United States District Court, N.D. Illinois, Eastern Division
August 6, 2004.
ALEXIAN BROTHERS HEALTH PROVIDERS ASSOCIATION, INC., et al., Plaintiffs-Counterdefendants,
HUMANA HEALTH PLAN, INC., et al., Defendants-Counterplaintiffs.
The opinion of the court was delivered by: MILTON SHADUR, Senior District Judge
MEMORANDUM OPINION AND ORDER
This multiplaintiff multidefendant action involves a
multiplicity of claims on behalf of one or more of the related
plaintiffs, as well as counterclaims by one or more of the
related defendants. Two of the defendants (Humana Health Plan,
Inc. and Humana Insurance Company (collectively "Humana")) and
one of the plaintiffs (St. Alexius Medical Center ("St.
Alexius")) have filed motions for summary judgment under
Fed.R.Civ.P. ("Rule") 56 as to Count VII of the First Amended
Complaint ("FAC"), and the parties' cross-submissions have now
made the dispute ripe for disposition.
St. Alexius alleges in Count VII that Humana was contractually
required to pay certain annual rate increases to St. Alexius or
its predecessor but that Humana has failed to do so since March
1, 1996. Humana admits that it did not adjust its payment rates
after that date, but it says that it was not contractually
required to do so because the relevant contract provision expired on March 1, 1996 and was never revived by a
later agreement between the parties. Alternatively, Humana argues
that the principles of waiver or equitable estoppel should bar
St. Alexius from seeking those payment increases.
For the reasons stated in this memorandum opinion and order,
this Court grants Humana's motion and denies St. Alexius' motion.
Accordingly FAC Count VII is dismissed.
Humana originally signed a Hospital Services Agreement (the
"Agreement") with Suburban Medical Center at Hoffman Estates,
Inc. ("Hoffman"), specifying the conditions under which Hoffman
would provide medical services to persons covered by Humana's
insurance policies. Agreement § 4.1 (entitled "Term and
The term of this Agreement ("Term") shall be for the
three year period commencing on March 1, 1993.
Attachment B to the Agreement, which dealt with billing and
payments, contained the following provisions for annual rate
increases for non-medicare and medicare rates (emphasis added):
B7.1 Effective on January 1, 1994, and on each succeeding
January 1 thereafter during the Term, the Non-Medicare fixed
fees, per diem, case rates, and HUMANA's reimbursement rate to
HOSPITAL for outpatient services described in Schedules 1 and 2
shall increase by the lesser of (i) the increase in the Hospital
and Related Services Component of the Consumer Price Index as reported by U.S. Bureau of Labor Statistics for
the most recent available preceding 12 months, or (ii) the
annualized percentage increase in premium prices for the most
recent available preceding 12 month period, minus one percent,
payable under HUMANA by groups in HOSPITAL's Market. If the
Consumer Price Index is discontinued, a new applicable index will
be defined to replace it.
* * *
B8 During the Term, the Medicare Risk Payment rates specified
in Schedule 3 shall be adjusted by the same percentage adjustment
in the Health Care Financing Administration's ("HCFA") Part A
Adjusted Average Per Capita Cost Member weighted average
payment rate for HUMANA's Medicare Risk Members in HOSPITAL's
market. Such adjustments shall be effective on the effective date
HUMANA receives the adjusted payments from HCFA, with the next
such adjustment date anticipated to be January 1, 1994.*fn2
Humana increased its payment rates consistently with those
obligations under Sections B7 and B8 in 1994, 1995 and 1996 but
not in 1997.*fn3 On February 17, 1997 Humana and Hoffman
signed a document entitled "Amendment to Agreement" ("1997
Amendment") that changed a few specific provisions of the
original Agreement (none of those changes is relevant to this
decision). It also stated:
All other terms and conditions of the Agreement
except as hereby amended shall remain in full force
Hoffman thereafter continued to provide medical
services for Humana's members, and Humana continued to pay Hoffman
but at 1996 rates. At no time did Hoffman ever
indicate to Humana that it believed it was entitled
to any yearly rate adjustment after 1996. Their
relationship continued through February 1, 1999, at
which time Hoffman assigned all of its rights and
obligations under the Agreement to St. Alexius.
