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Accountable Health Solutions, LLC v. Wellness Corporate Solutions, LLC

United States District Court, D. Kansas

December 6, 2017

ACCOUNTABLE HEALTH SOLUTIONS, LLC, et al., Plaintiffs/Counterclaim Defendants,
v.
WELLNESS CORPORATE SOLUTIONS, LLC, Defendant/Counterclaim Plaintiff.

          MEMORANDUM AND ORDER

          Daniel D. Crabtree United States District Judge.

         This case is about a business relationship that soured. Plaintiffs and defendant entered into a contract requiring defendant to provide biometric screening and wellness services to plaintiffs' clients in exchange for payment made by plaintiffs. But this contractual relationship ended when plaintiffs allegedly fell behind on their payments to defendant. Meanwhile, defendant allegedly stole one of plaintiffs' clients. As a result, plaintiffs sued defendant. Defendant responded with a Counterclaim.

         This matter comes before the court on two motions-both made by defendant. In its first motion, defendant asks the court to grant summary judgment in its favor on its Counterclaim for breach of contract (Doc. 60). Defendant's second motion asks the court to grant summary judgment against all of plaintiffs' claims (Doc. 100). For reasons explained below, the court denies defendant's Motion for Summary Judgment on its Counterclaim. And, the court grants defendant's Motion for Summary Judgment against plaintiffs' claims in part, and it denies it in part. The court explains why, below.

         I. Undisputed Facts

         The following facts are uncontroverted or, where controverted, are stated in the light most favorable to plaintiffs as the nonmoving party. Scott v. Harris, 550 U.S. 372, 378 (2007).

         The Parties

         Plaintiff Accountable Health Solutions, LLC (“AHS”) is a limited liability company organized under Kansas law whose sole member is Hooper Holmes. Hooper Holmes is a corporation duly organized under New York law with its principal office in Kansas. Hooper Holmes purchased AHS in early 2015.

         Wellness Corporate Solutions, LLC (“WCS”) is a limited liability company organized under Maryland law. Defendant has two members: Fiona Gathright and Juliet Rodman. Both members are residents of Maryland.

         The Master Service Agreement

         On March 4, 2014, plaintiff AHS and defendant WCS executed the Master Service Agreement (“MSA”).[1] When plaintiff Hooper Holmes bought AHS in early 2015, the MSA became binding on Hooper Holmes. The MSA required defendant to provide biometric screening and wellness services to plaintiffs' clients and, in return, required plaintiffs to pay defendant for those services. Doc. 61-2 (MSA) ¶ 1. Plaintiffs' clients paid plaintiffs for the services defendant provided, about 90 days after defendant had provided the services. The MSA required plaintiffs to pay defendant within 45 days of receiving an invoice. Id. ¶ 7. If plaintiffs did not pay as required, the MSA allowed defendant to charge 1.5% interest per month on the unpaid balance. Id. The parties made the MSA effective on February 15, 2014, for a term of 36 months. Id. ¶ 8. The MSA automatically renewed at the end of that period-February 15, 2017- for another year unless either party terminated it. Id.

         Four other provisions of the MSA matter to this lawsuit. First, the parties agreed that neither party would be liable to the other “for loss of profits, loss of business, or special, indirect, incidental, exemplary, consequential, or punitive damages arising from the performance or nonperformance of this agreement, or any acts or omissions associated therewith.” Id. ¶ 11. Second, the parties agreed they could amend the MSA “by secured electronic e-mail or in writing signed by both Parties hereto.” Id. ¶ 17. Third,

The failure by the Party at any time to require performance by the other Party of any provision hereof shall not affect in any way the right to require such performance at a later time; nor shall the waiver by either Party of a breach of any provision hereof be taken or be held to be a waiver of such provision.

Id. ¶ 20. And last, the MSA prohibits defendant from competing with plaintiffs. Specifically, defendant cannot “encourage any [client of plaintiffs], either directly or indirectly, to terminate its relationship with plaintiffs” or “solicit or market [defendant's] Services [directly] to [a client] of [plaintiffs] in any way to compete with [plaintiffs].” Id. ¶ 23(i). Also, the MSA provides that defendant could not “use any confidential information, intellectual property, or any other data or information provided by [plaintiffs], or gained pursuant to [the MSA], to compete in any way with [plaintiffs] . . . .” Id. ¶ 23(ii).

