Hooper Holmes, Inc. et al v. Wellness Corporate Solutions, LLC
MEMORANDUM AND ORDER denying 60 Motion for Summary Judgment; granting in part and denying in part 100 Motion for Summary Judgment. Signed by District Judge Daniel D. Crabtree on 12/06/2017. (mig)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
SOLUTIONS, LLC, et al.,
Case No. 16-2494-DDC-TJJ
MEMORANDUM AND ORDER
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.
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).
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
The parties executed an amendment to the MSA on August 11, 2014. But, this lawsuit does not involve
any provision in the amendment.
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).
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.
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
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.
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).
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
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.
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 are citizens of different states and more than $75,000 is in
controversy, the court has subject matter jurisdiction over this action.
Choice of Law
The court next determines which state’s substantive law governs the parties’ claims.
Rigby v. Clinical Reference Lab., Inc., 995 F. Supp. 1217, 1221 (D. Kan. 1998) (citing Erie R.
Co. v. Tompkins, 304 U.S. 64, 78 (1938)). In a diversity jurisdiction case, like this one, federal
courts apply the choice of law rules of the forum state. See Klaxon Co. v. Stentor Elec. Mfg. Co.,
313 U.S. 487, 496 (1941). That is Kansas, of course.
Kansas’ choice of law principles provide, “[w]here the parties to a contract have entered
an agreement that incorporates a choice of law provision, Kansas courts generally [apply] the
law chosen by the parties . . . .” Brenner v. Oppenheimer & Co. Inc., 44 P.3d 364, 375 (Kan.
2002). Here, the MSA recites that Delaware law governs the contract. MSA ¶ 13. The court
thus applies Delaware law to the contract claims.
For the tort claims, Kansas law applies the “law of the ‘place of the wrong.’” Atchison
Casting Corp. v. Dofasco, Inc., 889 F. Supp. 1445, 1455 (D. Kan. 1995) (citing Ling v. Jan’s
Liquors, 703 P.2d 731, 735 (Kan. 1985)). “The ‘place of the wrong’ is that place where the last
event necessary to impose liability took place.” Id. “In the case of alleged financial harm . . . ,
the court looks to the state in which the plaintiff felt the harm.” Carolina Indus. Prods., Inc. v.
Learjet, Inc., 189 F. Supp. 2d 1147, 1163 n.12 (D. Kan. 2001). A plaintiff feels financial harm in
the state where it resides. See id. (using Kansas choice of law principles and applying Georgia
law to a tortious interference with business expectancy claim because plaintiffs’ principal place
of business was Georgia). Here, plaintiffs’ principal place of business is Kansas, so the court
applies Kansas law to plaintiffs’ tort claims.
Decisions by the state’s highest court determine that state’s law. Etherton v. Owners Ins.
Co, 829 F.3d 1209, 1223 (10th Cir. 2016). When a state’s highest court has not decided a
germane issue, the court may look to lower state court decisions as persuasive authority for what
the highest court would hold unless contrary evidence exists. Id.
Breach of Contract
Because defendant’s Counterclaim and Count I of plaintiffs’ Complaint turn on the same
legal issues, the court addresses them together. Both claims assert a breach of contract theory.
To prove a breach of contract claim, Delaware requires the claiming party to show (1) a contract
existed, (2) a party materially breached an obligation imposed by that contract, and (3) the
breach damaged the other party. VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612
(Del. 2003). But, a party who materially breaches the contract first cannot recover for the other
party’s later breach. Hudson v. D & V Mason Contractors, Inc., 252 A.2d 166, 170 (Del. Super.
Ct. 1969). The parties agree that the MSA is a valid and enforceable contract.
Defendant argues that it deserves summary judgment on its breach of contract
Counterclaim because plaintiffs refused to pay defendant for work defendant had performed
under the MSA. And so, defendant argues, it deserves summary judgment against plaintiffs’
breach of contract claim because plaintiffs’ earlier breach of the MSA forecloses them from
recovering for defendant’s later alleged breach based on dealings with plaintiffs’ former client,
GAF.2 See id. Plaintiffs respond by arguing that genuine issues of fact preclude the court from
entering summary judgment on defendant’s Counterclaim or against plaintiffs’ breach of contract
claim. One such issue, plaintiffs contend, is whether plaintiffs materially breached the MSA
before June 9, 2016—the day when GAF informed plaintiffs that it would no longer contract
with them. According to plaintiffs, they never committed a material breach capable of
foreclosing them from recovering for defendant’s breach. Plaintiffs also argue that defendant’s
material breach on June 9 discharged plaintiffs’ duty to pay defendant under the MSA.
