Linda Mays v. H.G. Rhodes

1The Honorable James M. Moody, United States District Judge for the
Eastern District of Arkansas, sitting by designation.
United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 00-3568
___________
Edmund B. Eisnaugle, *
*
Appellant, *
* Appeal from the United States
v. * District Court for the
* Northern District of Iowa
* Eastern Division.
John Deere Health Care, Inc., *
As Administrator and Fiduciary * [UNPUBLISHED]
of a Welfare Benefit Plan, *
*
Appellee. *
___________
Submitted: May 18, 2001
Filed: June 14, 2001
___________
Before McMILLIAN, BOWMAN, Circuit Judges, and MOODY,1 District Judge.
___________
PER CURIAM
Plaintiff Edmund B. Eisnaugle filed suit against Defendant John Deere Health
Care, Inc. (“JDHC”) alleging (1) breach of fiduciary duty and estoppel under ERISA;
(2) fraudulent misrepresentation; (3) negligent misrepresentation; and (4) breach of

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2 The Honorable John A. Jarvey, United States Magistrate Judge for the
Northern District of Iowa, Eastern Division.
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contract. Eisnaugle appeals from the District Court’s2 entry of summary judgment in
favor of JDHC and the Court’s denial of his cross-motion for summary judgment. We
affirm.
Background
JDHC began affiliating with physicians in the 1990's through a division of JDHC
called Physician Practice Management. The physicians’ practices were incorporated
as professional corporations and generally used the words “Cornerstone Group” as part
of their corporate name. As a result of an affiliation, JDHC would provide a
physician’s practice with management and administrative services, including paying the
physician’s salary and benefits. JDHC would not, however, acquire any ownership
interest in the practice or become the employer of the physician. JDHC would merely
enter into a “management agreement” with the incorporated practice in exchange for
a fee.
After an initial contact, JDHC sent Dr. Edmund Eisnaugle draft documentation
by which JDHC proposed to affiliate with a practice that Eisnaugle would incorporate
under the name Cornerstone Medical Group of Waverly, P.C. (“CMG Waverly”). On
October 30, 1996, Dr. Eisnaugle incorporated CMG Waverly. On the same day,
JDHC and CMG Waverly entered into a Management Agreement. As part of the
Management Agreement, JDHC and CMG Waverly executed a borrowing agreement
under which JDHC would loan funds to CMG Waverly to cover working capital and
CMG Waverly agreed to repay those loans on demand with interest. CMG Waverly
executed an employment agreement with Eisnaugle under which CMG Waverly agreed
to pay Eisnaugle a salary and to provide him with benefits. Dr. Eisnaugle’s salary and
benefits were negotiated by JDHC prior to and in conjunction with the Management

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Agreement.
Kevin Pitzer, an employee of JDHC, was authorized to offer the salary and
benefits package to Eisnaugle which included short-term and long-term disability
insurance. When discussing the benefits proposal, Pitzer told Eisnaugle that he was
eligible for disability coverage on his employment date of January 1, 1997 provided he
completed and submitted all the applications. Pitzer did not tell Eisnaugle that he would
have to qualify or be approved for the disability insurance. Pitzer was not aware that
anyone told Eisnaugle he would have to qualify or be otherwise approved for the
disability insurance. Under the Management Agreement, CMG Waverly could not
secure payroll and benefits administration from anyone other than JDHC.
Katherine Pearson, also an employee of JDHC, coordinated Eisnaugle’s
enrollment for disability insurance. On December 13, 1996, she sent Eisnaugle the
proper enrollment forms with instructions to complete them and return them to her.
Eisnaugle completed his enrollment for disability insurance under CNA’s Income
Protection Plan on December 18, 1996. Pearson acknowledged receipt of the
enrollment forms on December 20, 1996. She checked the forms and forwarded them
to All Staff, a benefits administration company hired by JDHC to provide employee
benefits administration for affiliate practices. On January 16, 1997, Pearson sent
Eisnaugle a note stapled to a Certificate of Insurance for Group Long Term Disability.
Eisnaugle assumed that his benefits were effective on January 1, 1997.
Dr. Eisnaugle developed vision problems and first saw an opthamologist in
October, 1997. His vision had decreased to the point that the doctor advised him it was
not safe for him to drive by himself. The Social Security Administration found
Eisnaugle disabled due to dementia and statutory blindness with an onset date of
October 20, 1997. Eisnaugle claims that he sent Katherine Pearson a letter on October
29, 1997, notifying her of his disability. Pearson denies receiving this letter.

