Dylan Consulting Services LLC v. SingleCare Services LLC

Filing 55

ORDER - IT IS THEREFORE ORDERED that the Motion for Summary Judgment of SingleCare Services, LLC (Doc. 42 ) is GRANTED IN PART AND DENIED IN PART as follows: The Motion for Summary Judgment as to the GSA is DENIED; the Motion for Summary Judgment as to the RSA is GRANTED. (See document for complete details). Signed by Judge G Murray Snow on 3/26/18. (SLQ)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Dylan Consulting Services LLC,

No. CV-16-02984-PHX-GMS

Plaintiff,

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v.

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ORDER

SingleCare Services LLC,

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Defendant.

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Pending before the Court is the Motion for Summary Judgment of Defendant

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SingleCare Services LLC. (Doc. 42). For the following reasons, the Court grants the

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motion in part and denies the motion in part.

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BACKGROUND

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SingleCare Services (“SingleCare”) is a healthcare company that issues

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membership cards, entitling enrollees to discounts at specified healthcare providers.

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Dylan Consulting Services LLC (“Dylan”) is a consulting firm solely owned and

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operated by Wayne Goshkarian. In early 2016, SingleCare was a relatively new company

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looking to grow their networks of enrollees and partnering healthcare providers.

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SingleCare relies on distribution partners to market their discount card to potential

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enrollees. On April 18, 2016, SingleCare and Dylan entered into contracts, whereby

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Dylan would identify potential distribution partners for SingleCare.

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SingleCare and Dylan entered into two contracts to this effect. First, under the

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Group Sales Agreement (“GSA”), Dylan would introduce distribution partners to Single

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Care and receive a commission from any enrollees that the distribution partner signs up.

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Second, under the Retail Sales Agreement (“RSA”), Dylan would essentially act as a

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distribution partner itself and sign up enrollees directly, also receiving a commission for

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each enrollment. Both parties agree that all the work Dylan completed and for which it

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received compensation during the contract was under the GSA. (Doc. 44, ¶ 14; Doc. 52,

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¶ 14).

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Section One of the GSA states that “[Dylan] agrees to introduce and represent

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SingleCare to large employer group customers, associations, affinity groups and/or other

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member aggregators for the purpose of enrolling members or employees into the

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SingleCare program.” (Doc. 43, Ex. 5). The contract further provides that “[Dylan] and

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SingleCare shall work together to qualify introductions as viable. [Dylan] shall provide

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SingleCare with the name, market segment and proposed distribution method for each

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prospect in advance of an introduction. Upon mutual agreement that the prospect is

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viable, an introduction via email, telephone call or in-person meeting shall be made.” Id.

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The contract terminates two years after the date of signing or if “[Dylan] purposefully

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misrepresents SingleCare or otherwise fails to comply with Section [One].” Id.

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SingleCare terminated both the GSA and the RSA on July 29, 2016. (Doc. 43, Ex.

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11).

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materially breached the GSA contract by failing to comply with Section One’s

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requirement that Dylan provide SingleCare with information about potential distribution

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partners before recruiting them as distribution partners. Dylan brought suit against

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SingleCare alleging breach of contract. (Doc. 1).

SingleCare alleges that it is justified in terminating the GSA because Dylan

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DISCUSSION
I.

Legal Standard

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Summary judgment is appropriate if the evidence, viewed in the light most

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favorable to the nonmoving party, demonstrates “that there is no genuine dispute as to

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any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ.

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P. 56(a). Substantive law determines which facts are material and “[o]nly disputes over

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facts that might affect the outcome of the suit under the governing law will properly

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preclude the entry of summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

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248 (1986). “A fact issue is genuine ‘if the evidence is such that a reasonable jury could

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return a verdict for the nonmoving party.’” Villiarimo v. Aloha Island Air, Inc., 281 F.3d

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1054, 1061 (9th Cir. 2002) (quoting Anderson, 477 U.S. at 248). When the nonmoving

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party “bear[s] the burden of proof at trial as to an element essential to its case, and that

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party fails to make a showing sufficient to establish a genuine dispute of fact with respect

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to the existence of that element, then summary judgment is appropriate.” Cal.

