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Radiologix, Inc. v. Radiology and Nuclear Medicine, LLC

United States District Court, D. Kansas

February 26, 2018

RADIOLOGIX, INC. and RADIOLOGY AND NUCLEAR MEDICINE IMAGING PARTNERS, INC., Plaintiffs,
v.
RADIOLOGY AND NUCLEAR MEDICINE, LLC, Defendant.

          MEMORANDUM AND ORDER

          DANIEL D. CRABTREE, UNITED STATES DISTRICT JUDGE.

         This case involves a breach of contract dispute. Plaintiff Radiologix is a national provider of imaging services based in California. Defendant RNM is a Kansas limited liability company and physician-owned radiology practice based in northeast Kansas. Since 1997, plaintiff Radiologix (or one of its predecessors-in-interest) has provided management services to defendant RNM under a long-term management service agreement.

         In 2002, plaintiffs and defendant executed an Amended and Restated Service Agreement (“Agreement”). Under this Agreement, plaintiffs agreed to provide certain management services to defendant in exchange for specified fees. The parties agreed to a 40-year term for the Agreement's duration. But, in 2014, defendant terminated the Agreement for cause because, defendant contends, plaintiffs had defaulted materially on their obligations under the Agreement and thus provided cause to terminate.

         In response, plaintiffs filed this lawsuit. They assert three claims: (1) breach of contract, (2) conversion, and (3) unjust enrichment. Defendant responded to plaintiffs' Complaint by asserting a Counterclaim for breach of contract. On November 2, 2017, the court denied cross motions for summary judgment filed by both parties. Doc 300. Plaintiffs had moved for summary judgment against defendant's claim that the parties' contracts were void and unenforceable under Kansas law. Defendant also had moved for summary judgment against plaintiffs' claims, asserting that the parties' contracts violate Kansas law. The court disagreed with defendant. Instead, the court found, the undisputed facts demonstrated that the parties' contracts did not violate Kansas's prohibitions against the corporate practice of medicine and illegal fee splitting. So, the court granted plaintiffs' summary judgment motion against defendant RNM's claims and defenses that the contracts are illegal and unenforceable under Kansas law, and thus provide defendant RNM a valid, legal basis for terminating the parties' management service agreement. But the court denied plaintiffs' other arguments supporting summary judgment against RNM's breach of contract claim because, it concluded, genuine issues of material fact exist that the trier of fact must decide. So, the trier of fact will decide the remaining issues at a trial scheduled to begin on March 6, 2018.

         Anticipating that trial, plaintiffs have filed a Motion to Exclude Report and Testimony of Gregory M. Kusiak (Doc. 303). Plaintiffs assert that the court should exclude Mr. Kusiak's opinions because they are: (1) irrelevant opinions about industry standards and customs; (2) impermissible legal conclusions about the meaning of an unambiguous contract; or (3) subjective opinions about the fairness of the contract at issue in this case. For these reasons, plaintiffs contend, the court should exclude Mr. Kusiak's expert report and testimony under Fed.R.Evid. 702 because his opinions “will not help the trier of fact to understand the evidence or to determine a fact in issue.” Fed.R.Evid. 702(a). The court agrees. It thus grants plaintiffs' Motion to Exclude Report and Testimony of Gregory M. Kusiak (Doc. 303). It explains why, below.

         I. Factual Background

         To support defendant's breach of contract claim against plaintiffs in this lawsuit, defendant has designated Gregory M. Kusiak as an expert witness. On August 31, 2016, Mr. Kusiak provided a Preliminary Expert Report. Doc. 304 at 21-25. It recites that Mr. Kusiak has formed opinions after reviewing documents and contracts at issue in this case. These preliminary opinions include whether the Service Fee that defendant RMN agreed to pay under the parties' Agreement was “reasonably related” to the services plaintiffs provided. Id. at 23. Mr. Kusiak's opinions also address whether certain provisions in the parties' Agreement are “unusual” or differ from what he believes is “customary” for traditional practice management agreements. Id. at 24-25. Mr. Kusiak also opines that the Agreement contains several provisions that are “legal ‘red flags.'” Id. at 23. Specifically, his Preliminary Report recites:

