personal knowledge of the negotiation, drafting and intent of the
original TSA who testified at trial were Andrew Theodotou, a U.R.N./Optum Contract
Manager, and O’Brien. (Trial Tr. Vol. I, pp. 62-63, 114-115, 194-195; Vol. II, pp. 44-53.) No
employee of Plaintiffs has personal knowledge of any discussions that occurred in connection
with the negotiation, drafting and intent of the TSA, including any discussion regarding the
pricing terms in the TSA, when rates became effective under the TSA and/or whether the rates
could be subject to change after a patient’s initial consult. (Trial Tr. Vol. I, pp. 115, 117.)
29. Plaintiffs proposed, and Defendant agreed to, adding certain provisions that show the parties’
understood the TSA was based on Case Effective Date pricing.
a. For example, O’Brien testified about a conversation he had with Russell Guerin,
Plaintiffs’ sole representative in the negotiations and a signatory to the TSA, in which
Guerin expressed concern about the impact of pricing terms in the TSA, where rates
were fixed at the outset of a patient’s treatment and patients could remain on the waiting
list for years. (Trial Tr. Vol. II, pp. 50-53.)
b. Guerin was deceased at the time of this trial and was, therefore, unable to provide
responsive testimony; however, based on O’Brien’s testimony and the Court’s
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observation of his testimony, the Court finds O’Brien’s testimony regarding their
conversation credible and affords it significant weight in determining the intent of the
parties.
c. In response to Guerin’s concerns, Defendant agreed to add a stop loss provision
proposed by Plaintiff in Section 3.2 of the executed TSA, which provides: “In no one
case will Provider be paid less that forty-seven percent (47%) of Billed Charges
(“Stoploss”).” (Pls.’ Ex. No. 1, § 3.2; Trial Tr. Vol. II, pp. 49-50.)
d. Plaintiffs also proposed, and Defendant agreed to, adding the portion of Section 7.1
allowing Plaintiffs to “give [Defendant] thirty (30) days prior written notice before the
end of the term that [Plaintiffs] intend[ ] to renegotiate the reimbursement terms
outlined in Section 3.” (Pls.’ Ex. No. 1, § 7.1; Trial Tr. Vol. I, pp. 219-20.)
30. Plaintiffs, however, did not propose changes to the definition of Case Effective Date or the last
sentence of Section 2.2 and did not propose changing the terms of the TSA to include Date of
Service pricing terms. (Trial Tr. Vol. I, pp. 206-07.)
31. During the negotiation and drafting of the TSA, Plaintiffs further proposed adding certain
terms that were inconsistent with Case Effective Date pricing, and Defendant rejected those
proposals, which were not included in the final TSA.
a. For example, Plaintiffs proposed changing Section 3.2 to add a stop loss provision that
provided, in part:
In the event that Billed Charges for the Transplant Period exceed
the threshold dollar amounts below for a Member’s Transplant
procedure, the Case Rate Payment in Section 3.2 shall no longer
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apply. Provider shall receive sixty-eight (68%) of Billed
Charges for all Transplant Health Services rendered during the
Transplant Period.
(Def.’s Ex. No. 22, § 3.2.1, p. 4) (emphasis added).)
i. Under this term proposed by Plaintiffs, when Billed Charges exceeded the
proposed thresholds, the Case Rate would no longer apply and the payment
terms would convert to Date of Service pricing. (Trial Tr. Vol. I, pp. 209-10.)
ii. Defendant rejected the proposed change because it was inconsistent with the
predictable pricing desired by payors. (Id.)
b. Plaintiffs also proposed the addition of Section 3.11, which provided:
If Payor does not remit payment within sixty (60) days of receipt
of claim from U.R.N., payment will be 100% of Billed Charges.
(Def.’s Ex. No. 22, p. 7.)
i. Defendant rejected the proposal because it was inconsistent with Case Effective
Date pricing and would have converted the TSA to a Date of Service contract
in the event of an untimely payment. (Trial Tr., Vol I, p. 212-13.)
ii. Instead, in the final version of the TSA, in the event of an untimely payment,
Plaintiffs could receive interest on the unpaid balance based on the Case Rate.
(Id.)
c. Plaintiffs also proposed including an escalator clause that described the pricing under
the TSA as “fixed pricing” but did not specify that increased rates applied regardless
of the Case Effective Date. (Def.’s Ex. No. 5, § 3.17, p. 7; Trial Tr. Vol. I, pp. 215-16.)
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Defendant rejected the proposed change because it did not address the Case Effective
Date pricing terms in the contract and was unnecessary in light of the one-year term of
the agreement. (Pls.’ Ex. No. 1; Trial Tr. Vol. I, pp. 216-17.)
32. O’Brien testified that the payment terms ultimately included in the TSA were very favorable
to Plaintiffs compared to the hundreds of Defendant’s other transplant services provider
contracts. (Trial Tr. Vol. II, pp. 54-56).
33. In weighing the evidence, the Court gives the drafts and evidence of negotiations preceding
the executed contract significant weight.
34. Plaintiffs presented evidence and testimony regarding the headings of certain sections in the
TSA in an attempt to show how the placement of terms supports a Date of Service contract.
a. For example, the term “Case Effective Date” makes no mention of the Case Rate or
Section 3. This term is also listed only as a “General Definition,” not with the Payment
Terminology, the “[t]erms associated with the Case Rate and other payment
provisions.” (Pls.’ Ex. No. 1.)
b. O’Brien, who executed the TSA on behalf of Defendant, testified that one of the
purposes of Section 2.2 was to make a clear distinction between patients receiving
transplant health services under the TSA and patients who are being treated under their
regular health insurance plan. (Trial Tr. Vol. II, p. 86-89). He testified that in making
this distinction it is important to establish when a Member’s coverage under the TSA
begins and ends and that Section 2.2 defines the duration of the TSA. (Id.)

