Ventas, Inc. v. HEALTH CARE PROPERTY INVESTORS

Citations: 635 F. Supp. 2d 612; 2009 U.S. Dist. LEXIS 60909; 2009 WL 2145306Docket: 5:07-po-00238

Court: District Court, W.D. Kentucky; July 16, 2009; Federal District Court

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Ventus, Inc. filed a lawsuit against Health Care Property Investors, Inc. (HCP) in the U.S. District Court for the Western District of Kentucky, alleging tortious interference with a contract and prospective business relations. Both parties filed motions for summary judgment on several issues. HCP contends that Ventas's claims are barred by res judicata, that Ventas has insufficient proof of causation, that HCP did not engage in wrongful conduct, and that there was no breach of contract by Sunrise REIT. Conversely, Ventas seeks a ruling that HCP is collaterally estopped from contesting certain issues, that it had a valid business expectancy regarding a $15 bid, that HCP intentionally interfered with this expectancy, and that HCP's defenses should be denied.

The court aims to resolve these motions and clarify the issues for trial. Ventas claims damages due to injuries from an acquisition deal involving Sunrise REIT, which required bidders to sign Confidentiality Agreements and secure prior approval from Sunrise Senior Living (SSL) to submit an unconditional bid. After Ventas entered a Purchase Agreement for $15 per unit, HCP violated its Standstill Agreement by publicly making an $18 bid. Litigation ensued in Canada, where courts ruled that Sunrise REIT could not consider HCP's bid until after a vote on Ventas's bid. Subsequently, Ventas increased its bid to $16.50, which was approved by unitholders, completing the acquisition.

Count I of the complaint asserts that HCP tortiously interfered with the Purchase Agreement, requiring Ventas to establish the existence of a contract, HCP's knowledge and intent to cause a breach, causation of the breach, resultant damages, and a lack of privilege or justification for HCP's actions.

In Dennison v. Murray State University, the court examines Ventas's claims against Sunrise REIT regarding the alleged breach of the Purchase Agreement, specifically focusing on whether HCP's actions constituted a breach. Ventas alleges three breaches: (1) failure to enforce HCP's Standstill Agreement and engagement with a non-bona fide bid; (2) failure to use 'best efforts' to promote a $15 bid; and (3) issuing a misleading press release. The court finds that Sunrise REIT did not breach the Purchase Agreement on any of these grounds.

For the first claim, the court determines that Sunrise REIT could not prevent HCP from submitting a bid and acted appropriately by seeking judicial clarification regarding the bid's bona fides, fulfilling its obligations to shareholders. Regarding the second claim, the court notes that Ventas's definition of 'best efforts' is vague and that Sunrise REIT adequately promoted the bid to unitholders. The court will not assess the enthusiasm of Sunrise REIT's promotion. 

Finally, concerning the misleading press release, the court concludes that Sunrise REIT's belief about HCP's proposal being valid was reasonable and not a breach of contract, as the misunderstanding was based on incorrect but genuine information. The court reinforces that Sunrise REIT's primary obligation was to present the Ventas bid to unitholders and to exert best efforts for approval, which it fulfilled without breaching the Purchase Agreement. As a result, Ventas's claim of tortious interference with contract fails.

Sunrise REIT fulfilled its contractual obligations under complex circumstances, which raises concerns for the Court. The Restatement outlines two main patterns of contract interference: first, when a party induces another to breach a contract, and second, when a party makes performance impossible or burdensome. The case of Campbell v. Westdahl illustrates the first type, where a landlord's refusal to allow a lease assignment prevented a tenant from selling their business, resulting in a finding of wrongful interference. Similarly, in Carmichael-Lynch-Nolan Advertising Agency, Inc. v. Bennett Associates, Inc., the plaintiff unjustifiably induced a breach of contract by convincing a company to terminate its agreement with the defendant, leading to the defendant recovering damages for lost profits.

In contrast, Ventas's claim against Sunrise REIT does not align with these precedents. Sunrise did not breach its Purchase Agreement despite HCP's potentially conflicting bid or its unitholders' hesitance regarding the Ventas bid. Sunrise REIT successfully met its obligations, allowing Ventas to finalize its deal. This supports the Court's rejection of Ventas's claim of tortious interference with contract. Additionally, Count II of Ventas's complaint addresses tortious interference with prospective business advantage, which requires intentional and unjustified interference with known contractual rights. Kentucky law follows the Restatement of Torts on this matter, wherein liability arises from inducing a third party to disrupt a business relationship, resulting in harm.