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On November 12, 1997, Jon Chapman and George Dellos of JDHC met with
Eisnaugle to discuss termination of the relationship between JDHC, CMG Waverly,
and Eisnaugle. Chapman gave Eisnaugle a proposed Settlement Agreement and
Release which provided for termination of the Management Agreement and dissolution
of CMG Waverly. JDHC made several propositions to Eisnaugle, including an offer
to continue paying his salary and bonus payments through December 31, 1997. JDHC
also agreed to forgive a debt of $215,000 incurred by CMG Waverly since January 1,
1997. In exchange, the release portion of the Settlement Agreement provided in part
that JDHC, CMG Waverly, and Eisnaugle would mutually and forever release and
discharge each other from any and all claims known or unknown.
Eisnaugle took a copy of the Settlement and Release to his attorney, Jay Roberts,
for advice before signing the document. Roberts wrote Dellos on November 14, 1997
advising of his understanding of the offer. Roberts also raised the need to discuss
health care coverage in the Settlement: “You must know of the extreme health
problems that he, Sandy, and the family have had that would make it virtually
impossible for them to gain health coverage in the future.”
After receiving the letter, Dellos contacted Eisnaugle. Dellos told Eisnaugle that
he had received a letter from Roberts and asked Eisnaugle about Roberts’ role in the
settlement negotiations. Eisnaugle allegedly indicated that JDHC should not be
concerned about the letter and that he was interested in a cash payment under the
Settlement and Release Agreement.
JDHC prepared a second proposed Settlement Agreement. The release language
was identical to the original Settlement Agreement. The second Agreement terminated
all previous agreements between the parties as of November 18, 1997, provided
Eisnaugle with salary and bonus through December 31, 1997, a cash payment of
$85,000, and COBRA health insurance benefits beginning January 1, 1998. Under the
Agreement, Dr. Eisnaugle was required to assume responsibility for the health

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insurance payments. Disability benefits were never discussed. Dr. Eisnaugle signed
the second Settlement Agreement and Release (the “Settlement Agreement”) on
November 18, 1997 against the advice of his counsel.
By letter dated December 31, 1997, Eisnaugle’s attorney, Jay Roberts, informed
JDHC that Eisnaugle intended to make a disability claim. William Zessar, General
Counsel for JDHC, responded by letter dated February 17, 1998 that Eisnaugle’s
application for disability coverage was never forwarded by All Staff to CNA, and that
Eisnaugle did not meet the eligibility requirements for disability benefits because he had
not been a “full time” employee. According to the record, Eisnaugle did not work 30
hours per week performing the duties of his “regular occupation” during 1997 as
required to be considered a “full time” employee under the CNA policy.
On March 23, 1998, Roberts again wrote to Zessar regarding Dr. Eisnaugle’s
health insurance. Zessar responded two days later with information that Eisnaugle had
not submitted an application for COBRA health insurance and he had not paid the
premium within the appropriate time period. Roberts wrote to Zessar again stating,
“[Eisnaugle] has made every reasonable effort to have health insurance and assert his
rights under COBRA. That needs to be reinstated as of January 1 and all bills covered
appropriately under that policy.” On April 14, 1998, JDHC agreed to reconsider its
decision denying COBRA benefits. On April 16, 1998, Roberts submitted Eisnaugle’s
application for COBRA coverage.
Discussion
We review a grant of summary judgment de novo. The question before the
district court, and this court on appeal, is whether the record, when viewed in the light
most favorable to the non-moving party, shows that there is no genuine issue as to any
material fact and that the moving party is entitled to judgment as a matter of law. Fed.
R. Civ. P. 56(c); see, e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct.

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2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50,
106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Get Away Club, Inc. v. Coleman, 969 F.2d
664, 666 (8th Cir. 1992); St. Paul Fire & Marine Ins. Co. v. FDIC, 968 F.2d 695, 699
(8th Cir. 1992). The nonmoving party is entitled to the benefit of all reasonable
inferences to be drawn from the underlying facts in the record. Vette Co. v. Aetna Cas.
& Sur. Co., 612 F.2d 1076 (8th Cir. 1980). The nonmoving party may not merely rest
upon allegations or denials in its pleadings, but must set forth specific facts by
affidavits or otherwise showing that there is a genuine issue for trial. Burst v. Adolph
Coors Co., 650 F.2d 930, 932 (8th Cir. 1981).
In its motion for summary judgment, JDHC argued that all of Dr. Eisnaugle’s
claims were barred by the Settlement Agreement. JDHC contended that the language
releasing “any and all claims, known and unknown” covered Eisnaugle’s claim for
disability insurance. In his cross-motion, Eisnaugle argued that the Settlement
Agreement should be set aside for three reasons: (1)JDHC violated the legal canon of
ethics by contacting Dr. Eisnaugle directly instead of contacting his attorney; (2) JDHC
fraudulently misrepresented to Dr. Eisnaugle that his disability insurance was effective
January 1, 1997; and (3) the Settlement Agreement was entered into under a mutual
mistake of both parties.
The district court found Eisnaugle’s argument regarding JDHC’s ethical
violations to be without merit. Further, the Court found that Eisnaugle’s failure to
return the consideration paid by JDHC under the Settlement Agreement and his
ratification of the Agreement after learning of JDHC’s failure to provide disability
insurance precluded Eisnaugle from claiming fraud or mutual mistake. The court
granted JDHC’s motion for summary judgment based upon the release language of the
Settlement Agreement.
“There is nothing in the nature of a compromise contract, a release of liability,
or a covenant not to sue, that calls for any different construction or treatment at the