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c. Section 2.2, which addresses “Member Referral and Status,” appears in Section 2 of
the Contract, which addresses “Provision of Health Services,” not issues of payment.
(Pls.’ Ex. No. 1.)
d. Section 3 addresses “Payment for Health Services.” In addition to the Case Rates, this
section includes other subsections addressing underpayments, overpayments, payment
schedule, and a number of other terms regarding the rates under the TSA.
35. Although the TSA does not contain a provision stating that the parties did not intend headings
to be used in construing their contract, the Court has weighed the evidence and testimony and
does not find the parties’ use of certain headings or placement of terms is determinative as to
the parties’ intent regarding the pricing scheme of the contract.
36. Plaintiffs understood that the TSA was based on Case Effective Date pricing and that, in
exchange for certain concessions by Defendant, including the stop loss provision and
Plaintiffs’ ability to renegotiate the reimbursement terms, Plaintiffs agreed that the rates under
the TSA would become effective at the Case Effective Date and continue to apply throughout
all three Periods of Care.
D. Amendments to the TSA
37. Section 8.8 of the TSA provides that the agreement may be amended with the written, mutual
consent of the parties. (Pls.’ Ex. No. 1.)
38. On July 25, 2012, the parties executed a First Amendment to the TSA (“First Amendment”).
(Pls.’ Ex. No. 2.)
a. The First Amendment provided it was “effective July 26th, 2012.”

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b. Relevant here, the First Amendment stated that “The Case Rate Payment tables [in
Section 3.2 of the TSA] will be deleted in its entirety,” and it included increased Case
Rates that Defendant owed to Plaintiffs for transplant services provided by Plaintiffs.
c. It also stated: “All other provisions of the [TSA] remain in full force and effect
following the effective date of this Amendment.”
39. The parties subsequently executed a Second Amendment to the TSA (“Second Amendment”),
in which the parties agreed to extend the termination date of the First Amendment. It also
stated: “All other provisions of the [TSA] remain in full force and effect following the
effective date of this Amendment.” (Pls.’ Ex. No. 3.)
40. On February 1, 2013, following several rounds of negotiation, the parties entered into a Third
Amendment to the TSA (“Third Amendment”). (Pls.’ Ex. No. 4.)
41. The main purpose of this Third Amendment was to negotiate new rates for the transplant
organs. (Trial Tr. Vol. I, p. 32.)
42. Paul Bittner, a Senior Contract Manager for Defendant, testified he drafted the Third
Amendment. (Trial Tr. Vol. II, p. 4.) Brennan McNally, Vice President of Network Solutions
for Defendant, testified that while the Third Amendment included several provisions such as
Section 2.2 that were “standard” in Defendant’s contracts, the provisions increasing the
payment rates were particular to Plaintiffs and that amendment. (Tr. Vol. I, pp. 190-91.)
43. Relevant here, the Third Amendment provides:
a. “The Case Rate Payment tables [in Section 3.2 of the TSA] will be deleted in its
entirety and replaced with the following . . . .” This provision is followed by a table

