Hoffman v. National Medical Enterprises, Inc.

442 N.W.2d 123, 1989 Iowa Sup. LEXIS 167, 1989 WL 63579
CourtSupreme Court of Iowa
DecidedJune 14, 1989
Docket88-77
StatusPublished
Cited by38 cases

This text of 442 N.W.2d 123 (Hoffman v. National Medical Enterprises, Inc.) is published on Counsel Stack Legal Research, covering Supreme Court of Iowa primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Hoffman v. National Medical Enterprises, Inc., 442 N.W.2d 123, 1989 Iowa Sup. LEXIS 167, 1989 WL 63579 (iowa 1989).

Opinion

SNELL, Justice.

This appeal arises from jury verdicts in favor of the plaintiffs, Robert Hoffman and Chalmer Russell, on all of their claims against the defendants — Pro-Lung Associates, National Medical Enterprises (NME), Medical Oxygen Service (MOS), and Larry Stockman. We reverse and remand.

In 1980, plaintiffs, who were respiratory therapists, founded Pro-Lung, which provided oxygen equipment and services to patients in their homes and in nursing homes. Over the next two years they expanded the business somewhat, but this expansion was constrained by limited resources. In 1982, in order to facilitate greater expansion, plaintiffs sought to sell Pro-Lung to a larger business, while retaining their management duties.

In late 1982, plaintiffs contacted NME and began negotiations with an officer of MOS, a subsidiary of National Medical Oxygen Company (NMOC), which in turn was owned by NME. The parties ultimately agreed on a total purchase price of $550,-000, approximately 75% of which ($412,000) was to be paid at closing. MOS was the purchaser of Pro-Lung under the stock purchase agreement executed at closing on March 31, 1983. Plaintiffs also executed employment agreements with Pro-Lung and executed, with MOS, covenants not to compete with Pro-Lung. The parties dispute whether the remaining $138,000 of the purchase price was to be paid as deferred compensation or as consideration for the covenants not to compete.

In May 1983, an attorney for NME performed a routine Medicare compliance audit at Pro-Lung. Based on her findings, NME requested several changes in Pro-Lung’s Medicare reporting procedures. Plaintiffs promptly made these changes.

*125 Problems in the relationship of the parties persisted, however. On June 23, 1983, plaintiffs’ superior wrote a letter to his supervisor at MOS to suggest either that plaintiffs’ responsibilities be shifted or that their employment with Pro-Lung be terminated. Plaintiffs were not informed of these concerns.

In September 1983, plaintiffs went to an NME seminar in California, where they met with Stockman, who was the president of NMOC and a director of Pro-Lung. Stockman told them they could buy back Pro-Lung or resign. When they declined to do either, he immediately suspended them, brought in a replacement at Pro-Lung, and had the locks changed at Pro-Lung. Plaintiffs met with Stockman again on October 14. When they again declined to resign, Stockman and an NME attorney threatened to have them prosecuted for Medicare fraud, based on the reporting discrepancies found in May. Plaintiffs nonetheless remained adamant in their refusal to resign, so their employment with Pro-Lung was terminated the next day.

This litigation commenced shortly thereafter, with the following claims ultimately submitted to the jury: (1) breach of employment contract against Pro-Lung; (2) fraudulent misrepresentation against NME and MOS; (3) interference with contractual relations against NME and MOS; and (4) extortion against NME, MOS, and Stock-man. Additionally, punitive damage claims were submitted against NME and MOS on all of the tort claims, and against Stockman on the extortion claim.

The jury awarded plaintiffs identical verdicts on all four claims, as well as punitive damages. The jury awarded each of them $293,700 on the breach of contract count; $15,000 on the interference with contract and fraud counts, which were combined; $15,000 on the extortion count; and punitive damages in the amount of $243,000 against NME, $100,000 against MOS, and $24,300 against Stockman.

I. Fraud Claim. The first issues raised on appeal by NME and MOS are that (1) there was insufficient evidence to support submission of the fraud claim, and (2) the trial court improperly submitted the fraud instruction on reliance. We are persuaded only the latter assignment of error is meritorious.

The jury was instructed that:

Bob Hoffman and Steve Russell were justified in relying on the defendants NME and/or MOS representation of opinion if one or more of the following situations exist:
1. The defendant NME or MOS has or claims to have special knowledge of the matter that the plaintiff does not have; or
2. The defendant has a relation of trust and confidence with the plaintiff; or
3. The defendant has successfully tried to gain the plaintiff’s confidence; or
4. The defendant knows of some special reason to expect that the plaintiff will rely on the opinion.

NME and MOS contend this instruction was erroneous due to a lack of evidence to support a finding of a confidential relationship, the second and third situations listed.

We have stated that a confidential relationship

exists when one person has gained the confidence of another and purports to act or advise with the other’s interest in mind.... The gist of the doctrine of confidential relationship is the presence of a dominant influence under which the act is presumed to have been done. Purpose of the doctrine is to defeat and correct betrayals of trust and abuses of confidence.

Oehler v. Hoffman, 253 Iowa 631, 635, 113 N.W.2d 254, 256 (1962).

In Kurth v. Van Horn, 380 N.W.2d 693, 695-96 (Iowa 1986), we noted that “fiduciary relationship” has been similarly defined as:

[a] very broad term embracing both technical fiduciary relations and those informal relations which exist wherever one man trusts in or relies upon another. One founded on trust or confidence reposed by one person in the integrity and *126 fidelity of another. A “fiduciary relation” arises whenever confidence is reposed on one side, and domination and influence result on the other; the relation can be legal, social, domestic, or merely personal. Such relationship exists when there is a reposing of faith, confidence and trust, and the placing of reliance by one upon the judgment and advice of the other.
Some of the indicia of a fiduciary relationship include the acting of one person for another; the having and the exercising of influence over one person by another; the reposing of confidence by one person in another; the dominance of one person by another; the inequality of the parties; and the dependence of one person upon another.

Some relationships that necessarily give rise to a fiduciary relationship include those between an attorney and client, guardian and ward, principal and agent, executor and heir, and trustee and cestui que trust. Id. at 696.

In this case, the parties were businessmen negotiating the sale of Pro-Lung. Plaintiffs were represented by counsel at all times pertinent to this endeavor. There is nothing in the record to suggest inequality of the parties or dominance of plaintiffs by NME and MOS during the negotiations. A finding of confidential relationship is not supported by the evidence.

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Cite This Page — Counsel Stack

Bluebook (online)
442 N.W.2d 123, 1989 Iowa Sup. LEXIS 167, 1989 WL 63579, Counsel Stack Legal Research, https://law.counselstack.com/opinion/hoffman-v-national-medical-enterprises-inc-iowa-1989.