Opinion
Nos. 53742-3-I, 53935-3-I Consolidated Cases)
Filed: March 14, 2005 UNPUBLISHED OPINION
Appeal from Superior Court of King County. Docket No. 03-2-13217-9. Judgment or order under review. Date filed: 12/31/2003. Judge signing: Hon. Linda Lau.
Counsel for Appellant(s), Caroline Harris Crowne, Tonkon Torp LLP, 1600 Pioneer Tower, 888 SW 5th Ave, Portland, OR 97204.
Steven Marc Wilker, Attorney at Law, 888 SW 5th Ave Ste 1600, Portland, OR 97204-2030.
Counsel for Respondent(s), Alexander Alcides Baehr, Holland Knight LLP, 520 Pike St Ste 2600, Seattle, WA 98101.
J. Gordon Cooney, Morgan, Lewis Bockius, LLp, 1701 Market St, Philadelphia, PA 19103.
James Merle Thomas, Holland and Knight, LLP, 2600 Pike Twr, 520 Pike St, Seattle, WA 98101-1385.
The legal conflict between Will Vision Laser Centers and Alcon Laboratories began with a dispute over two laser surgery systems leased by Will Vision from Alcon. Will Vision failed to make contractual payments to Alcon for the laser surgery systems, and Alcon sued. The two parties settled the lawsuit, with Will Vision agreeing to pay Alcon a sum by monthly payments. The settlement agreement provided that if Will Vision defaulted on its payments to Alcon, Alcon would serve a summons and complaint and then file a stipulated judgment three days later. Will Vision defaulted, and the trial court entered the stipulated judgment. Will Vision argues that a reference in the summons to a 20-day period for responding to the complaint supersedes the settlement agreement. Will Vision also moved under CR 60(b)(4) to vacate the judgment on the ground that the settlement agreement was fraudulently induced by Alcon's presettlement statements about its data on adverse patient outcomes. The trial court denied the motion. Will Vision appeals the entry of the stipulated judgment and the denial of its CR 60(b)(4) motion.
We affirm the entry of the stipulated judgment, as the explicit language of the settlement agreement and the attachment of a copy of the settlement agreement to the complaint provided Will Vision with sufficient notice that the stipulated judgment would be entered pursuant to that agreement. We also affirm the trial court's denial of Will Vision's CR 60(b)(4) motion. Communications from Will Vision's principal to Alcon demonstrate that Will Vision did not rely on Alcon's presettlement statements in agreeing to the settlement, and the adversarial relationship between Will Vision and Alcon makes any reliance by Will Vision on Alcon's statements unreasonable as a matter of law.
FACTS
Brian R. Will, M.D. ('Dr. Will') is the principal of Will Vision Laser Centers, P.C., a Washington corporation. In 1999, Will Vision leased a laser surgery system from a predecessor of Alcon Laboratories. It leased a second laser surgery system from Alcon's predecessor a year later. Under the leasing agreements, Will Vision was supposed to pay a per procedure fee for a minimum number of annual procedures.
According to Dr. Will, a high number of laser surgery procedures resulted in adverse patient outcomes, and many patients had to undergo repeated surgeries ('enhancements'). Dr. Will believed that a defect in engineering techniques for the systems caused the problems. He sent Robert Stevens, vice president for research and development at Alcon, a 39-page letter outlining his theory that field service engineering techniques were flawed. In the meantime, Will Vision failed to make payments to Alcon for the use of the systems.
In October 2002, Jerry G. Bradford, legal counsel for Alcon, informed Dr. Will that Alcon had `diligently sought out and analyzed all available data that would show' support for Dr. Will's theory. Bradford also told Dr. Will that Alcon could not find any correlation between factors identified by Dr. Will and the results of laser surgery procedures with the laser surgery system. Bradford warned Dr. Will that Alcon considered Will Vision to be in default on the leases and gave Will Vision 20 days to cure the default.
Later that month, Dr. Will sent an e-mail to Nestle, Alcon's parent company, to warn that `significant product liability issues' exist with respect to the laser surgery systems. He stated that Alcon personnel `fail to appreciate the gravity of the situation and the potential for mutual financial destruction if this matter is not resolved quickly and comprehensively.' He further stated, `[O]ur attempts to bring this matter to the attention of appropriate Alcon management personnel . . . have apparently been ignored and suppressed or, alternatively, are beyond their capacity to understand or manage effectively.' Dr. Will further stated that `one could envision' class-action lawsuits against Alcon by surgery patients, users of the laser surgery systems, and Alcon shareholders, and that he and others had retained a law firm to represent their interests.