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listing the new, increased Case Rates, which are tens of thousands of dollars higher
than the Case Rates in the TSA. (Pls.’ Ex. No. 4.)
b. “All fixed rates in Section 3.2 and Section 3.3 [the Case Rates], shall be increased
annually by five (5)%, starting on, January 1, 2014 and every year annually thereafter
that this Amendment remains in effect.” (Id.)
c. The Third Amendment was “effective February 1, 2013.” (Id.)
44. The Third Amendment resulted from extensive negotiations. (Trial Tr. Vol. I, pp. 73-74.) The
terms of the Third Amendment were collaboratively drafted and were not unilaterally imposed
by Defendant. (Id.) It was not a “take it or leave it” contract for Plaintiffs. (Id.)
45. The executed Third Amendment included terms, such as the escalator clause, that benefited
Plaintiffs. (Pls.’ Ex. No. 4; Trial Tr. Vol. I, p. 72.)
46. In negotiating and drafting the Amendments, Plaintiffs proposed terms that were inconsistent
with a Case Effective Date pricing scheme, and Defendant again rejected those terms. (Pls.’
Ex. Nos. 2, 4.)
a. For example, in connection with the negotiations preceding the Second Amendment,
Plaintiffs again proposed to include an escalator clause but did not include a provision
that specified the price increases would apply regardless of the patients’ Case Effective
Date. (Def.’s Ex. No. 11; Trial Tr. Vol. I, pp. 245-47.)
b. Plaintiffs also requested language drafted by Defendant that qualified the escalator
clause and stated: “For cases already in the Transplant Period, the rate increase above
will not take effect until the Transplant Period ends.” (Def.’s Ex. No. 11; Trial Tr. Vol.
I, pp. 245-47; Trial Tr. Vol. II, p. 15.)
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i. Defendant admitted that it drafted that language but included it in the draft by
mistake. (Trial. Tr. Vol. II, p. 21-22.)
ii. Defendant communicated that it deleted the language by emailing a redlined
draft to Plaintiff.

Email was the method of sharing information during

negotiations. (Id.)
iii. Davis, who negotiated the Third Amendment, testified she knew, based on the
redlined draft of the Agreement, that Defendant had drafted and later deleted
this language. (Trial. Tr. Vol. II, pp. 97-95.) She stated, however, that
Defendant’s deletion of the provision did not communicate anything to her
regarding Defendant’s understanding of the pricing scheme of the contract.
iv. Defendant deleted the proposed modification, which was not included in the
Amendments, because it “was in conflict with the case effective date price
methodology.” (Trial Tr. Vol. I, pp. 245-48.)
47. Missing from the negotiations and drafting of the Third Agreement, or the final Third
Agreement, is evidence that the parties intended to change from Case Effective Date pricing
to Date of Service Pricing.
a. The parties did not discuss or agree to modify Section 2.2 of the TSA, and the Third
Amendment does not modify either the definition of Case Effective Date in Section 1.1
or Section 2.2 of the TSA. (Pls.’ Ex. No. 4; Trial Tr. Vol. I, pp. 78-80, 176, 247.)
b. The parties did not discuss making rate changes retroactive and did not agree the rates
established by the Third Amendment would be applicable to Members with a Case