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Architectural Bldg. Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th

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Cir. 1987) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986)).

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II.

Analysis

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Defendant, SingleCare, seeks summary judgment (1) because Dylan materially

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breached the GSA contract, and thus SingleCare was entitled to terminate the contract for

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cause and (2) Dylan’s measure of damages under either the GSA or the RSA are too

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speculative to sustain a claim.

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A.

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Under Arizona law, a claim for breach of contract has three elements: (1) a

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contract exists between the plaintiff and the defendant; (2) the defendant breached the

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contract; and (3) the breach resulted in damage to the plaintiff. See Frank Lloyd Wright

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Foundation v. Kroeter, 697 F.Supp.2d 1118, 1125 (D. Ariz. 2010). An “uncured material

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breach of contract relieves the non-breaching party from the duty to perform and can

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discharge that party from the contract.” Murphy Farrell Development, LLLP v. Sourant,

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272 P.3d 355, 364 (Ariz. Ct. App. 2012) (citing Zancanaro v. Cross, 339 P.2d 746, 750

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(Ariz. 1959). A claim of material breach is an affirmative defense to a breach of contract

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claim. See Frank Lloyd Wright Foundation at 1133. Therefore, the burden is on the party

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asserting material breach, here, SingleCare, to demonstrate that there is no genuine

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dispute of material fact and that it is entitled to judgment as a matter of law. Id.

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Material Breach of the GSA

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Not every breach of a contract is a material breach. A breach is material breach

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when “(1) a party fails to perform a substantial part of the contract or one or more of its

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essential terms or conditions or (2) fails to do something required by the contract which is

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so important that the breach defeats the very purpose of the contract.” Dialog4 System

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Engineering GmbH v. Circuit Research Labs, Inc., 622 F.Supp.2d 814, 822 (D. Ariz.

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2009). To determine whether a breach is material, “the court or jury should consider the

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nature of the promised performance, the purpose of the contract, and the extent to which

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any deficiencies in performance have defeated that purpose.” Id. (citations omitted). The

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determination of whether a breach is material “is a question of fact for the jury to resolve

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. . . unless the evidence adduced is susceptible of only one reasonable interpretation.” Id.

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(internal citations and quotations omitted). The allegedly breaching party “[o]rdinarily

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[has] some period of time between suspension [of the contract] and discharge [of the

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contract], and during this period a party may cure his failure [or breach].” Restatement

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(Second) of Contracts § 242 comment a; see also Murphy Farrell, 272 P.3d at 364 (citing

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the Restatement). It is only an “uncured material breach of contract [which] relieves the

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non-breaching party from the duty to perform.” Murphy Farrell, 272 P.3d at 364

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(emphasis added). Therefore, a “non-breaching party is only discharged from the contract

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if (1) a material breach occurs and (2) a cure is no longer possible.” Marquette Venture

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Partners II, L.P. v. Leonesio, No. 1 CA-CV 09-0166, 2011 WL 1867517, *4 (Ariz. Ct.

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App. 2011).

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Material questions of fact exist as to whether Dylan materially breached the

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contract with SingleCare. First, the parties dispute whether the provision in the contract

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requiring Dylan to “provide SingleCare with the name, market segment and proposed

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distribution method for each prospect in advance of an introduction” is a material term of

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the contract. SingleCare argues that this term is material because SingleCare prioritizes

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finding enrollees who are likely to utilize the discount card and because SingleCare wants

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to control the information being sent to potential distribution partners. (Doc. 44, ¶¶ 3, 11,

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22). Dylan, on the other hand, claims that SingleCare instructed Dylan to find as many

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enrollees as possible, because healthcare providers would only agree to offer discounts if

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there was already a large pool of enrollees. (Doc. 52, ¶¶ 3, 5, 9, 10). Under Dylan’s

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understanding, SingleCare would not need to prioritize enrollees likely to utilize the

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discount card, thus making it less necessary for SingleCare to screen potential

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distribution partners. Second, the parties dispute whether Dylan breached the contract.