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hands of a court, than that accorded to other contracts.” Jordan v. Brady Transfer &
Storage Co., 284 N.W. 73, 82 (Iowa 1939). In order to set aside a contract, or release,
for fraud or mistake, the injured party must take certain steps. “'The power of
avoidance for fraud or misrepresentation is lost if the injured party after acquiring
knowledge of the fraud or misrepresentation manifests to the other party to the
transaction an intention to affirm it or exercises dominion over the things restoration of
which is a condition of his power of avoidance.'” Test v. Heaberlin, 118 N.W.2d 73,
75 (Iowa 1962)(quoting with approval Restatement (First) of Contracts, § 484 (1982))
.
“Iowa has followed the long-standing rule that when a contract is procured by
fraud by one party, the defrauded party may elect to rescind the contract or affirm it and
pursue an independent claim for damages. The rescission must be elected promptly,
and requires a party to restore the benefits received under the contract.” Phipps v.
Winneshiek County, 593 N.W.2d 143, 145 (Iowa 1999)(citing Test v. Heaberlin, 254
Iowa 521, 524-25, 118 N.W.2d 73, 75 (1962) and Mills County State Bank v. Fisher,
282 N.W.2d 712, 714 (Iowa 1979)).
If [a defrauded party] does nothing; if he remains silent and takes no
action, his very silence and his retention and use of the purchase money
for any considerable length of time after discovery of the fraud constitute
a complete, irrevocable ratification of his contract, and make it as binding
and effectual as though he had deliberately entered into it after full
knowledge of all the facts, uninfluenced by any fraudulent practices.
Rugan v. Sabin, 53 F. 415, 418 (8th Cir. 1892).
Dr. Eisnaugle cites Reddington v. Blue & Raferty, 149 N.W. 933 (Iowa 1914)
as authority for his argument that return of the consideration is not a prerequisite to his
action for rescission. He argues that it would be inequitable under the facts of this case

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to compel return of the consideration. In Reddington, the plaintiff settled a personal
injury dispute with his employer pursuant to a written release. After learning that his
injuries were permanent rather than temporary as thought at the time of the release,
plaintiff filed suit against his employer for damages. Plaintiff did not return the
consideration paid by his employer under the release. Nonetheless, the court allowed
the plaintiff to avoid the release by reason of mutual mistake. The court acknowledged
that in most cases return of consideration is necessary before rescission may be had,
however, the doctrine does not apply in all cases. The court explained: “If nothing was
received in virtue of the settlement and compromise, as the testimony tends to show in
this case, or if money was paid, and it was given for injuries in fact received, and was
not intended to cover anything else, but by reason of mutual mistake the agreement was
made to cover injuries not contemplated by either of the parties, then no return of the
money received is necessary.” Id. at 936.
In the instant case, Eisnaugle not only retained the consideration but he also
ratified the Agreement by enforcing its terms. In other words, the Court need not
decide whether Dr. Eisnaugle’s failure to return the consideration was fatal to his claim
to set aside the Agreement because he also enforced the terms of the Agreement after
acquiring knowledge of JDHC’s alleged fraud or mutual mistake. Therefore, the Court
finds that Dr. Eisnaugle’s enforcement of the medical coverage provided by the
Settlement Agreement after discovering JDHC’s failure to provide disability coverage
constitutes a complete, irrevocable ratification of the Agreement. For this reason,
Eisnaugle is barred from claiming fraudulent misrepresentation or mutual mistake in the
procurement of the Settlement Agreement.
Conclusion
For the reasons discussed above, we affirm the order of the district court granting
JDHC’s motion for summary judgment and denying Dr. Eisnaugle’s cross-motion.
JDHC has also filed a Motion to Strike with the Court. The motion is denied.

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A true copy.
ATTEST:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT

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