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Effective Date prior to February 1, 2013, the effective date of the Third Amendment.
(Trial Tr. Vol. I, p. 247.)
c. The Third Amendment expressly states that “all other provisions of the [TSA] remain
in full force and effect following the effective date of the [Third] Amendment.” (Pls.’
Ex. No. 4.) Therefore, the definition of Case Effective Date and the last sentence of
Section 2.2 in the TSA remained in “full force and effect” after February 1, 2013. (Pls.’
Ex. No. 4, p. 5; Trial Tr. Vol. I, pp. 79, 177.)
d. The Third Amendment does not state that Plaintiffs would be paid for Transplant
Health Services based on the rates in place on the date of the transplant surgery or that
the reimbursement terms of the TSA were changed from Case Effective Date pricing
to Date of Service pricing. (Trial Tr. Vol. I, pp. 248-49.)
e. The Third Amendment did not change the time in which rates under the TSA become
effective for any individual patient. (Trial Tr. Vol. I, p. 79-80.)
48. As a result, the Third Amendment changed rates applicable to patients with a Case Effective
Date after February 1, 2013, the effective date of the Third Amendment; it did not impact rates
applicable to Members with a Case Effective Date prior to February 1, 2013. (Trial Tr. Vol. I,
pp. 185-86, 190, 248.) Therefore, after February 1, 2013, the payment terms contained in the
original TSA continued to apply to Members with a Case Effective Date prior to February 1,
2013.
49. The phrase “delete in its entirety and replace” did not delete the rates applicable to Members
with a Case Effective Date prior to the Third Amendment. (Pls’ Ex. No, 4; Trial Tr., Vol I,

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pp. 250-51.)

The phrase was limited to the provisions specifically addressed in the

Amendment. (Id.)
50. If the Third Amendment deleted and replaced rates applicable to patients with Case Effective
Dates prior to the effective date of the Third Amendment, the last sentence of Section 2.2
would have been modified to specify that those patients with a Case Effective Date prior to
February 1, 2013, would be subject to the new amended rates. (Trial Tr. Vol. I, p. 234.)
Additionally, an extensive administrative process would have been put in place and various
administrative changes would have been required. (Trial Tr. Vol. I, pp. 251-52.) Further,
Defendant’s clients would have to have been notified of such a change as they had booked
rates based on the original agreement. (Id.) None of those administrative changes were made
or discussed with Plaintiffs. (Id.)
51. Davis and Harnett testified for Plaintiffs that, in their experience working with hospitals and
insurers, no other insurer had taken the position that Defendant was advancing here, and every
other entity with which Plaintiffs contracted for organ transplant services used a date of service
model. (Trial Tr. Vol. I pp. 56; 130-31).
52. Glenn Getner, an employee for Plaintiffs who worked with hundreds of other health care
providers as a consultant prior to joining Plaintiffs, similarly testified that he had never seen
an insurer adopt Defendant’s position that rates were fixed on the date of a patient’s initial
consult. (Trial Tr. Vol. I, p. 143.)
53. By contrast, McNally testified for Defendant that Case Effective Date pricing is common for
transplant networks, which value predictability. (Trial Tr. Vol. I, p. 180-82.)

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54. In the absence of expert testimony pursuant to Rule 702 of the Federal Rules of Evidence, and
given that both sides focused more on standards within their own businesses than the industry
at large, and that the testimony of the witnesses of each party largely offsets and contradicts
the testimony of the other, the Court finds that the evidence presented regarding industry
standard does not materially advance the position of either party. Testimony concerning
contracts with other insurers or providers is marginally relevant given the TSA was a
negotiated contract between two equal, sophisticated parties.
E. Applicable Law
55. Section 8.7 of the TSA states that it shall be governed by “applicable state law” without
providing that the law of a specific state will apply. (Pls. Ex. No. 1.) The parties stipulated in
their pretrial order that Minnesota law governs based on the applicable choice of law rules.
II.