Liability for tortious interference with a prospective business advantage in Kentucky does not depend on a contract. To succeed, Ventas must demonstrate six elements: (1) a valid business relationship or expectancy, (2) HCP's knowledge of this relationship, (3) intentional interference by HCP, (4) improper motive, (5) causation, and (6) special damages. Ventas has established a contract and business relationship with Sunrise REIT that HCP knew about, as evidenced by the Purchase Agreement. HCP's publicized bid to acquire Sunrise REIT at $18 per unit indicates an intent to disrupt Ventas's business dealings.

However, Ventas must also show that (1) there was a valid business expectancy that the $15 bid would have been accepted but for HCP's actions, (2) that HCP's motives were improper, and (3) that those actions caused Ventas's injury, specifically the need to increase its bid. A valid business expectancy requires a reasonable likelihood or probability of a business relationship, not mere wishful thinking. Ventas must prove an anticipated relationship with identifiable third parties. 

The existence of the Purchase Agreement does not automatically establish a business expectancy that the unitholders would approve the $15 bid. Evidence presented by both Ventas and HCP regarding the likelihood of approval from the unitholders will be crucial. Ventas claims that analyst reports, market history, and expert testimony support the likelihood of approval, while HCP counters with institutional investors' testimony opposing the bid. The Court finds that Ventas has provided sufficient evidence for a jury to determine a valid business expectancy regarding the unitholders' approval of the $15 bid. Lastly, the element of improper interference requires evidence of malice or significantly wrongful conduct.

Malice in the context of interference can be inferred when such interference is unjustified. Under Kentucky law, significant wrongful conduct includes fraudulent misrepresentation, deceit, coercion, threats of illegal conduct, and physical violence. The Restatement defines fraudulent misrepresentation as a statement known to be false by its utterer in the context intended for the recipient. The focus is on whether the actor's conduct was fair and reasonable, considering business ethics, customs, and the norms of competition. 

Legitimate competition can interfere with prospective business relationships, but the challenge lies in determining if sufficient evidence exists for a jury to find that HCP's competitive actions were improper. The Restatement outlines four criteria for proper interference: (1) the prospective relations must be related to the competition; (2) wrongful means must not be employed; (3) no unlawful restraint should be created; and (4) the actor's purpose must partially aim to advance their competitive interest. 

Ventas alleges that HCP engaged in fraudulent misrepresentation through a press release that contained misstatements about a proposal to acquire Sunrise REIT. HCP's press release claimed it had submitted a proposal for $18.00 per unit, 20% higher than Ventas’s accepted bid, and suggested the terms were identical to Ventas’s agreement. However, at the time of the press release, HCP's proposal was unsigned and conditional, raising questions about the truthfulness of the claims. The jury must determine if HCP's statements were misleading and if an unsigned proposal can constitute a valid offer, as neither statement needs to be independently actionable to support a claim of fraudulent misrepresentation for intentional interference.

The Court determined that it does not need to analyze the tort of fraudulent misrepresentation, as the jury is better equipped to assess the intent behind statements in a press release and whether they were misleading. Ventas claims that HCP's bidding process was improper, alleging it violated customary practices and was motivated by a desire to disrupt Ventas's business prospects. This claim hinges on the alleged maliciousness of HCP's actions, including breaching its Standstill Agreement and submitting an unsigned bid contrary to established norms. While Ventas argues that this breach indicates improper motives, a jury might find HCP acted in good faith to secure its acquisition of Sunrise REIT. Nonetheless, sufficient evidence exists for the jury to infer improper motives, making the evaluation of HCP's fairness and reasonableness a matter for the jury.

To establish a tortious interference claim, Ventas must demonstrate actual damages resulting from HCP's actions. If HCP's conduct did not negatively impact Ventas's customer relationships, it negates causation. In Kentucky, proving proximate cause is essential for intentional torts, meaning the act must significantly contribute to the harm. The concept of proximate cause can be disrupted by intervening or superseding causes, which are defined as external forces that prevent liability. Although Kentucky courts have not explicitly ruled on the applicability of these doctrines to intentional torts, the state's comparative fault statute covers all tort actions. A superseding cause must be an independent and extraordinary force unrelated to the original act to absolve a defendant of liability. The Court found no evidence of such a superseding cause in this case.

Ventas claims three categories of injuries related to its delayed issuance of shares to raise capital, costs incurred due to litigation and professional services, and price damages from the increased cost of acquiring Sunrise REIT. Only the price damages are acknowledged as actionable. Ventas intended to raise capital through a share issuance in February 2007, but delayed until May 2007 due to HCP's announcement, which allegedly resulted in a loss of $155 to $180 million as more shares had to be issued to raise the same amount due to a decrease in share price. While HCP's actions may have delayed Ventas's plans, evidence does not confirm Ventas's intention to issue shares in February, nor does it establish HCP's knowledge of any such plans or their timing.