In February 2000 some "reimbursement issues" arose between
Humana and a number of medical providers, including St. Alexius
(which did not advance a claimed right to yearly rate increases
as one of those issues). In the course of discussion of those
issues, St. Alexius' parent company, Alexian Brothers of
Illinois, tendered a termination notice to Humana. After some
further negotiation the parties appeared to resolve their
disputes, and Alexian Brothers of Illinois agreed to withdraw its
termination notice if Humana agreed to the conditions summarized
in a May 15, 2000 letter (FAC ¶ 23). On June 6, 2000 Humana
accepted the provisions outlined in the letter. For its part, St.
Alexius agreed to "[c]ontinue participation in both Medicare and
Commercial plans at their existing contract rates through
December 31, 2001," with the reimbursement rate to increase by
"no less than 6%" effective January 1, 2002 (FAC Ex. A).
Despite the parties' attempt to work through the reimbursement
issues, the problems did not go away. So on November 30, 2001 St.
Alexius and affiliated entities filed suit in Illinois state court. St. Alexius alleged, among other things,
that Humana had failed to provide the yearly rate increases as
assertedly required under the original Agreement. On January 11,
2002 Humana removed the case to this federal court on diversity
Summary Judgment Standards
Familiar Rule 56 principles apply to cross-motions for summary
judgment just as they would to a one-party summary judgment
motion (Int'l Bhd. Of Elec. Workers, Local 176 v. Balmoral
Racing Club, Inc., 293 F.3d 402, 404 (7th Cir. 2002)) that is,
summary judgment is proper in favor of either party if the record
demonstrates that there is no genuine issue of material fact and
that party would be entitled to a judgment as a matter of law
(id.). Taking each motion in turn, this Court must "consider
the evidentiary record in the light most favorable to the
non-moving party . . . and draw all reasonable inferences in his
favor" (Lesch v. Crown Cork & Seal Co., 282 F.3d 467, 471 (7th
Cir. 2002)). If a trier of fact could return a verdict for the
non-moving party, the summary judgment motion should be denied
(Pugh v. City of Attica, 259 F.3d 619, 625 (7th Cir. 2001)).
Ambiguity Vel Non
Both parties agree that Illinois law controls, and under
Illinois law (as probably everywhere else) an unambiguous
contract provision must be enforced as written (Bank of Am.
Nat'l Trust & Sav. Ass'n v. Schulson, 305 Ill.App.3d 941, 945,
714 N.E.2d 20, 24 (1st Dist. 1999)). Ambiguity exists when key
contract language is susceptible to more than one reasonable
interpretation when the contract is read as a whole (Guerrant v.
Roth, 334 Ill.App.3d 259, 264, 777 N.E.2d 499, 503 (1st Dist.
2002)). As the parties will recall from the last movie
(277 F.Supp.2d 880, 887 (N.D. Ill. 2003)), the threshold determination
of "[w]hether a contract is ambiguous is a question of law for
decision by the court." But once the court determines that a
provision is ambiguous, the construction of a particular
provision becomes a question of fact, and summary judgment must
be denied if extrinsic evidence exists such that a reasonable
factfinder could construe the contract in the nonmovant's favor
(Hernandez v. Schittek, 305 Ill.App.3d 925, 933,
713 N.E.2d 203, 209-10 (5th Dist. 1999); Taracorp, Inc. v. NL Indus.,
Inc., 73 F.3d 738, 743 (7th Cir. 1996)).
