Dr. Larry Cunningham, and Dental Leasing, Inc. v. Healthco, Inc.

824 F.2d 1448
CourtCourt of Appeals for the Fifth Circuit
DecidedSeptember 18, 1987
Docket86-1358
StatusPublished
Cited by54 cases

This text of 824 F.2d 1448 (Dr. Larry Cunningham, and Dental Leasing, Inc. v. Healthco, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fifth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Dr. Larry Cunningham, and Dental Leasing, Inc. v. Healthco, Inc., 824 F.2d 1448 (5th Cir. 1987).

Opinion

JERRE S. WILLIAMS, Circuit Judge:

In this diversity case, we review the award of $259,000 in damages and $90,000 in attorneys’ fees to Dental Leasing, Inc., a Texas corporation engaged in the management of dental clinics, for breaches of contract and misrepresentations made by Healthco, Inc., and H.P.S.C., Inc., both Massachusetts corporations involved in the sale, distribution, and lease financing of dental equipment. We reverse the award of $95,000 to Dental Leasing stemming from the breach of the computer agreement, and we affirm all other damages awards. We reverse the award of $90,000 in attorneys’ fees, and remand the case for a recalculation of those fees.

Facts

Appellee Dr. Larry Cunningham, a plaintiff in the case below, was a dentist engaged in private practice. In 1980, he entered into discussions with representatives of appellants Healthco, Inc., and H.P.S.C., Inc., concerning the concept of retail dentistry. Healthco is a distributor and supplier of dental equipment and merchandise to dentists throughout the United States. H.P.S.C. provides for the purchase and lease financing of dental equipment from Healthco. Prior to 1983, H.P.S.C. was Healthco Professional Services Corp., a wholly-owned subsidiary of Healthco. Presently, Healthco owns 80% of H.P.S.C.

Healthco’s agents in its discussion with Dr. Cunningham were Bill Morsinkhoff and Stan Foster. Morsinkhoff was Healthco’s regional equipment manager in its Dallas office, and was also an agent of H.P.S.C. Cunningham testified that Foster urged him to consider opening a series of “retail” high-volume dental centers located in shopping malls in the Dallas metropolitan area. Foster provided magazine, newspaper, and journal articles on the subject of retail dentistry, and warned Cunningham that “there were going to be a lot of big dental centers taking over [the] practice and basically shutting out the private practitioners.” Foster related that “Healthco was telling him that this thing was fixing to happen *1451 and they wanted to be a part of it in Texas.”

Pursuant to his discussions with Foster, Cunningham entered into two real estate leases in early 1981 for space in two suburban Dallas shopping centers. He submitted financial statements to Healthco, and received verbal assurances that it would lease to him the necessary equipment for the two new clinics and that H.P. S.C. would provide lease financing. In early February, 1981, Cunningham executed two equipment lease agreements for the two clinics, as well as a contract to purchase computer equipment for the clinics from a division of Healthco.

In mid-February, 1981, Foster and Cunningham met with Foster’s attorney, Cunningham’s attorney (Mr. Green), a dental associate of Cunningham’s who was interested in becoming involved in retail dentistry (Dr. Bonola), and Cunningham’s dental clinic manager (Donna Duncan). The purpose of the meeting was to discuss the possibility of opening a series of dental clinics in various locations in the Dallas area, and the meeting ended in an agreement that Cunningham and Bonola would open two more clinics, which would be combined in a four-clinic operation with the two offices Cunningham had began setting up.

The parties dispute the exact nature of the specific agreements entered into between Cunningham and Bonola on one side, and Healthco and H.P.S.C. on the other. The jury found that three oral contracts had been made between Cunningham and Healthco: an agreement that Healthco would sell Cunningham the business opportunity to own and manage four dental clinics; an agreement that Healthco would provide an integrated management system for the operation of the clinics; and an agreement that Healthco or H.P.S.C. would provide financing for all four clinics. The jury found that Healthco and/or H.P.S.C. breached those contracts, as well as a fourth contract by which Healthco promised to sell to Cunningham a computer system that would satisfy the business needs of the four-clinic operation.

Also discussed at the February meeting was the creation of a corporation, eventually named Dental Leasing, Inc., to own and manage various parts of the new business. The parties dispute whether the separate corporation was the idea of Cunningham and his lawyer or of Healthco’s agent Foster and his lawyer. There was testimony, however, that Foster had provided magazine articles discussing the fact that the majority of such retail dental centers were owned by management companies. Further, there was discussion of a Texas law regulating and partially limiting the right of a non-dentist to own equity in a dental clinic, and the use of a separate management company was discussed as one method of avoiding the ownership constraints otherwise created by the law. The jury determined that Dental Leasing was a third-party beneficiary of all four of the contracts breached by Healthco and/or H.P.S.C.

After the February meeting, Cunningham leased two more spaces in two additional shopping malls in the Dallas area. Bonola submitted financial statements to supplement those of Cunningham in order to obtain financing for the third and fourth clinics from H.P.S.C. Through Morsink-hoff, Healthco gave the dentists the same verbal assurances that credit was forthcoming that it had earlier given Cunningham in regard to the first two clinics. Three months later, however, in May, 1981, H.P.S.C. advised the dentists that it had decided not to finance clinics three and four. The jury found that Healthco and H.P.S.C. induced Cunningham to rely on their verbal assurances that they would provide financing for these clinics. After appellants denied Cunningham and Bonola further credit, Cunningham obtained a series of loans and credit packages from various banks and leasing agencies. Foster and Morsinkhoff helped Cunningham locate several of these alternative financing arrangements. Ultimately, enough credit was established to allow Dental Leasing to lease the Healthco dental equipment and computer system needed for the third and fourth clinics.

Dental Leasing had intended to open all four clinics by June 1, 1981. While the first clinic opened in the spring, the second *1452 clinic did not open until July 4, the third in the middle of August, and the fourth in September, 1981. From the time the clinics opened until the end of 1982, Healthco worked with Dental Leasing to fix the constant problems afflicting the computer system set up for the clinics. There was testimony that Healthco agents promised either to correct the problems with the computer system or rescind the computer lease contracts and create a new system. The jury found that the computer system never performed as promised, and that Healthco breached its contract to provide a functioning computer system that would satisfy the needs of the four-clinic operation.

On February 23, 1983, a year and a half after the fourth clinic opened, Dental Leasing filed a petition for reorganization under Chapter 11 of the Bankruptcy Code. On November 9, 1983, a plan of reorganization was approved by the United States Bankruptcy Court. The confirmed plan contained a reservation of rights by the creditors in the event that Dental Leasing recovered, by way of lawsuit, any damages from Healthco or H.P.S.C.

On July 2, 1984, Cunningham and Dental Leasing filed the instant lawsuit. The jury found that Healthco and H.P.S.C.

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Bluebook (online)
824 F.2d 1448, Counsel Stack Legal Research, https://law.counselstack.com/opinion/dr-larry-cunningham-and-dental-leasing-inc-v-healthco-inc-ca5-1987.