Additionally, Ventas seeks reimbursement for litigation costs and other expenses related to its response to HCP's actions. However, under the American rule, parties are not liable for each other's legal fees, and the connection between HCP's actions and Ventas's expenses is too tenuous. Ventas independently decided how to address HCP’s bid, suggesting HCP should not bear these costs.

Finally, Ventas asserts that HCP's actions forced it to pay $16.50 per unit for Sunrise REIT instead of the expected $15 per unit. HCP counters that this increase was due to Ventas underpricing its initial bid and subsequently altering its offer independently. The resolution hinges on whether Sunrise REIT's unitholders would have accepted the original price, but neither party provides definitive evidence on this issue.

The jury is tasked with determining whether HCP's actions caused Ventas’s harm, particularly regarding the $15 bid price. If the jury finds that unitholders would not have approved the $15 price, HCP's conduct cannot be seen as the cause of Ventas's subsequent price increase. Even if evidence suggests unitholder support for the $15 bid, HCP claims it did not cause Ventas's harm since Ventas independently raised its bid to $16.50 due to concerns over unitholder approval, following HCP's $18 bid announcement and subsequent retraction. The circumstances surrounding Ventas's bid increase are complex and open to interpretation, especially as it was influenced by a settlement with Sunrise REIT, with whom Ventas had a legal dispute related to HCP's actions.

The jury will need to assess whether Ventas's decision to increase its bid was a result of HCP's conduct or part of the regular auction process. Additionally, both parties have raised arguments regarding the impact of Canadian court rulings on the case, with HCP asserting claim preclusion to dismiss Ventas's complaint and Ventas invoking issue preclusion against HCP's defenses. The Court plans to reevaluate these preclusion arguments, emphasizing their significance in the litigation. HCP argues that the tort claims should have been addressed in the Canadian courts, citing the requirement of a prior final decision on the merits that precludes relitigating issues. Four elements are necessary for claim preclusion: a prior final decision on the merits, participation of the same parties, the claim being litigated or capable of being litigated in the prior action, and identity of causes of action, which HCP contends applies here due to the Canadian court's decisions.

The courts interpreted the contractual provisions in a dispute between HCP and Ventas, where both parties presented conflicting interpretations of the Purchase Agreement and Standstill Agreement. In Canadian litigation, HCP aimed to declare that Sunrise REIT could consider its bid, while Ventas sought the opposite declaration. There is uncertainty surrounding whether Ventas was obligated to raise its tort claims in the same litigation, as the Kentucky Supreme Court emphasizes that claim preclusion applies only to claims arising from the same transactional nucleus of facts. Kentucky law allows claims to be raised later if they were not ripe at the time of the initial lawsuit. For tortious interference, a plaintiff must demonstrate duty, breach, causation, and damages, with speculative injuries not constituting valid claims. 

HCP's assertion that the claims stem from the same facts as the Canadian case overreaches; while the core facts are similar, the critical question is whether Ventas had incurred an injury from HCP's actions. The timeline reveals that Ventas's claims did not ripen until HCP's actions caused identifiable damages, which only became apparent after the Canadian Court's ruling on Sunrise REIT's consideration of HCP's bid. Ventas's claim did not preclude it from pursuing action against HCP due to the lack of actionable harm until after the court's decision. 

Additionally, Ventas contends that HCP should be barred from re-litigating specific issues. Issue preclusion applies if the precise issue was previously litigated and necessary for the prior outcome, resulting in a final judgment on the merits, and the opposing party had a fair opportunity to litigate.

Previous interpretations of a contract do not prevent subsequent challenges to its formation. The Canadian Courts made several factual findings regarding a confidentiality agreement between HCP and Sunrise REIT, concluding that Sunrise REIT must enforce the agreement and that the Purchase Agreement was structured to ensure this enforcement. The courts determined that HCP's Standstill Agreement did not authorize a late bid from HCP, and Sunrise REIT conducted the auction in accordance with the agreements, which were deemed equitable for sophisticated parties.

The Court of Appeal upheld these findings, affirming that the Standstill Agreement barred HCP from submitting a late bid and that Sunrise REIT was required to enforce this agreement. The enforcement requirement was considered reasonable within the auction's context, and the trustees acted appropriately to maximize value and attract bidders. 

The Canadian Courts focused on the enforceability and fairness of the Standstill Agreement during the auction process, concluding that HCP was bound not to submit an unauthorized proposal and that Sunrise REIT did not consent to any waiver of this agreement. The courts refrained from rewriting contracts negotiated by sophisticated parties.

