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Team Two, Inc v. City of Des Moines

April 24, 2013

TEAM TWO, INC., PLAINTIFF-APPELLEE,
v.
CITY OF DES MOINES, IOWA, DEFENDANT-APPELLANT.



Appeal from the Iowa District Court for Polk County, Brad McCall, Judge.

The opinion of the court was delivered by: Vogel, P.J.

The City appeals following a jury verdict finding it breached the terms of a contract with a billing contractor, Team Two, Inc. AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

Heard by Vogel, P.J., and Vaitheswaran and Bower, JJ.

The City of Des Moines appeals a jury verdict finding it breached the terms of its contract with Team Two, Inc., an ambulance billing contractor. At trial Team Two asserted the City breached the express terms of the written contract or, in the alternative, breached the implied covenant of good faith and fair dealing. The jury agreed and awarded Team Two past and future damages. On appeal, the City contends substantial evidence does not support a finding that it breached the implied covenant of good faith and fair dealing. It therefore claims the court erred in giving the jury a general marshaling instruction and a general verdict form, which did not require the jury to show whether it based its verdict on a breach of a specific term of the contract or on a breach of the implied covenant. The City also contends the jury should not have been permitted to award future damages because this case involved only a partial breach.

Because we find sufficient evidence supports the finding that the City breached the implied covenant of good faith and fair dealing by implementing a write-off policy of the accounts Team Two worked prior to the termination of the contract, we affirm the jury's verdict and conclude the court did not err in submitting a general verdict form and a jury instruction with alternate theories. However, we reverse the jury's award of future damages because the only remaining duty in the contract is the payment of money in installments to Team Two by the City, and there was no acceleration clause. We remand the case to the district court for the entry of an equitable order to ensure the City pays Team Two a percentage of future collections received by the City on pre-2010 accounts.

I. BACKGROUND FACTS AND PROCEEDINGS.

Team Two is an ambulance billing contractor, which since 1996 contracted with the City of Des Moines to provide billing services for the ambulance runs the City performed. Josh Engman took control of Team Two in 1998 and was the main employee performing the billing work for the City. In 2004 the City issued a Request for Proposal to solicit bids from businesses to conduct the ambulance billing services. Team Two submitted a bid, and the City accepted Team Two's proposal. A written contract was signed in January 2005, which was effective October 1, 2004. The contract was for three years with two one-year renewal options, which were executed.

Team Two was to bill for the City's ambulance service. After a patient was transported by ambulance, Team Two would download data from the fire department's computer system. It would then obtain the patient and insurance information, perform the medical coding work, and initiate the billing process. If the patient had insurance, the insurance company would be billed accordingly, and if the patient did not have insurance or did not provide insurance information, the patient would receive a bill directly. If the data Team Two received was incomplete, it would need to track down the required information from the City or from the hospitals. After the first billing went out, Team Two would follow up every thirty days until the bill was paid, including billing the patient for his/her portion after the insurance payment was received. If no payment was received within ninety days from the invoice date and there was no reasonable expectation of payment, the contract provided for Team Two to send the account information to the City's collection agency.

In January 2009, the City began participating in the Iowa Income Offset Program. Instead of sending past due accounts to the collection agency, a list of the delinquent accounts within set parameters was provided to the State. The State then ran a search of individuals who are owed money from the State, such as those receiving a tax refund, against the list of delinquent accounts provided by the City and other government creditors. If there was a match, the State notified the City, and the City sent a letter to the debtor, informing the debtor of the amount owed and the hold that had been placed on the money. Initially the letter gave the debtor Team Two's phone number to contact with any questions, however, that phone number was changed to the City after the contract with Team Two terminated. After fifteen days, if no response from the debtor was received, the City contacted the State, and the funds were released to the City. When the State remitted the money to the City for the payment of the debt, the State charged the City a $7.00 administrative fee, which was initially passed on to the individual owing the debt.*fn1 There was no charge for the Income Offset Program if no collection occurred.

During the term of the contract, Team Two invoiced the City monthly based on the collections received in the previous month. Regardless of when the initial billing was done, Team Two received a percentage of the amount collected in the month following the collection. Team Two billed the City for its percentage based on the rate in the contract that was effective when the ambulance run was made. The rate that was applied to ambulance runs under the 2004 contract was five percent, though it was higher in previous years. The percentage was also applied to funds received in the preceding month from the collection agency and later the income offset program. Team Two received the collection information for each month from the City, it posted the payments received to the various account records, and then it invoiced the City based on the collections received.

The contract between Team Two and the City terminated on September 30, 2009, but the parties agreed to an extension until December 31, 2009, in order to conduct another request for proposal process. Team Two was not awarded the new contract beginning January 1, 2010.

In the contract at issue in this case, there was a ninety-day dual collection transition period where Team Two continued working on the accounts for ambulance runs up to and including December 31, 2009. The new contractor started billing ambulance runs beginning January 1, 2010. Team Two continued to do the follow up and records receipts on the pre-2010 accounts until March 31, 2010, at which time it was the intent of the City to have the pre-2010 account data transferred to the new contractor. However, the transfer of data never occurred due to computer system complications.

There were initial discussions about entering into a new contract between the City and Team Two so that Team Two could continue working the pre-2010 accounts. During the negotiations, Team Two continued to work the accounts through April 2010. However, when negotiations broke down, the City directed Team Two to provide the pre-2010 account data to the City, and Team Two's access to the accounts was terminated. Team Two was paid for its work through the end of April 2010. Because the City did not provide Team Two access to the collection information to determine how much money had been received on the pre-2010 accounts and refused to pay Team Two a percentage of the collection received on those accounts, Team Two filed suit on June 25, 2010.

During the course of the lawsuit, Team Two became aware of a new "write-off policy" the City had implemented beginning January 2012. The write-off policy removed accounts from collections if the date of service was prior to 2005 and the account had no activity for three or more years or if the account had had no activity for five or more years. This write-off policy removed 12,355 accounts, totaling $5,321,096 in receivables, from collection activity. When Team Two became aware of this write-off policy, it amended its complaint to add a claim of a breach of the implied covenant of good faith and fair dealing. It also sought to enjoin the City from continuing its write-off policy and asked for a declaratory judgment to continue to receive a percentage on account collections in the future from pre-2010 accounts it had serviced.

The case proceeded to a jury trial. The City filed a motion in limine asking the court to prohibit Team Two from presenting an expert opinion on the future value of the collections on the pre-2010 accounts. The court initially overruled the motion. However, the court revisited the motion during the second day of trial stating that it would now sustain the motion and submit interrogatories to the jury in order to determine whether an order for specific performance should be entered regarding the future damages. The court revisited the issue again when the City asserted under the termination provision of the contract, it needed to show that the money that was coming in on the pre-2010 accounts after the termination of the contract was a result of the City's efforts and not Team Two's efforts prior to the termination of the contract. The court ruled the City needed to make an election; if the City offered evidence of the City's work to collect the accounts after the termination of the contract, the City opened the door for Team Two to offer evidence of future damages. When the City insisted that the subsequent work by the City was relevant to the termination provision of the contract, the court allowed Team Two to present evidence related to its entitlement to future damages including the projected future amount.

The jury was asked in the verdict form whether the City breached the contract, "either by failing to perform a specific term thereof or by breaching its duty of good faith." The jury responded, "Yes." The jury stated that the breached caused damage to Team Two in the amount of $34,300 for "past lost contract payments" and "$69,999 or as stated" for "future lost contract payments." The City filed a motion for judgment ...


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