CONCLUSIONS OF LAW

For the reasons explained below, Plaintiffs have failed to prove by a preponderance of the
evidence that the TSA, or any of its Amendments, required Defendant to pay Plaintiffs for
Transplant Health Services based on the rates in effect at the time of the transplant surgery.
Plaintiffs, therefore, have failed to prove Defendant materially breached the TSA or Third
Amendment, as required for Count I of their Amended Complaint and are not entitled to the
declaratory relief sought in Count II.
To succeed on a breach of contract claim under Minnesota law, Plaintiffs must establish
“four elements: (1) formation of a contract; (2) performance by plaintiff of any conditions
precedent; (3) a material breach of the contract by defendant; and (4) damages.” Nelson v. Am.
Family Mut. Ins. Co., No. 13-CV-607 (SRN/SER), 2017 WL 2773522, at *8 (D. Minn. June 26,
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2017) (quoting Gen. Mills Operations, LLC v. Five Star Custom Foods, Ltd., 703 F.3d 1104, 1107
(8th Cir. 2013)). Plaintiffs have the burden of proving every essential element of their claim of by
a preponderance of the evidence. Wick v. Widdell, 149 N.W.2d 20, 22 (Minn. 1967). Under
Minnesota law, “the interpretation of an unambiguous contract presents a question of law.” Gorog
v. Best Buy Co., 760 F.3d 787, 793 (8th Cir. 2014). Here, however, the Court concluded that the
TSA and Amendments are ambiguous regarding which rates apply to particular transplant patients.
(Doc. No. 70, p. 22.)
“Where a written agreement is ambiguous or incomplete, [parol] evidence . . . tending to
establish the intent of the parties is admissible.” Ed Herman & Sons v. Russell, 535 N.W.2d 803,
807 (Minn. 1995) (citation omitted); Weyerhaeuser Co. v. Hvidsten, 129 N.W.2d 772 (Minn.
1964). Relevant extrinsic evidence includes evidence of the negotiations and circumstances
surrounding the contract’s formation, including prior drafts of the agreement exchanged during the
course of negotiations. Donnay v. Boulware, 144 N.W.2d 711, 712 (Minn. 1966); Kane v. Oak
Grove Co., 221 Minn. 500, 504, 22 N.W.2d 588, 590 (1946) (“Although preliminary negotiations
cannot be allowed to contradict or vary the plain terms of a written contract purporting to integrate
the entire transaction, nevertheless, where the terms or words used are ambiguous or reasonably
susceptible of more than one interpretation, such negotiations may be considered in order to
determine the meaning and intent of the parties.”).
In addition, the Court must “construe a contract as a whole and attempt to harmonize all of
its clauses.” Storms, Inc. v. Mathy Constr. Co., 883 N.W.2d 772, 776 (Minn. 2016). “Each and
every provision of a contract must be given effect if that can consistently and reasonably be done.”
Oster v. Medtronic, Inc., 428 N.W.2d 116, 119 (Minn. Ct. App. 1988) (citation omitted). “[A]ny
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interpretation which would render a provision meaningless should be avoided . . . .” Independent
Sch. Dist. No. 877 v. Loberg Plumbing & Heating Co., 123 N.W.2d 793, 799-800 (Minn. 1963).
Under Minnesota law, a contract may be construed against the drafter “if [the finder of
fact] is unable to determine the intent of the parties based on all of the evidence” and “only as a
last resort, after all other evidence fails to demonstrate the intent of the parties.” Swift & Co. v.
Elias Farms, Inc., 539 F.3d 849, 854 (8th Cir. 2008); see also Shaw Hofstra & Assocs. v. Ladco
Dev., Inc., 673 F.3d 819, 828-829 (8th Cir. 2012); Staffing Specifix, Inc. v. TempWorks Mgmt.
Servs., Inc., 896 N.W.2d 115, 139 (Minn. 2017). Further, the maxim does not apply where the
parties collaborated in drafting the agreement. Indianhead Truck Line, Inc. v. Hvidsten Transp.,
Inc., 128 N.W.2d 334, 342 (Minn. 1964).
Here, the TSA and amendments resulted from arm’s length negotiations between two
sophisticated parties with equal bargaining power and experience negotiating complex provider
services agreements.