Alcon and Dr. Will took part in a telephone conference with other surgeons to discuss Dr. Will's theory. Other surgeons stated general concerns about the laser surgery system but did not disclose their precise retreatment rates. Dr. Will claims that an Alcon medical monitor said that he personally had not observed high retreatment rates and that Alcon otherwise was silent on the subject.
In November 2002, Dr. Will sent an e-mail to Robert Stevens of Alcon. In the e-mail, Dr. Will stated:
Alcon has a significant gross error in the accounting for enhancements due to our use of two laser systems that do not communicate with each other. We need to get the correct numbers on the table so everyone can have a proper understanding of the situation. If not, you are flying blind and making decisions based on numbers that you cannot defend.
Moreover, each of us needs a reasonable amount of time to review the actual number of patients affected and the cost to manage them based on standardized accounting practices. At the very least, you will have an appreciation what a jury of housewives will be considering should you elect to litigate this.
Alcon filed suit against Will Vision in federal court for breach of contract, breach of an implied covenant of good faith and fair dealing, conversion, unjust enrichment, and replevin. Alcon, Dr. Will, and Will Vision agreed to settle the lawsuit.
Under the terms of the settlement agreement, Will Vision was obliged to pay Alcon $1,148,805.80, plus interest, through a series of monthly payments. If Will Vision failed to make a payment, Alcon would give notice to Will Vision and Will Vision would have ten days to cure the default. If Will Vision failed to cure the default in ten days, Will Vision would accept a summons and complaint requesting entry of the stipulated judgment. The stipulated judgment could be filed and entered with the King County Superior Court three days later. The agreement included a copy of the stipulated judgment.
Will Vision failed to make its payment for October 2003. Dr. Will claims that in the late summer or early fall of 2003, he discovered that Alcon's data revealed excessively high retreatment rates. He also claims that Alcon deceived him when it said that its data did not indicate any nationwide trends regarding high adverse outcome rates.
Alcon sent written notice to Will Vision of its default. Will Vision did not respond. Alcon faxed a summons and complaint to Will Vision. The summons stated, `In order to defend against this lawsuit, you must respond to the Complaint by stating your defense in writing, and serve a copy upon the undersigned attorneys for the plaintiff within twenty (20) days after the service of this Summons, excluding the day of service[.]' The complaint described the settlement agreement and stated, `Pursuant to the terms of the Settlement Agreement, Plaintiff Alcon Laboratories, Inc. and Defendant have agreed to the entry of the stipulated judgment signed by the parties at the time of the execution of the Settlement Agreement.' A copy of the settlement agreement with the stipulated judgment was attached to the complaint.
Alcon next filed the stipulated judgment, with a complaint for enforcement of the settlement agreement, in King County Superior Court. The court entered the stipulated judgment before Will Vision responded to the complaint in the 20-day period specified in the summons.
Will Vision moved for an order for Alcon to show cause why judgment should not be vacated and for an order vacating the judgment under CR 60(b)(4). In this motion, Will Vision claimed that the settlement agreement was fraudulently induced and therefore should not be enforced. The trial court granted the motion to show cause. Alcon filed a brief, and oral arguments were heard from both sides. The court concluded that Will Vision bore the burden of establishing fraud by clear and convincing evidence and that Will Vision failed to do so because it could not show that it reasonably relied on Alcon's statements about its data. The court denied the motion to vacate the judgment. Will Vision appeals the stipulated judgment and the denial of its motion to vacate.
ANALYSIS
We begin by analyzing Will Vision's appeal of the stipulated judgment. Will Vision contends that the summons allowed it 20 days to respond to Alcon's complaint and that it had no notice that the judgment could be entered before the end of the 20-day period. Will Vision also argues that the entry of the stipulated judgment prevented it from fully litigating its fraudulent inducement defense to the settlement agreement, including the stipulated judgment.