Humana argues that under a straightforward reading of the
Agreement the annual rate increase provisions expired on March 1,
1996, so it had no obligation to increase the rates after that
date. Both Sections B7 and B8 applied only "during the Term,"
which the Agreement expressly defined as "the three year period
commencing on March 1, 1993." Humana recognizes that the 1997
Amendment set out the conditions of an ongoing contractual
relationship and incorporated all the provisions of the original Agreement that were not amended, but Humana contends that
Sections B7 and B8 effectively expired on March 1, 1996 and that
the 1997 Amendment did not revive them because that Amendment did
not modify the definition of "Term."*fn4
For its part, St. Alexius contends that because the 1997
Amendment unambiguously extended the Agreement's duration and
said that the provisions of the Agreement that were not amended
"shall remain in full force and effect," the annual rate increase
provisions must have been extended along with the rest of the
original Agreement's provisions. In essence St. Alexius maintains
that Sections B7 and B8 did not have a duration separate from the
Agreement as a whole. St. Alexius also notes that on February 1,
2002 (after this lawsuit had been brought) the parties deleted
all of Attachment B and replaced it with new compensation rates,
and it suggests that there is no rational explanation for that
modification if the provisions contained in Attachment B had
expired as Humana asserts.
But St. Alexius never addresses the fact that Sections B7 and
B8 were expressly made operative "during the Term," which the
Agreement just as expressly defined as the three year period commencing on March 1, 1993" a term*fn5 of art. As Humana
rightly observes, parties to a contract may serve as their own
lexicographers and may assign a particular meaning to any word
they choose (Haslund v. Simon Prop. Group, Inc.,
284 F.Supp.2d 1102, 1115 (N.D. Ill. 2003); Am. Nat'l Fire Ins. Co. v. Nat'l
Union Fire Ins. Co., 343 Ill.App.3d 93, 103, 796 N.E.2d 1133,
1141 (1st Dist. 2003)). So if the meaning of "Term" was
controllingly dictated by Agreement § 4.1 (and if that meaning
was not then modified by the 1997 Amendment), this Court would of
course have to enforce the parties' contract in terms of that
Even though St. Alexius fails to state its position in just
this way, the 1997 Amendment's language that all terms and
conditions that are not amended "shall remain in full force and
effect" might actually be read to convey that once the Agreement
§ 4.1 definition of "Term" ceased to be operative, with the
parties' relationship being replaced by an arrangement effective
for an unspecified and indeterminate "term," the capitalization
contained in "during the Term" in Sections B7 and B8 would also
have been effectively supplanted by a lower case "during the
term." Even though such a reading would be awkward (after all,
the phase "during the term" normally has no ascertainable meaning
by itself unless "term" is given some desired temporal context), that possible reading would mean that Sections B7 and B8 would
not have expired on March 1, 1996. In those terms St. Alexius
could prevail on Count VII.
Sometimes the meaning of a word can become clear by examining
how it is used throughout an integrated document. As La Throp v.
Bell Fed. Sav. & Loan Ass'n, 68 Ill.2d 375, 381, 370 N.E.2d 188,
191 (1977) teaches:
The intent of the parties to a contract must be
determined with reference to the contract as a whole,
not merely by reference to particular words or
isolated phrases, but by viewing each part in light
of the others.
Unfortunately, in this instance turning to other parts of the
Agreement does not compel an answer either way. For example, the
Agreement uses "Term" in its capitalized form at two other
places, one that arguably supports St. Alexius' position that
"Term" simply refers to the "term of the Agreement" generally
(Agreement § 9.1) and one that arguably supports Humana's
position that "Term" applies specifically to the three year
period that began March 1, 1993 (Attachment B Schedule 4). But on
the other hand, it is surely significant that an uncapitalized
phrase "term of this Agreement" is scattered throughout the
document, providing strong support for Humana's contention that
on the few occasions when the parties used "Term" they did so
advisedly to denote the defined and limited duration specified in
Agreement § 4.1. In sum, although the scales of ambiguity vel non tip
substantially in favor of nonambiguity, so that Humana could well
prevail at this threshold stage, there is at least some arguable
force to St. Alexius' contrary contention that Sections B7 and B8
are sufficiently ambiguous to allow two possible readings: one
that they expired on March 1, 1996, and the other that the 1997
Amendment extended the duration of Humana's obligation to provide
annual rate increases. Because that contention is not wholly
frivolous and because the next analytical step appropriate to
take where ambiguity does exist supports Humana beyond dispute,
this opinion proceeds to that next step.