         Payment Issues

         In June 2015, defendant contacted plaintiffs about an outstanding balance they owed defendant under the MSA. Plaintiffs assured defendant that they would pay the amount owed. On November 4, 2015, plaintiffs' Chief Financial Officer, Steven Balthazor, emailed defendant's CFO, Jeff Taylor. Mr. Balthazor explained that plaintiffs did not have adequate funds on hand to pay defendant because plaintiffs typically did not receive their clients' payments for defendant's services until after plaintiffs' payments to defendant were due. But Mr. Balthazor promised that plaintiffs would pay at least $10, 000 per week on the outstanding balance and increase that payment amount once plaintiffs had more funds. Mr. Taylor acknowledged this email, but replied that defendant intended to charge plaintiffs 1.5% per month interest on the outstanding debt, as the MSA permitted. Plaintiffs started making the $10, 000 weekly payments on November 16, 2015. Mr. Balthazor followed up with Mr. Taylor on December 14, 2015. Mr. Balthazor recognized that plaintiffs still owed extraordinary amounts, but that plaintiffs would have more cash available by mid-January 2016 to pay defendant. In February 2016, plaintiffs increased their weekly payments to defendant to $20, 000 each week. The highest outstanding balance owed by plaintiffs was $592, 990 on November 12, 2015. Plaintiffs had paid that balance down to $234, 807 by June 6, 2016. Plaintiffs made no more payments after that date.

         Competition Issue

         Building Materials Corporation of America d/b/a/ GAF (“GAF”) was a longtime client of plaintiffs. Plaintiffs earned roughly $225, 000 a year from GAF and GAF had agreed with plaintiffs to accept services for them through August 2016. This contract contained a renewal provision that automatically renewed the contract every year on August 1 unless GAF gave plaintiffs written notice on June 1 of that same year.

         Working under the MSA, defendant had provided services to GAF several times. Despite this arrangement, defendant's CEO, Fiona Gathright, emailed Jennifer Silverman, defendant's Senior Program Manager, on March 3, 2016. Ms. Gathright gave Ms. Silverman permission to meet with GAF. And, on March 7, Aon Hewitt, a consultant to GAF, contacted defendant to see if defendant was interested in providing biometric screenings directly to GAF. Then, defendant sent representatives to New Jersey to give GAF a sales presentation on April 27, 2016. In its discussions with GAF, defendant used plaintiffs' pricing data. Shortly afterward, on May 6, 2016, GAF informed defendant that it had decided to award defendant the contract to provide health-screening services.

         At some point in May 2016, GAF informed plaintiffs that it was in discussions with defendant to provide health-screening services directly. On June 9, 2016, GAF gave plaintiffs written notice that it would no longer contract with them for health and wellness needs. And after learning this news, plaintiffs stopped paying defendant. They also filed this lawsuit. In it, plaintiffs seek to recover lost profits from defendant based on plaintiffs' contract with GAF. Plaintiffs also seek to recover punitive damages. Defendant then filed a Counterclaim against plaintiffs. It seeks the unpaid balance under the MSA plus interest.

         II. Legal Standard

         Summary judgment is appropriate if the moving party demonstrates that “no genuine dispute [about] any material fact” exists and that it “is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). When applying this standard, the court views the evidence and draws inferences in the light most favorable to the non-moving party. Nahno-Lopez v. Houser, 625 F.3d 1279, 1283 (10th Cir. 2010). A disputed “issue of fact is ‘genuine' ‘if the evidence is such that a reasonable factfinder could return a verdict for the non-moving party' on the issue.” Id. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). And an “issue of fact is ‘material' ‘if under the substantive law it is essential to the proper disposition of the claim' or defense.” Id. (quoting Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998)).

         The moving party bears “‘both the initial burden of production on a motion for summary judgment and the burden of establishing that summary judgment is appropriate as a matter of law.'” Kannady v. City of Kiowa, 590 F.3d 1161, 1169 (10th Cir. 2010) (quoting Trainor v. Apollo Metal Specialties, Inc., 318 F.3d 976, 979 (10th Cir. 2002)). To carry this burden, the moving party “‘need not negate the non-movant's claim, but need only point to an absence of evidence to support the non-movant's claim.'” Id. (quoting Sigmon v. CommunityCare HMO, Inc., 234 F.3d 1121, 1125 (10th Cir. 2000)).