The principles of the law of contracts apply to review of settlement agreements. In re Estate of Harford, 86 Wn. App. 259, 262, 936 P.2d 48 (1997). If the language is clear and unambiguous, the court must enforce the contract as written; it may not modify the contract or create ambiguity where none exists. Lehrer v. State, Dep't of Soc. Health Servs., 101 Wn. App. 509, 515, 5 P.3d 722 (2000). The settlement agreement explicitly stated that the stipulated judgment could be entered three judicial days after service of the summons and complaint. The complaint referred to the settlement agreement and the stipulated judgment. Alcon attached a copy of the settlement agreement, including the stipulated judgment, to the complaint. The explicit text of the complaint and the settlement agreement therefore provided sufficient notice. As for Will Vision's litigation of a fraudulent inducement defense, it had an adequate opportunity when the court granted its motion to show cause and when the court considered Will Vision's CR 60(b)(4) motion.
We next address the merits of Will Vision's CR 60(b)(4) motion to vacate the stipulated judgment on the grounds that Alcon fraudulently induced the settlement agreement with its statements about its data on retreatment rates. Appellate courts have traditionally applied an abuse of discretion standard of review when examining a trial court's disposition of a CR 60(b) motion. State v. Santos, 104 Wn.2d 142, 145, 702 P.2d 1179 (1985); Vance v. Offices of Thurston County Comm'rs, 117 Wn. App. 660, 671, 71 P.3d 680 (2003), review denied, 151 Wn.2d 1013 (2004); Lindgren v. Lindgren, 58 Wn. App. 588, 595, 794 P.2d 526 (1990). A court abuses its discretion only when its exercise of discretion is manifestly unreasonable or based on untenable grounds. Vance, 117 Wn. App. at 671. Furthermore, this court has held that the party seeking relief from a judgment under CR 60(b)(4) has the burden of establishing fraud, misrepresentation, or other misconduct by clear and convincing evidence. Lindgren, 58 Wn. App. at 596; Peoples State Bank v. Hickey, 55 Wn. App. 367, 372, 777 P.2d 1056 (1989).
CR 60(b)(4) reads: `On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order, or proceeding for the following reasons:
`. . . .
`(4) Fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party[.]'
Will Vision argues that the trial court should have treated the CR 60(b)(4) motion as a summary judgment procedure and should have required Alcon to show that no genuine issue of material fact existed regarding enforcement of the settlement agreement. Furthermore, Will Vision urges this court to apply a de novo standard of review. For support, Will Vision relies on Brinkerhoff v. Campbell, 99 Wn. App. 692, 994 P.2d 911 (2000). In Brinkerhoff, Campbell moved the trial court to enforce a settlement agreement, while Brinkerhoff asked the court to declare the agreement void and unenforceable due to misrepresentation of a material fact. Brinkerhoff, 99 Wn. App. at 695. The trial court, relying solely on affidavits, found no misrepresentation and ordered enforcement of the agreement. Brinkerhoff, 99 Wn. App. at 695. This court ruled that the trial court therefore engaged in a summary judgment-like procedure, subject to a de novo standard of review. Brinkerhoff, 99 Wn. App. at 696-97. This court further ruled that in such a procedure, a trial court abuses its discretion if it enforces the agreement in the face of a genuine issue of material fact raised by a party. Brinkerhoff, 99 Wn. App. at 696-97. If a party does raise a genuine issue of material fact, the trial court must conduct an evidentiary hearing to resolve the disputed issue. Brinkerhoff, 99 Wn. App. at 696-97. Because the trial court enforced the agreement despite a genuine dispute existing regarding the issue of misrepresentation, this court reversed the enforcement order and remanded for an evidentiary hearing. Brinkerhoff, 99 Wn. App. at 693-94.
The weight of Washington case law indicates that a trial court enjoys discretion in its disposition of a CR 60(b) motion to vacate a judgment and that the moving party bears the burden of proving fraud by clear and convincing evidence. At the same time, if Will Vision had demonstrated a genuine issue regarding enforcement of the settlement agreement, an evidentiary hearing would have been appropriate. But the standard of review is not dispositive under the facts of this case. Even under the de novo standard of review sought by Will Vision, our determination would be the same. Will Vision did not raise a genuine issue of fact regarding reliance on Alcon's statements or the reasonableness of such reliance. It therefore cannot prevail on its fraud defense.
In addition to the reliance and reasonableness arguments, Alcon contends that integration and general release provisions in the settlement agreement bars Will Vision from claiming that Alcon's presettlement statements were misrepresentations. Alcon also argues that CR 60(b)(4) does not contemplate fraud in the inducement of a settlement agreement as grounds for vacating a stipulated judgment. Because the issue of reasonable reliance is dispositive, we do not address these additional arguments.