Under Illinois law, "[w]here the express terms of the
instrument are ambiguous, the parties' intentions can be
determined from their declarations and conduct and from the
surrounding circumstances" (Chandler v. Maxwell Manor Nursing
Home, Inc., 281 Ill.App.3d 309, 322, 666 N.E.2d 740, 749 (1st
Dist. 1996)). And all of the extrinsic evidence tendered to this
Court in that regard strongly supports Humana's position.
It is undisputed that Humana increased its payment rates in
1994, 1995 and 1996, but that it stopped providing annual rate
increases after the original Agreement expired on March 1, 1996.
Neither St. Alexius nor its predecessor Hoffman ever once
asserted that the 1997 Amendment somehow extended the "Term" or
more specifically, extended the obligation to increase the payment rates under Sections B7 and B8 beyond March 1, 1996.
And that is not simply a matter of Humana and St. Alexius'
having failed to raise the issue as a matter independent of an
ongoing and unmodified relationship between the parties: It will
be recalled that the parties met at the bargaining table a number
of times after that point to consider modifications of other
aspects of their dealings, during which meetings St. Alexius
could have raised the issue if it felt that Humana was not living
up to its obligation but St. Alexius did not do so. In fact,
not only did St. Alexius remain silent about Humana's making
ongoing payments at the level of the 1996 rates, but in 2000 St.
Alexius expressly reaffirmed that the rates would not change.
It agreed to "[c]ontinue participation in both Medicare and
Commercial plans at their existing contract rates through
December 31, 2001." St. Alexius makes no effort to reconcile its
position during all those years with its current attempt to force
Humana to increase the rates retroactively.
Any reasonable factfinder could draw only one conclusion from
the undisputed evidence as to the parties' conduct: that Humana's
reading of the Agreement, including Sections B7 and B8, is the
correct one. This Court therefore concludes as a matter of law
that the Sections B7 and B8 provisions expired on March 1, 1996
and that Humana had no contractual obligation to increase its
annual payment rates after that date. Laches
There is still another string to Humana's analytical bow, and
it too leads to a bull's-eye by Humana striking the same target.
That same evidence of the parties' conduct, as discussed at the
end of the preceding section, also entitles Humana to summary
judgment on its affirmative defense of equitable estoppel, more
accurately labeled laches (a form of equitable estoppel see
Teamsters & Employers Welfare Trust v. Gorman Bros. Ready Mix,
283 F.3d 877, 882 (7th Cir. 2002)).
Bill v. Bd. of Educ., No. 1-03-2079, 2004 WL 1440664, at *4
(1st Dist. June 28) (internal quotation marks and citation
omitted) defines laches as:
the neglect or omission to assert a right which,
taken in conjunction with a lapse of time and
circumstances causing prejudice to the opposite
party, will operate as a bar to a suit.
That defense requires proof (1) that the opponent failed to
assert a right with reasonable diligence despite having actual or
constructive knowledge of the right and (2) that the party
asserting the defense suffered prejudice from the delay
(Peddinghaus v. Peddinghaus, 314 Ill.App.3d 900
733 N.E.2d 797
, 802 (1st Dist. 2000); La Salle Nat'l Bank v. Dubin
Residential Cmties. Corp., 337 Ill.App.3d 345
785 N.E.2d 997
, 1002 (1st Dist. 2003)).*fn6
St. Alexius argues that no evidence has been presented that
demonstrates it had actual knowledge of its claim against Humana.
According to St. Alexius, it did not discover its potential claim
until 2001, when it was investigating other reimbursement issues,
and it then brought suit promptly.