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SingleCare alleges that Dylan repeatedly failed to discuss potential distribution partners

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with SingleCare before sending information to the potential distribution partners. (Doc.

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44, ¶¶ 29, 30, 39, 40, 42, 44). Dylan, however, states that it was in constant

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communication with SingleCare’s Vice President of Field Sales & Marketing, David

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Slepak, both by phone and by copying Mr. Slepak on almost all emails sent by Dylan.

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(Doc. 52, ¶¶ 21, 22, 25, 29, 30). Dylan also states that it provided a list of 500 potential

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distribution partners to SingleCare at the outset and that SingleCare gave Dylan approval

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to contact these prospects. Finally, there are disputes of fact over whether SingleCare

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warned Dylan of the alleged breach and gave Dylan an opportunity to cure. SingleCare

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states that, as soon as they realized potential distribution partners were being contacted

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without prior approval, they informed Dylan. They did this by asking Dylan to focus on

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specific kinds of distribution partners and telling Dylan that it was important to discuss

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partnerships first. (Doc. 44, ¶¶ 36, 37, 41). Dylan, however, characterizes the termination

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as out of the blue. (Doc. 52, ¶¶ 30, 37, 39, 43). The burden is on SingleCare to

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demonstrate there is no material dispute of fact as to its affirmative defense, and

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SingleCare has not met that burden. These factual disputes prevent summary judgment.

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B.

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A plaintiff must show that a breach of contract resulted in damages to the plaintiff.

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Therefore, “[d]amages that are speculative, remote or uncertain may not form the basis of

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a judgment.” Coury Bros. Ranches, Inc. v. Ellsworth, 446 P.2d 458, 464 (Ariz. 1968).

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But, “[p]roof of the fact of damages must be of a higher order than proof of the amount of

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damages.” Id; see also Harris Cattle Co. v. Paradise Motors, Inc., 448 P.2d 866, 868

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(Ariz. 1968) (“The rule which precludes the recovery of uncertain damages applies to

Damages under the GSA

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such as are not the certain result of the wrong, not to those damages which are definitely

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attributable to the wrong and only uncertain in respect of their amount.”). Still, although

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“doubts as to the extent of the injury should be resolved in favor of the innocent plaintiff

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and against the wrongdoer,” “it cannot dispel [the] requirement that the plaintiff’s

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evidence provide some basis for estimating his loss.” Gilmore v. Cohen, 386 P.2d 81, 82

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(Ariz. 1963). Determining the evidence required to prove damages “depends on the

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individual circumstances of each case.” Short v. Riley, 724 P.2d 1252, 1255 (Ariz. Ct.

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App. 1986) (noting that in determining damages for lost profits of a new business, “courts

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have considered the profit history from a similar business operated by the plaintiff at a

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different location”). It is “the genius of the common law that difficult damage questions

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are left to juries.” Felder v. Physiotherapy Associates, 158 P.3d 877, 886 (Ariz. Ct. App.

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2007) (quoting Walker v. Mart, 790 P.2d 735, 739 (Ariz. 1990)).

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SingleCare argues that Dylan failed to demonstrate damage from the contract

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termination in two ways. First, SingleCare argues that because the right to accept a

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contract with any potential distribution partner under the GSA always rested exclusively

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with SingleCare itself, Dylan cannot establish that the termination of the contract resulted

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in any harm. Put differently, SingleCare is arguing that Dylan cannot establish the fact of

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damages for any alleged breach of the GSA. However, Dylan notes that the contract

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requires both parties to “work in good faith to convert prospects to clients in a timely

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manner.” (Doc. 43, Ex. 5; Doc. 52, ¶¶ 25, 28). SingleCare characterizes the contract as

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“terminable at will” due to the company’s discretion in deciding whether to accept

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distribution partners. (Doc. 53, p. 3). But this argument reads out the good faith

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limitation. With twenty-one months left on the contract, the conversion of some potential

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distribution partners into actual distribution partners, and a starting list of 500 potential

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distribution partners, the likelihood that Dylan would have earned commissions from

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newly established distribution partners is not unacceptably speculative. At the very least,

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there is a material dispute of fact as to whether Dylan would have produced additional

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distribution partners that SingleCare, acting in good faith, would have accepted.