Although Defendant provided the initial draft to begin negotiations,

Plaintiffs proposed several changes to the drafts of the TSA and the Amendments, including
material financial terms such as the stop loss provision and the right to renegotiate payment terms.
These terms, which Defendant accepted, were beneficial to Plaintiffs and incorporated into the
TSA and the Third Amendment. Furthermore, there is substantial evidence from which the Court
can discern the parties’ intent, including testimony and previous drafts of the TSA and the
Amendments. For these reasons, the Court does not construe the terms of the TSA against either
Plaintiffs or Defendant.
Evidence concerning the negotiations and drafting of the original TSA confirms that the
parties intended to use Case Effective Date, rather than Date of Service, pricing. Guerin’s concern
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about the fact that rates were set at the outset of patients’ treatment and that patients could remain
on the wait list for years demonstrates Plaintiffs’ understanding that the TSA contemplated Case
Effective Date pricing terms. In response to Guerin’s concerns, Defendant agreed to include a
stop loss provision that protected Plaintiffs in extraordinary cases and granted Plaintiffs the right
to increase their Billed Charges annually. Likewise, in exchanging multiple drafts of the TSA,
Defendants consistently rejected Plaintiffs proposed terms that were inconsistent with Case
Effective Date pricing and consistent with Date of Service pricing. The unrebutted evidence
offered at trial is that the parties never discussed: (1) eliminating the last sentence of Section 2.2,
which provides: “The payment terms begin at the time of the Member’s Case Effective Date, and
not before, and will continue to apply as long as the Member is on Provider’s active status to
receive, or has already received a Transplant” (emphasis added); (2) altering or deleting the
definition of Case Effective Date; or (3) changing the pricing methodology from Case Effective
Date to Date of Service pricing.
Furthermore, the evidence of the negotiations and drafting of the Amendments to the TSA
confirms that the parties intended and agreed that rates would be effective at the time of the
Member’s initial consult rather than on the date of the transplant surgery. In negotiating the
Amendments, Plaintiffs once again proposed terms that were inconsistent with Case Effective Date
pricing, and Defendant again rejected these proposals. The parties never discussed or agreed to
modify Section 2.2 or the definition of Case Effective Date, and the Third Amendment does not
purport to modify either.
Although the Third Amendment “deleted and replaced” Case Rates in the TSA with
increased Case Rates, it did not modify Section 2.2 and, therefore, did not alter when rates attach
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to an individual patient’s case or the fundamental nature of the pricing methodology governing the
parties’ relationship. Moreover, the Third Amendment did not expressly purport to alter rates
retroactively, nor did it expressly or by implication change payment terms applicable to cases
pending prior to the effective date of the Third Amendment. Any contrary construction would
read Section 2.2 out of the agreement. In addition, any construction that would result in Date of
Service pricing would operate to read into the contract a term or provision that was not agreed
upon or intended. As a result, the core contractual provisions that made the original TSA a Case
Effective Date contract remained in “full force and effect” after February 1, 2013, the effective
date of the Third Amendment. Accordingly, the new Case Rates in the Third Amendment are
applicable only to patients with a Case Effective Date after the February 1, 2013.
Plaintiffs’ contention that the parties’ intended that the Third Amendment would delete the
rates in the TSA and replace them with rates in the Third Amendment for all patients regardless of
their Case Effective Date is inconsistent with the terms of the Third Amendment and the TSA
when read as a whole, and the intent of the parties, as demonstrated through the negotiating and
drafting process, does not support that interpretation. Accepting Plaintiffs’ contention would
require the Court to ignore the last sentence of Section 2.2—one of the core contractual provisions
that delineated the TSA as a Case Effective Date contract. Ultimately, the Third Amendment does
not state that Plaintiffs would be paid for Transplant Health Services based on the rates in place
on the date of the transplant surgery, and Plaintiff has not presented sufficient evidence to show
the parties intended to change the contract from Case Effective Date to Date of Service pricing.
The actual language of the TSA and Third Amendment, as well as the drafting history and
negotiations preceding execution of the contracts, confirms that the parties intended to use Case
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Effective Date, not Date of Service, pricing. This Court must enforce the terms of the contract as
written and in a manner consistent with the evidence of the parties’ objective manifestation of their
intent. Therefore, the Court concludes Plaintiffs failed to establish that Defendant breached or is
in breach of the TSA or the Third Amendment, and the Court finds in favor of Defendant on
Plaintiffs’ breach of contract claim and request for a declaratory judgment.
III. CONCLUSION
For the foregoing reasons, Plaintiffs have failed to satisfy their burden of proving that
Defendant breached a contract.

Plaintiffs, therefore, are not entitled to declaratory relief.

Accordingly, the Clerk is directed to enter judgment in favor of Defendant in accordance with the
above opinion and subsequently close the case.
IT IS SO ORDERED.

Signed: August 29, 2017

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