In short, if the court finds that the undisputed facts, viewed in the light most favorable to
plaintiffs, establishes that plaintiffs materially breached the contract before June 9, then
defendant is entitled to summary judgment on its Counterclaim and against plaintiffs’ breach of
contract claim. Conversely, if the court determines that a reasonable factfinder could conclude
that plaintiffs’ breach was not material, then the court cannot grant summary judgment on either
Plaintiffs assert that their late payments did not constitute a material breach for three
basic reasons. First, plaintiffs argue, they did not breach the MSA materially when they failed to
pay defendant. Second, even if plaintiffs breached the original MSA, the parties modified the
For purposes of this motion, neither party contests that defendant materially breached the MSA when it
contracted with plaintiffs’ client, GAF—assuming plaintiffs’ breach does not foreclose plaintiffs from recovering.
MSA in late 2015. Last, plaintiffs argue that defendant has waived its right to demand timely
payment. The court addresses these three arguments, below.
Whether Plaintiffs’ Breach before June 9, 2016 Was Material
While a material breach by one party excuses the other party’s performance of its
obligations under the contract, a slight breach will not. BioLife Sols., Inc. v. Endocare, Inc., 838
A.2d 268, 278 (Del. Ch. 2003). Whether a party has breached a contract materially is a question
“of degree and is determined by ‘weighing the consequences in light of the actual custom of
[people] in the performance of contracts similar to the one that is involved in the specific case.’”
Id. (quoting E. Elec. & Heating, Inc. v. Pike Creek Prof’l Ctr., Nos. 85C-MR-79, 85L-AP-21,
85L-MY-1, 1987 WL 9610, at *4 (Del. Super. Ct. Apr. 7, 1987) (further citations omitted)).
This determination generally turns on factual issues. Norfolk S. Ry. Co. v. Basell USA Inc., 512
F.3d 86, 92 (3d Cir. 2008) (citing Saienni v. G & C Capital Grp., Inc., No. 96C-07-151JOH,
1997 WL 363919, at *3 (Del. Super. Ct. May 1, 1997)).
To determine if a breach is material, Delaware courts follow the Restatement (Second) of
Contracts. BioLife, 838 A.2d at 278 (citing Restatement (Second) of Contracts § 241 (Am. Law
Inst. 1981)). This Restatement provision instructs courts to analyze factors such as: (a) the
extent to which the breach deprived the injured party of a reasonably expected benefit; (b) the
extent to which the breaching party can compensate the injured party adequately for the
reasonably expected benefit; (c) “the extent to which the [breaching party] will suffer forfeiture;”
(d) “the likelihood that the [breaching party] will cure his failure;” and (e) “the extent to which
the behavior of the [breaching party] comports with standards of good faith and fair dealing.”
Restatement (Second) of Contracts § 241. After analyzing the factors specified by § 241 under
the summary judgment facts, the court finds that a reasonable factfinder properly could conclude
that plaintiffs’ breach of the MSA was or was not a material breach. The court discusses each
factor germane to this conclusion, in turn, below.
The Extent to which the Breach Deprived the Injured Party of
a Reasonably Expected Benefit
“[A]n important circumstance in determining whether a failure is material is the extent to
which the injured party will be deprived of the benefit which he reasonably expected from the
exchange.” Id. cmt. b. In some circumstances, Delaware courts consider a breaching party's
failure to pay as required by the contract a material breach. See, e.g., Commonwealth Const. Co.
v. Cornerstone Fellowship Baptist Church, Inc., No. 04L-10-101 RRC, 2006 WL 2567916, at
*21 (Del. Super. Ct. Aug. 31, 2006) (holding a party materially breached a contract when it
refused to pay the injured party $115,311). Seizing this authority, defendant argues that
plaintiffs’ breach—failing to pay at least $234,807 on time for defendant’s work under the
contract—deprived defendant of a significant benefit that it reasonably expected to receive under
the MSA. Plaintiffs contend the summary judgment facts establish that defendant lacked a
reasonable expectation that plaintiffs would pay on time.
Here, the undisputed evidence shows that defendant expected plaintiffs to pay amounts
under the contract ranging from $234,807 and $592,990 at various times before defendant
allegedly breached the contract. Doc. 101-8. Viewing the evidence in the light most favorable
to plaintiffs, the court finds that this first factor favors defendant, but not decisively. Defendant
argues that it had a reasonable expectation of plaintiffs paying on time. Perhaps a factfinder,
after a full trial, would agree with defendant. But, a reasonable factfinder also could find that
defendant expected plaintiffs to accumulate an outstanding balance from time-to-time. Indeed,
the parties agreed in the MSA to procedures governing the parties’ rights if plaintiffs paid late.