         If the moving party meets its initial burden, the non-moving party “‘may not rest upon its pleadings, but must set forth specific facts showing a genuine issue for trial [on] those dispositive matters for which it carries the burden of proof.'” Id. (quoting Jenkins v. Wood, 81 F.3d 988, 990 (10th Cir. 1996)); see also Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986); Anderson, 477 U.S. at 248-49. “To accomplish this, the facts must be identified by reference to affidavits, deposition transcripts, or specific exhibits incorporated therein.” Adler, 144 F.3d at 671 (citing Thomas v. Wichita Coca-Cola Bottling Co., 968 F.2d 1022, 1024 (10th Cir. 1992)). “Unsubstantiated allegations carry no probative weight in summary judgment proceedings.” Bones v. Honeywell Int'l, Inc., 366 F.3d 869, 875 (10th Cir. 2004) (citing Phillips v. Calhoun, 956 F.2d 949, 951 n.3 (10th Cir. 1992)). To survive summary judgment, the non-moving party's “evidence, including testimony, must be based on more than mere speculation, conjecture, or surmise.” Id. (citing Rice v. United States, 166 F.3d 1088, 1092 (10th Cir. 1999)).

         Summary judgment is not a “disfavored procedural shortcut.” Celotex, 477 U.S. at 327. To the contrary, it is an important procedure “designed ‘to secure the just, speedy[, ] and inexpensive determination of every action.'” Id. (quoting Fed.R.Civ.P. 1).

         III. Discussion

         Plaintiffs assert claims for breach of contract (Count I), breach of the covenant of good faith and fair dealings (Count II), tortious interference with contract (Count III), and tortious interference with prospective business expectancies or relationships (Count IV). Plaintiffs also seek a declaratory judgment (Count V). All of plaintiffs' claims originate in defendant's decision to contact and contract with plaintiffs' former client, GAF. Defendant asserts a breach of contract counterclaim, alleging that plaintiffs breached their duty to pay defendant as the MSA required.

         Defendant has filed two summary judgment motions: one seeking summary judgment on its Counterclaim (Doc. 60) and one seeking summary judgment against all of plaintiffs' claims (Doc. 100). Before turning to the merits of defendant's motions, the court must determine whether it has subject matter jurisdiction over this case and, if so, what law to apply to the claims on defendant's motions.

         A. Subject Matter Jurisdiction

         The court has an independent obligation to satisfy itself that subject matter jurisdiction exists. Henderson ex rel. Henderson v. Shinseki, 562 U.S. 428, 434 (2011). Both parties have agreed that this court has subject matter jurisdiction under 28 U.S.C. § 1332, commonly called diversity jurisdiction. See Doc. 120 ¶ 1.a.

         For diversity jurisdiction to exist under this provision, the parties must be citizens of different states and the matter in controversy must exceed $75, 000. Here, the matter in controversy is $710, 436.

         For parties to be citizens of different states, “no plaintiff may be a citizen of the same state as any defendant.” Grynberg v. Kinder Morgan Energy Partners, L.P., 805 F.3d 901, 905 (10th Cir. 2015). The court determines a business entity's citizenship according to its organizational structure. If the business is organized as a corporation, it is a citizen of the state where it is incorporated and where its principal place of business is located. 28 U.S.C. § 1332(c)(1); Newsome v. Gallacher, 722 F.3d 1257, 1267 (10th Cir. 2013). If the business is a limited liability company, the court determines its citizenship by the citizenship of each one of its members. See Siloam Springs Hotel, LLC v. Century Sur. Co., 781 F.3d 1233, 1234 (10th Cir. 2015) (“Like every other circuit to consider this question, this court concludes an LLC, as an unincorporated association, takes the citizenship of all its members.”); see also Birdsong v. Westglen Endoscopy Ctr., L.L.C., 176 F.Supp.2d 1245, 1248 (D. Kan. 2001).

         Here, neither plaintiff is from the same state as defendant. Plaintiff AHS is a limited liability company whose sole member is Hooper Holmes, the other plaintiff. Hooper Holmes is a corporation incorporated under New York law and has its principal place of business in Kansas. Plaintiffs thus are citizens of New York and Kansas. Defendant also is a limited liability company. Its only two members are citizens of Maryland. Defendant thus is a citizen of Maryland. Because the parties ...


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