The elements of fraud include reliance on the truth of a representation. Stiley v. Block, 130 Wn.2d 486, 505, 925 P.2d 194 (1996). Will Vision contends that it agreed to settle the lawsuit in the belief that Alcon's data did not support Dr. Will's concerns about the laser surgery system, a belief that was based on Bradford's October 2002 communication. But Dr. Will's subsequent October 2002 e-mail to Nestle and November 2002 e-mail to Stevens unambiguously demonstrate Will Vision's disbelief of Bradford's statements. In the e-mail to Nestle, Dr. Will called into question the honesty and competence of Alcon's personnel. He further stated that `one could envision' class-action lawsuits against Alcon, and he specifically mentioned users of the laser surgery systems as a possible class. In the e-mail to Stevens, Dr. Will claimed that
Alcon has a significant gross error in the accounting for enhancements due to our use of two laser systems that do not communicate with each other. We need to get the correct numbers on the table so everyone can have a proper understanding of the situation. If not, you are flying blind and making decisions based on numbers that you cannot defend.
These statements indicate that Will Vision did not believe Bradford's assertion that Alcon's investigation could not find support for Dr. Will's theory in data from other users of the laser surgery system. No reasonable fact finder could decide that Dr. Will or Will Vision relied upon Bradford's statements when agreeing to settle Alcon's lawsuit.
Fraud also requires that any reliance placed upon a representation be reasonable. Stiley, 130 Wn.2d at 505. Reliance upon a fraudulent misrepresentation must be reasonable under the circumstances. Skagit State Bank v. Rasmussen, 109 Wn. 2d 377, 384, 745 P.2d 37 (1987). Reliance on misrepresentations is unreasonable as a matter of law between parties negotiating a settlement agreement in the context of a contentious adversarial relationship if the misrepresentations or omissions were at the heart of the issues being resolved in the adversarial relationship. Guarino v. Interactive Objects, Inc., 122 Wn. App. 95, 122, 86 P.3d 1175 (2004). In this matter, the relationship between Will Vision and Alcon was so antagonistic in the months before the settlement agreement that reliance on Alcon's statements about data from other clinics would have been unreasonable. Will Vision did not make its contractually obligated payments and had demanded that Alcon investigate a possible defect in the laser surgery system. Through Bradford's communication, Alcon informed Will Vision that it could not substantiate its claims and warned Will Vision that it was in default of its leasing agreements. Will Vision responded to Bradford's letter by warning Alcon's parent company of `significant product liability issues,' making disparaging remarks about Alcon's personnel, and threatening class action lawsuits. Will Vision later hinted at legal action when Dr. Will told Stevens that `each of us needs a reasonable amount of time' to consider the costs of treating patients affected by the alleged flaw in the laser surgery systems. `At the very least, you will have an appreciation what a jury of housewives will be considering should you elect to litigate this.' Alcon then sued Will Vision in federal court on theories of breach of contract, breach of an implied covenant of good faith and fair dealing, conversion, unjust enrichment, and replevin. A more adversarial relationship would be hard to imagine. Furthermore, Will Vision's theory of a flaw in the laser surgery system was at the heart of Alcon's lawsuit over the nonpayment of the contractually obligated fees. Any reliance during settlement talks on Alcon's statements about adverse patient outcomes would therefore be unreasonable as a matter of law.
Will Vision argues that the data on nationwide trends in patient outcomes were held solely by Alcon and that its reliance on Alcon's representations was therefore reasonable. In support of this argument, Will Vision cites Skagit State Bank. `[W]here representations were made as to facts peculiarly within the speaker's knowledge, no duty to investigate was found' and the listener was entitled to rely on the representations. Skagit State Bank, 109 Wn.2d at 384-85. We acknowledge that Alcon might have held sole control over alleged data about high retreatment rates by other users. But the open antagonism between Will Vision and Alcon over the alleged flaw in the laser surgery system makes reliance even on Alcon's presettlement statements about data under its sole control unreasonable as a matter of law.
In conclusion, we affirm the stipulated judgment, as Will Vision had adequate notice of the possibility that judgment would be entered before the expiration of 20 days after service of the summons and complaint. We affirm the denial of Will Vision's motion to vacate the judgment for fraud, as the elements of reliance and reasonableness are absent.
BECKER and COX, JJ., Concur.