Ventas seeks collateral estoppel on four grounds: the validity of the Standstill Agreement at the time of HCP's post-auction bid, the prohibition against HCP's post-auction bid, the non-bona fide nature of that bid under the Purchase Agreement, and the reasonable obligation of Sunrise REIT to enforce the Standstill Agreement. While the Canadian Courts did not determine the contracts' validity, Kentucky law allows challenges to contract formation after a court's interpretation. Therefore, HCP may contest the validity of the Standstill Agreement despite the prior findings. However, it's unclear if HCP can provide evidence to support claims of invalidity, such as fraud. The core issue regarding HCP's ability to make a post-auction bid was litigated and affirmed by the courts.

The Canadian Courts determined that the Standstill Agreement explicitly prohibited HCP from making its bid, which HCP cannot dispute. Although HCP made a bid and announced it publicly, this breach does not negate the wrongfulness of the announcement. The jury will decide how this breach relates to Ventas's claim of tortious interference, a question not resolved by the Canadian judgments. Ventas seeks to preclude HCP from contesting whether its bid was bona fide, as the Canadian Courts found it was not under the Purchase Agreement. Ventas argues that "bona fide" implies good faith, seeking to apply the Canadian ruling to HCP's motives in the tortious interference claim. However, the Court finds it inappropriate to extend the Canadian decision in this manner, as HCP can still argue that its motives were proper despite the breach.

Furthermore, Ventas contends that the Canadian judgments established the Purchase Agreement as valid and enforceable. However, previous rulings do not prevent HCP from challenging the agreement's formation. The Court acknowledges that the Canadian judgments deemed the Purchase Agreement's enforcement of the Standstill Agreement as reasonable but do not clarify whether HCP's breach was improper concerning the tortious interference claim or the norms of such auctions.

Ventas has moved for partial summary judgment regarding HCP's affirmative defenses, which can be categorized into a few groups. Many defenses relate to the motives and wrongfulness of HCP's actions, including good faith assertions and the validity of the Purchase Agreement. The Court has determined that significant factual issues exist regarding the wrongfulness of HCP's conduct, making summary judgment inappropriate for either party on this issue. HCP may present these arguments at trial as the evidence allows. Other defenses pertain to causation and damages.

Unclean hands, in pari delicto, plaintiff’s own fault, fault of third parties, settlement set-off, double recovery, unjust enrichment, performance issues, prevention of performance, intervening or superseding cause, and failure to mitigate defenses are relevant to causation and damages. The core issue is whether HCP's actions caused harm to Ventas and the extent of that damage. The Court has identified material factual issues related to causation and damages, ruling that summary judgment is inappropriate for either party before trial.

HCP asserts defenses of waiver and consent, claiming Ventas either waived its tortious interference claim or consented to such interference. However, the Court concluded that Ventas did not consent to HCP's actions as supported by Canadian judgments, and thus these defenses cannot stand. Additionally, HCP argues that Ventas is judicially estopped from claiming that HCP's offer could have been concealed from Sunrise REIT unitholders, based on Ventas's prior inconsistent argument in Canadian litigation. HCP cites a statement from Ventas indicating that the decision should rest with the unitholders regarding HCP's bid, suggesting that Ventas is now contradicting itself by claiming the unitholders should not have known about the bid. The Court finds no contradiction, affirming that Ventas can argue both that unitholders shouldn’t have certain information and that they should control the outcome once the information is public. Consequently, the Court rejects the application of judicial estoppel to Ventas's argument. An order consistent with this Memorandum Opinion will be entered. 

Prior court actions included the denial of HCP's motion to dismiss Ventas's tortious interference claim, the dismissal of HCP's counterclaims regarding misrepresentation, and discussions on HCP's amended counterclaim and potential claim preclusion.

All currency references are in Canadian dollars. Tortious interference with business expectancy is deemed unnecessary if certainty is required, as it would overlap with tortious interference with contractual relations. Kentucky follows the Restatement (Second) of Torts regarding intentional interference. In Brooks v. Patterson, the Kentucky Court of Appeals determined that the plaintiff's actions could sever causation in a tortious interference claim. Patterson, who had an existing offer for her drug store, faced a rescission after Brooks advertised the property for sale. The Court concluded that Patterson's decision to accept a lower offer broke the causation chain, a reasoning later rejected in Carmichael-Lynch-Nolan Advertising Agency, Inc. v. Bennett Associates, Inc. 

After HCP's topping bid was announced, over 60% of units traded at or above $18, creating a new shareholder base resistant to a sale at $15 per unit. A federal court applies state law for res judicata issues, which includes decisions from foreign nations, supported by Taveras v. Taveras. The Court previously ruled that no harm resulted from Canadian proceedings and confirmed that the fairness of the auction process was addressed by Canadian courts, which did not bar further arguments about the contracts involved. The Canadian courts found no validity issues regarding the contracts themselves, allowing for potential claims of fraud. Ventas has sought summary judgment on all affirmative defenses except concerning punitive damages and whether Ventas suffered an injury, with the possibility of considering legal defenses if evidence arises at trial.