From this provision, a reasonable factfinder could decide that defendant expected plaintiffs
might accumulate an outstanding balance and so, when plaintiffs did so, they did not breach the
But, no reasonable factfinder could conclude that an accumulated balance of $234,807—
the least plaintiffs owed according to the summary judgment record—is an insignificant benefit
of the MSA. Indeed, the main benefit the MSA conferred on defendant was plaintiffs’ payment
for defendant’s work. An unpaid balance of this dimension tips the scale and favors a finding
that plaintiffs materially breached the MSA.
The Extent to which the Breaching Party Can Adequately
Compensate the Injured Party for the Reasonably Expected
The second factor considers whether the breaching party can compensate the injured
party adequately by restitution. Restatement (Second) of Contracts § 241 cmt. c. If a court
cannot calculate damages resulting from the breach with ease, then this factor favors a finding
that the breach is material. See Norfolk, 512 F.3d at 94.
In Norfolk, the trial court granted summary judgment against a breach of contract claim,
finding that no reasonable factfinder could conclude that the breach was material under Delaware
law. Id. at 93. The Third Circuit reversed this holding. Id. In so reversing, the circuit court
analyzed each Restatement factor. Id. When it discussed this second factor, the appeals court
found that a reasonable factfinder could conclude that the breaching party could not compensate
the injured party adequately by restitution. Id. at 94. To support this conclusion, the Third
Circuit noted that the parties’ damage calculations differed by about $12,000. Id. And, it
observed, future lost profits—one of the categories of damages the parties had calculated—
created “inherent uncertainty regarding precisely how large those additional damages would be.”
Id. Given the parties’ divergent damage calculations and the uncertainty in calculating future
lost profits, the court of appeals found that the summary judgment facts could support a finding
that restitution may not compensate the injured party adequately.
In contrast, the summary judgment facts here establish that plaintiffs could compensate
defendant adequately. Defendant has submitted an affidavit that claims plaintiffs owe it
$235,156 plus interest at a rate of 1.5% per month. Doc. 61-1 ¶ 16. Plaintiffs have not
submitted any evidence disputing defendant’s calculations. Nor does defendant claim any
damages from future lost profits or other categories of damages that a factfinder would find
difficult to calculate. Because one can calculate defendant’s damages easily, and no uncertainty
exists about the dimension of those damages, this second factor favors the conclusion that
plaintiffs’ breach was not a material one.
The Extent to which the Breaching Party Will Suffer
The third factor asks whether the breaching party “ʻhas relied substantially on the
expectation of the exchange, as through preparation or performance.’” Norfolk, 512 F.3d at 94
(quoting Restatement (Second) of Contracts § 241 cmt. d)). If the breaching party has relied
substantially on the contract, this third factor weighs against a finding that the breaching party’s
breach was material. Id. This factor turns on several subsidiary facts, including how late into the
contract the breach occurred and whether the breaching party had relied to its detriment on the
contract. See id.
In Norfolk, a summary judgment case, the Third Circuit concluded that this factor did not
favor or disfavor a finding that a breach was material. Id. at 94–95. Importantly, the breaching
party had contracted to ship a certain percentage of its goods with the aggrieved party at a
discounted rate. Id. at 89. The breaching party’s shipment rate fell below that percentage when
it contracted with another shipper. Id. at 90. Norfolk pointed to the summary judgment facts
showing that the breach had occurred three years into a five-year contract—over halfway
through the contract period. Id. at 94. This weighed against finding that the breach was
material. Id. And, the breaching party relied upon the discounted rates agreed to in the contract
when setting the prices of its own goods. Id. But Norfolk also observed that three years into a
five-year contract was not extraordinarily late and the breaching party’s conduct had caused the
change in rates on which it relied. Id.
Here, plaintiffs’ breach occurred more than 18 months into the three-year MSA. Doc.
61-2 ¶ 8. But plaintiffs identified no evidence of detrimental reliance. The court finds that a
reasonable factfinder could conclude that this factor is a neutral one but it would not have to
conclude that this factor favors a finding that plaintiffs materially breached the MSA. While
plaintiffs breached the contract late in the contract period, the summary judgment facts do not
establish that plaintiffs detrimentally relied on the MSA. This factor is neutral.