3. In my opinion, several provisions in the Service Agreement are legal “red flags.” First, the Service Agreement does not permit RNM to select the individuals who would fill key positions in its practice management, such as the practice manager. It is customary in the practice management industry for a management company to employ the practice manager, but the physician group should have decisionmaking authority regarding the individual who will fill that position.
4. The next legal “red flag” I identified in the Service Agreement is the handling of the operating and capital budgets in Section 3.5 of the Service Agreement, under which RNM's operating and capital budgets are subject to review, modification, and approval by the Radiologix board of directors, and any disagreement regarding those budgets default to Radiologix and the non-professional members of the Joint Planning Board for decision. It is customary in the practice management industry, and essential for a successful radiology practice, for the medical practice professionals to hold final decision-making authority regarding its budgets.
. . .
6. Another legal “red flag” is the managed care contracting provision in Section 3.7 of the Service Agreement. Under that provision, if any of RNM's managed care contracts are determined to “affect” a “contract relationship” with any other group to which Plaintiffs or any of their affiliates provide management services, then physicians from other practices may vote to approve, disapprove, terminate or amend RNM's managed care contract. This provision that allows outside individuals to make decisions regarding RNM's contracts over RNM's objection is highly unusual and may present a variety of legal problems, including potential antitrust problems.
. . .
11. The service fee provided for in the Service Agreement is not related to the services Plaintiffs provide under the Service Agreement and is significantly inflated. In my opinion, the only purpose of such a service fee is to provide Plaintiffs with a means to siphon professional revenues from a Kansas medical practice.

Id. at 23-25.

         On February 6, 2017, Mr. Kusiak completed his Final Expert Report. Doc. 304 at 26-41. The Final Report removed the references to “legal red flags” that the Preliminary Report contained. But, otherwise, the Final Report's substance is similar to the Preliminary Report. It continues to opine that the parties' Agreement “differs from a traditional practice management agreement in significant and material ways.” Id. at 27. Mr. Kusiak's Report describes several of these purported differences:

a. The Service Agreement prohibits RNM from taking any action or implementing any decision that would have a “material adverse effect” on the amount of Administrator's management fee or Administrator's financial interests.
b. The Service Agreement requires RNM to consult with non-physicians - the Plaintiffs and non-physician members of the Joint Planning Board - in making decisions to increase or decrease the number of physicians in the practice. The Service Agreement and the Employment Agreements between RNM and its employed radiologists (the “Employment Agreement”) also grant Plaintiffs control over aspects of physician employment. Such an arrangement is highly unusual in a practice management contract.
c. The Service Agreement does not permit RNM to select the individuals who would fill key positions in its practice management, such as the practice manager. It is customary in the practice management industry for a management company to employ the practice manager, but the physician group should have decision-making authority regarding the individual who will fill that position.
d. RNM's operating and capital budgets are subject to review, modification and approval by the Radiologix board of directors, and any disagreement regarding those budgets default to Radiologix and the non-professional members of the Joint Planning Board for decision. It is customary in the practice management industry, and essential for a successful radiology practice, for the medical practice professionals to hold final decision-making authority regarding its budgets.
e. Under § 3.7 of the Service Agreement, if any of RNM's managed care contracts are determined to “affect” a “contract or relationship” with any other group to which Plaintiffs or any of their affiliates provide management services, then physicians from other practices may vote to approve, disapprove, terminate or amend RNM's managed care contract. This provision that allows outside individuals to make decisions regarding RNM's contracts over RNM's objections is highly unusual and may present a variety of legal problems, including potential antitrust problems.
f. It is highly unusual in the practice management industry for a practice manager to purchase a physician practice's accounts receivable on a daily basis. It is much more common, and more reflective of an appropriate superior-subordinate relationship, for the ownership of the accounts receivable to remain with the professional practice. The physician group then pays the practice management company its fee. Under the ...

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