But Illinois law clearly holds that Humana does not have to
show actual knowledge constructive notice is sufficient for
laches to apply (LaSalle, 337 Ill.App.3d at 352,
785 N.E.2d at 1002). As LaSalle, id. at 353, 785 N.E.2d at 1003, quoting
Pyle v. Ferrell, 12 Ill.2d 547, 554, 147 N.E.2d 341, 345
(1958), explains, the test for constructive notice "is not what
the [party] knows, but what he might have known by the use of the
means of information within his reach with the vigilance the law
requires of him." And as People ex rel. Hartigan v. Progressive
Land Developers, Inc., 216 Ill.App.3d 73, 81, 576 N.E.2d 214,
219 (1st Dist. 1991) (citation omitted) holds:
To establish unreasonable delay, the plaintiff must
show that the defendant failed to seek prompt redress
after acquiring knowledge of the fact supporting his
claim. However, it is not necessary that the
plaintiff have actual knowledge of the specific facts
upon which his claim is based. If the circumstances
are such that a reasonable person would make inquiry
concerning these facts, the plaintiff will be charged
with laches if he fails to ascertain the truth
through readily available channels. In that respect, the fact that Humana stopped paying annual
rate increases in 1996 and did not increase the rates in any year
thereafter for such a substantial period surely provided more
than ample notice of the claim for which St. Alexius now
belatedly seeks to recover. St. Alexius does not assert that
Humana did anything to conceal the fact it was making its
payments at the same rate rather than at any increased level, and
such absence of payments at any higher rate would have been
readily apparent to anyone reviewing the books. If St. Alexius
did not indeed spot a potential claim on that score until 2001 as
it contends, it has no one to blame but itself.
St. Alexius also urges that Humana has failed to provide any
evidence that it suffered any prejudice from its delay in
bringing the claim. To the contrary, Humana has provided the
affidavit of John Maxwell ("Maxwell"), who was responsible for
negotiating hospital service agreements on behalf of Humana.
Maxwell attests there that Humana would have negotiated different
terms with St. Alexius had the latter asserted a right to annual
rate increases beyond March 1, 1996 (Maxwell Aff. ¶ 14).
St. Alexius argues that Maxwell's sworn statement is just
speculation as to how Humana would have reacted had St. Alexius
made its position known earlier. But that argument simply does
not hold water, for after all it is St. Alexius' own fault that
Humana must address the matter in speculative terms, rather than being able to speak in concrete terms about a real-world
situation one that St. Alexius' inaction prevented from
occurring. For that reason, any showing by Humana that it
suffered prejudice must by definition be speculative, but that
does not at all discredit the uncontroverted showing it has made.
Humana has come forward with entirely plausible evidence that
it would have taken a different negotiating stance if St. Alexius
had asserted a claimed entitlement to continued rate increases
after 1996. St. Alexius has proffered nothing in response. To the
contrary, as stated at the end of the preceding section, St.
Alexius' parent company expressly represented in its May 15, 2000
letter to Humana that St. Alexius agreed to "[c]ontinue
participation in both Medicare and Commercial plans at their
existing contract rates through December 31, 2001," without even
a whisper to suggest that "existing contract rates" were anything
other than the rates at which Humana was making and St. Alexius
was accepting payments.
It is clear, then, that St. Alexius has failed to create a
genuine issue of material fact on either of the two prongs of the
laches inquiry. And that being so, Humana would be entitled to
summary judgment based on its laches defense even if this Court
had accepted St. Alexius' unpersuasive position that the annual
rate increase provisions of the Agreement somehow extended beyond
March 1, 1996. Conclusion
Each of the two paths explored in this opinion leads to the
same destination: Whether viewed in terms of the meaning of the
parties' contractual relationship or from the perspective that
even a legitimate basis for St. Alexius' position (which this
Court has found wanting) would be overridden by St. Alexius'
unreasonable delay in bringing its claim (and the consequent
prejudice to Humana), Humana prevails on the claim currently at
issue. To speak in the familiar Rule 56 locution, there is no
genuine issue of material fact as to FAC Count II, and Humana is
entitled to a judgment as a matter of law.
Accordingly Humana's summary judgment motion is granted, St.
Alexius motion is denied, and FAC Count VII is
dismissed.*fn7 Whatever claims remain viable in this action
will be addressed at the next (and previously scheduled) status hearing date of
September 9, 2004.