The Likelihood that the Breaching Party Will Cure its Failure
The fourth factor focuses on any assurances the breaching party gave the injured party
that the breaching party would cure its failure. Norfolk, 512 F.3d at 95. In Norfolk, the Third
Circuit found that this factor favored a finding of materiality because the breaching party had
given no assurances that it would fulfill its contractual obligations. Id. And the contract that
caused the breaching party to ship a lower percentage of its goods with the injured party was still
in place. Id.
A much different situation exists here. Plaintiffs have produced two emails from its
Chief Financial Officer addressing the outstanding balance. In the CFO’s first email, sent on
November 4, 2015, the CFO states, “[Plaintiffs] will make sure we pay at least $10,000 per
week, starting this week. As our cash flow improves from collections we will increase this
amount until the entire balance is paid off.” Doc. 61-5. When plaintiffs still carried an
extraordinary outstanding balance in December 2015, plaintiffs’ CFO sent a second email on
December 14, 2015. It reassured defendant that plaintiffs would have money to pay defendant in
mid-January 2016. Doc. 61-6. Defendant’s billing statement shows that plaintiffs made these
payments in January 2016, and then increased their payments to $20,000 per week in February
2016. On these facts, a reasonable factfinder could conclude that plaintiffs gave assurances to
defendant that they would retire the remaining balance. Thus—at summary judgment at least—
this factor disfavors a finding that plaintiffs’ breach was material.
The Extent to which the Behavior of the Breaching Party
Comports with Standards of Good Faith and Fair Dealing
The last factor asks if the breaching party acted in good faith when it breached the
contract. Norfolk, 512 F.3d at 95. If the breaching party acted in good faith, this factor weighs
against a finding that the breach was material. Id. Here, plaintiffs’ CFO emailed defendant
about the missing payments in November 2015. Doc. 61-5. Also, the CFO explained that
plaintiffs were working through a busy season and they did not have the money on hand to pay
defendant because plaintiffs’ clients typically paid plaintiffs for the services defendant had
provided about 90 days after defendant provided the services. Id. As a compromise, plaintiffs’
CFO offered to pay $10,000 per week to assure defendant that plaintiffs would pay in full.
Defendant’s CFO acknowledged this promise. Doc. 84-1. A reasonable factfinder could
conclude that plaintiffs provided a legitimate reason for failing to pay defendant—they did not
have enough cash on hand because of their payment schedule—even though it did not save them
from committing a breach. And, plaintiffs explained why they had an outstanding balance and
offered to provide a solution to retire the debt. A reasonable factfinder thus could find that
plaintiffs acted in good faith. So, this last factor weighs against a finding that plaintiffs
materially breached the MSA.
Based on the factors listed in Restatement (Second) of Contracts and the summary
judgment facts, the court holds that a reasonable factfinder could find that plaintiffs’ breach was
not material. The first factor—how significantly the breach deprived defendant of a reasonably
expected benefit—favors a finding that the breach was material. The third factor—the extent to
which plaintiffs detrimentally relied on the MSA—is a neutral one. But, a reasonable factfinder
could find that the remaining factors favor finding that the breach was not material.
Because a reasonable factfinder could find that three factors favor finding the breach was
not material and only one factor favors the opposite conclusion, the court concludes that a
reasonable factfinder could find that plaintiffs’ breach before June 9, 2016, was not material.
Defendant thus does not deserve summary judgment against plaintiffs’ claim in their Count I and
in defendant’s favor on its Counterclaim.
Whether the Parties Modified the MSA3
Plaintiffs also assert they never breached the MSA before defendant contracted with
plaintiffs’ former client because plaintiffs assert that the parties had modified the payment terms
of the MSA. Plaintiffs contend that this modification occurred when plaintiffs’ CFO offered to
make weekly payments to satisfy the outstanding balance owed, and defendant accepted the
proposal. Defendant argues that the parties never modified the MSA because there was no
Under Delaware law, consideration is a bargained for benefit or legal detriment. Cont’l
Ins. Co. v. Rutledge & Co., Inc., 750 A.2d 1219, 1232 (Del. Ch. 2000). A pre-existing duty
Although the court already has concluded that the summary judgment facts present a genuine issue whether
plaintiffs breached the contract materially before June 9, 2016, and thus denied summary judgment against Count I
and in favor of defendant’s Counterclaim, the court nonetheless considers plaintiffs’ other arguments why, they
contend, they never breached the MSA.
cannot supply the requisite benefit. Id.; see also James J. Gory Mech. Contracting, Inc. v. BPG
Residential Partners V, LLC, No. 6999-VCG, 2011 WL 6935279, at *2 (Del. Ch. Dec. 30, 2011)
(holding that the court would not enforce a purported contract modification to pay an outstanding
debt in installments because the debtor legally owed that debt under the original contract).
