Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 99 C 2248--Ronald A. Guzman, Judge.8
Before Flaum, Chief Judge, and Bauer and Harlington Wood, Jr., Circuit Judges.
The opinion of the court was delivered by: Flaum, Chief Judge.
Magistrate Judge Ashman granted The University of Chicago Hospitals' ("UCH") motion for summary judgment, holding that Quantum Management Group, Ltd. ("Quantum") was not entitled to additional payments under the contract between the parties because Quantum failed to present a genuine issue of material fact on an essential element of its case. The court held that at least two of the three conditions precedent were not met. The court also found that UCH was entitled to damages from Quantum for breaching the contract. Quantum appeals. We affirm the decision of the district court.
In 1995, in an attempt to reap the savings that the private sector had achieved through managed health care programs and to improve beneficiaries' access to care, the State of Illinois announced an intended program that would require Medicaid recipients to be enrolled in managed health care plans. Because the state's announced program had the potential of threatening its patient base, UCH decided to create its own managed care plan for its Medicaid patients.
A. Facts Relating to Quantum's Claim
In order to create this type of plan, Illinois law required UCH to enter into a contract with the state ("the State Contract") that authorized the proposed plan to provide assistance to Medicaid beneficiaries, and provided that the state would pay the plan a monthly fee for each enrollee.
In July 1996, UCH entered into a contract ("the Agreement") with Quantum, a consultancy with experience in establishing and operating managed care programs. Frederick Fey, as trustee of the Frederick Fey Family Trust, was the president, sole limited partner, and controlling shareholder of Quantum Management Group, Inc., Quantum's corporate general partner. The Agreement provided that Quantum would design, establish, and operate a managed health care plan ("the Plan"), eventually known as Family First, in which UCH's Medicaid patients could enroll. Upon execution of the Agreement, Quantum hired George Morrow to be CEO, as well as a number of consultants and other employees--150, at the peak--for the plan. The Plan became operational in January 1997; the first members enrolled in March of that year. The Plan's highest enrollment level in any given month was 17,618. Morrow resigned as CEO in July 1997.
The Agreement included a two-and-a-half page section ("Section IV") entitled "Payments to Quantum." The language of Section IV, and the facts surrounding the provision's conditions, give rise to Quantum's allegations. The provision states first that UCH will pay Quantum monthly consulting fees and expenses. (Section IV (A)). UCH did so--to the tune of 2 million dollars. Section IV also provides for additional payments to Quantum if certain conditions are met.
In addition to the other payments described herein . . . UCH[ ] shall pay Quantum compensation for its services in an amount based on the number of enrollees in the Plan on the first day of the previous month (hereinafter referred to as the "Monthly Fee" payable with respect to such previous month) provided, however, that no Monthly Fee shall be payable with respect to any month in which the Plan experienced an operating loss. For such purpose an operating loss shall mean an excess of total expenses over total revenues (in each case not including investment income and expenses) computed on an accrual basis as specified by generally accepted accounting principles.
Notwithstanding anything to the contrary above, a Monthly Fee with respect to a given month shall not be due if the total enrollment in the Plan on the first day of the previous month was less than 120% of the break-even level of enrollment. The break-even level of enrollment for such purpose shall mean the number of enrollees in the Plan on the first day of the first month in which the Plan did not experience an operating loss, as defined above.
Section IV(B). Under the terms of this Section, Quantum is not entitled to a Monthly Fee for any given month unless at least two profitable months exist. First, the Plan must have achieved a break-even level of enrollees (or, in other words, achieved the number of enrollees necessary to create an operating gain) during any month before the one for which a fee may be due. Second, the month for which a fee is due must have surpassed that break-even level by at least twenty percent. UCH never paid Quantum Monthly Fees.
The only financial data produced at trial showed that the Plan suffered an operating loss each month it was in oper ation. Quantum contends that the plan broke even in either March or May of 1998, as evidenced by Fey's testimony that two officers of UCH told him that the plan was "cash positive" and making money. Quantum points to no evidence suggesting that a month existed where the Plan's enrollment level reached 120% of the supposed break-even point. Quantum admits that no hard ...