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Second, SingleCare asserts that Dylan’s calculation of damages is too speculative.

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SingleCare terminated the contract with Dylan after three months. Dylan only began

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earning his commission in June 2016, making $9,594.00 in that month. Dylan calculates

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its damages by assuming that it would continue to make $9,594.00 every month from the

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distribution partners who resulted in that commission in June 2016. Dylan then also

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assumes that it would be able to find new distribution partners who could earn that same

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commission in every future month of the contract. A material dispute of fact exists as to

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what Dylan would have been able to earn in commissions had the contract continued for

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the duration. That question is for the jury. Dylan has proposed a method of calculation

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that the jury is able to evaluate, accept, reject, or accept in part. Dylan has put forward

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sufficient evidence of actual damages and the amount of damages, and so disputes of fact

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on these issues defeat summary judgment.

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C.

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Both parties agree that during the three months that the contract was in force

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Dylan did not earn any revenue based on the RSA. SingleCare characterizes the RSA as

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“an afterthought to cover any situations in which Dylan enrolled qualified individuals

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directly and did not play a significant role in the parties’ relationship.” (Doc. 42, n. 2).

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Dylan “concedes that [its] efforts were to focus on the GSA.” (Doc. 51, p. 3). Unlike the

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GSA, SingleCare has not asserted that its termination of the RSA is justified by Dylan’s

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breach of it; rather it asserts that up to the time of its cancellation by SingleCare, Dylan

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earned no revenue pursuant to it, and has established no damage theory upon which to

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recover. (Doc. 42, n. 2) (“[T]he Company also seeks summary judgment on Dylan’s

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claim for breach of the RSA because Dylan cannot demonstrate any damages under the

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RSA.”).

The RSA

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When the nonmoving party “bear[s] the burden of proof at trial as to an element

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essential to its case, and that party fails to make a showing sufficient to establish a

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genuine dispute of fact with respect to the existence of that element, then summary

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judgment is appropriate.” Celotex Corp., 477 U.S. at 322–23. In its Motion, SingleCare

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raised the argument that Dylan cannot establish any damages under the RSA. As damages

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are an essential element of a breach of contract claim under Arizona law, Dylan would

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bear the burden of proof on this element at trial. In response to SingleCare’s Motion,

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Dylan made no attempt to put forward a theory on which damages might be calculated.

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Dylan only discusses damages in the context of the GSA. (Doc. 51, pp. 7–8) (noting that

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revenue “would easily have been replicated for the remainder of the GSA period” and that

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“Dylan’s calculation, of course, is based on SingleCare honoring the precise terms of the

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GSA”) (emphasis added). Because Dylan cannot show any past damages or any efforts on

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working pursuant to the RSA, Dylan has failed to make a showing sufficient to establish

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a genuine dispute of fact. The Court grants SingleCare’s Motion for Summary Judgment

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as to the breach of contract of the RSA.

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CONCLUSION

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Material questions of fact remain over whether Dylan materially breached the

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contracts, excusing SingleCare from performance. Dylan has sufficiently established

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damage and proposed a method of calculating damages for the question to go to the jury.

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Therefore, summary judgment is inappropriate.

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IT IS THEREFORE ORDERED that the Motion for Summary Judgment of

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SingleCare Services, LLC (Doc. 42) is GRANTED IN PART AND DENIED IN PART

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as follows:

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(1)

The Motion for Summary Judgment as to the GSA is DENIED;

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(2)

The Motion for Summary Judgment as to the RSA is GRANTED.

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Dated this 26th day of March, 2018.

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Honorable G. Murray Snow
United States District Judge

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