Here, plaintiffs owed a pre-existing duty to pay defendant their outstanding balance. The
MSA required plaintiffs to pay defendant for its services within 45 days of receiving the invoice.
Doc. 61-2 ¶ 7. And, the MSA imposed an interest rate of 1.5% per month for any outstanding
balance. Id. In the emails that, according to plaintiffs, modified the contract, plaintiffs’ CFO
said that plaintiffs would pay at least $10,000 per week. Defendant’s CFO acknowledged this
promise, but responded that defendant would charge the interest rate specified in the MSA. This
“modification” thus did not differ from plaintiffs’ pre-existing duty under the MSA—namely to
pay the outstanding balance with 1.5% interest per month. Because the parties never supported
this payment schedule with new consideration, the parties never modified the MSA.
Whether Defendant Waived its Right to Timely Payment
Plaintiffs also argue that they never breached the MSA because defendant waived its
right to timely payment. Delaware law allows parties to waive performance of contractual rights.
Amirsaleh v. Bd. of Trade of City of N.Y., Inc., 27 A.3d 522, 529 (Del. 2011). But, the proponent
of a purported waiver must demonstrate unequivocal facts showing that “ʻknowledge of all
material facts and an intent to waive, together with a willingness to refrain from enforcing those
rights.’” Id. (quoting Bantum v. New Castle Cty. Vo-Tech Educ. Ass’n, 21 A.3d 44, 50 (Del.
2011) (further citation omitted)). To demonstrate such an intent, the proponent of the waiver
must show “that the waiving party knows of that requirement or condition” and “that the waiving
party intends to waive that requirement or condition.” Id. at 531.
Plaintiffs have fallen short of this exacting standard. See id. at 530. The MSA provides
that a waiver of a breach is not a waiver of any obligation created by the contract. MSA ¶ 20.
This provision means defendant cannot waive its right to timely payment. See AgroFresh Inc. v.
MirTech, Inc., 257 F. Supp. 3d 643, 660 (D. Del. 2017) (“Delaware courts have consistently held
that the existence of an express non-waiver provision precludes a contracting party from arguing
that the other party’s conduct waived a contractual right.”) (citing Cent. Mortg. Co. v. Morgan
Stanley Mortg. Cap. Holdings LLC, No. 5140-CS, 2012 WL 3201139, at *7, *26 (Del. Ch. Aug.
7, 2012)). No reasonable factfinder could conclude that defendant waived its right to timely
Defendant also argues that it is entitled to summary judgment against plaintiffs’
declaratory judgment claim even if a reasonable factfinder could conclude that defendant
materially breached the MSA. In Count V, plaintiffs ask the court to enter a judgment declaring
that plaintiffs owe defendant nothing because defendant has breached the MSA materially. But
“ʻ[t]he party in breach is entitled to restitution for any benefit that he has conferred by way of
part performance.’” Preferred Inv. Servs., Inc. v. T & H Bail Bonds, Inc., No. 5886VCP, 2013
WL 3934992, at *21 (Del. Ch. July 24, 2013).
Here, a reasonable factfinder could not conclude that defendant failed to confer $235,156
worth of benefit on plaintiffs. Even if a reasonable factfinder concludes that defendant
materially breached the MSA, defendant is entitled to restitution for the benefit it conferred by its
performance. So plaintiffs are not entitled to a judgment declaring that they owe defendant
nothing because of defendant’s material breach. The court thus grants summary judgment
against Count V.
Implied Covenant of Good Faith and Fair Dealing
Count II of the Complaint claims that defendant breached the implied covenant of good
faith and fair dealing by encouraging plaintiffs’ former client to terminate its relationship with
plaintiffs. A party breaches this implied covenant when it acts unreasonably or arbitrarily in a
way that prevents “ʻother parties to the contract from receiving the fruits of the bargain.’”
Kuroda v. SPJS Holdings, L.L.C., 971 A.2d 872, 888 (Del. Ch. 2009) (quoting Dunlap v. State
Farm Fire & Cas. Co., 878 A.2d 434, 442 (Del. 2005) (further citation omitted)). To succeed on
this implied covenant claim, plaintiffs must show a “specific implied contractual obligation” and
“how a violation of that obligation denied [it] the fruits of the contract.” Id.
Defendant argues that plaintiffs’ good faith and fair dealing claim fails because invoking
the doctrine would expand the scope of the non-compete clause in the MSA. Indeed, “ʻ[o]ne
generally cannot base a claim for breach of the implied covenant on conduct authorized by the
agreement.’” Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010). And, “[t]he implied
covenant only applies to developments that could not be anticipated, not developments that the
parties simply failed to consider . . . .” Id. When deciding whether to apply the good faith and
fair dealing doctrine, courts “must assess the parties’ reasonable expectations at the time of
contracting and not rewrite the contract to appease a party who later wishes to rewrite a contract
[it] now believes to have been a bad deal.” Id. Courts should invoke the doctrine rarely, and
only after conducting a fact-intensive exercise, “governed solely by ‘issues of compelling
fairness.’” Dunlap, 878 A.2d at 442. If it is clear that the contracting parties would have agreed
to prohibit the conduct that the plaintiffs complain about, the court can apply the doctrine. Id.
Plaintiffs argue that defendant breached an implied covenant by contracting with
plaintiffs’ former client. Specifically, plaintiffs say the MSA impliedly prohibits defendant from
using a third party—here Aon Hewitt—to encourage plaintiffs’ clients from contracting with
defendant. But, the MSA already prohibits such conduct explicitly. And a plaintiff cannot use
an implied covenant theory to recover for defendant’s failure to abide by an express contract
term. Id. (“To the extent that [plaintiff’s] implied covenant claim is premised on the failure of
defendants to pay money due under the contract, the claim must fail because the express terms of
the contract will control such a claim.”).
The MSA contains three broad prohibitions preventing defendant from competing with
plaintiffs. First, “[defendant] shall not encourage any [client of plaintiffs], either directly or
indirectly, to terminate its relationship with [plaintiffs] . . . .” MSA ¶ 23(i)(i). Second,
“[defendant] shall not directly solicit or market [defendant’s] Services to [a client of plaintiffs] in
any way to compete with [plaintiffs].” Id. ¶ 23(i)(ii). Last, “[defendant] shall not use any
confidential information . . . or any other data or information provided by [plaintiffs] . . . to
compete in any way with [plaintiffs] . . . .” Id. ¶ 23(ii).
The first provision prohibits defendant from using a third party to encourage another
party to terminate its relationship with plaintiffs. Using a third party to convince one of
plaintiffs’ clients to leave plaintiffs indirectly encouraged a customer to terminate its relationship
with them. And any action by defendant taken to convince plaintiffs’ former client to leave for
defendant—even if the third party was the one who initiated the contact—would violate the
The MSA’s second provision also prohibits defendant from actively convincing
plaintiffs’ former client to leave plaintiffs, even if a third party initiated the first contact for
defendant. Conduct of this nature violates the second provision because if defendant convinces
plaintiffs’ former client to end its relationship with plaintiffs, a reasonable factfinder could find
that defendant was soliciting and marketing its services to plaintiffs’ client. In short, these
competition prohibitions are broad and prohibit defendant from taking any action to recruit
If defendant argues that the third party contacted and GAF left on its own without any
encouragement by defendant, such conduct would fall outside the scope of the contract. And, no
reasonable factfinder could conclude based on the summary judgment record that the parties
could not have anticipated this situation. The competition prohibitions all prohibit defendant
from taking some action to compete with plaintiffs. They do not prohibit defendant from
accepting business from plaintiffs’ former clients.
On their claim here, plaintiffs are trying to use the implied covenant claim to recover for
defendant’s failure to abide by the MSA’s competition provision. To the extent the plaintiffs
allege that the MSA did not govern defendant’s conduct, the summary judgment facts fail to
establish that the parties never anticipated the need to expand the reach of the MSA’s
competition provision. The court thus grants summary judgment against plaintiffs’ claim for
breach of the implied covenant of good faith and fair dealing (Count II).
Defendant also argues that the court should enter summary judgment against plaintiffs’
breach of contract and implied covenant claims (Counts I and II) because the MSA prevents
plaintiffs from recovering any damages resulting from any loss of business and it also prohibits
recovery of punitive damages. Defendant cites Palmer v. Moffat, No. Civ.A.01C-03-114JEB,
2004 WL 397051 (Del. Super. Ct. Feb. 27, 2004), for support. In Palmer, the court entered
summary judgment against the plaintiff’s breach of contract claim. Id. at *5. The court found
that plaintiff failed to produce any evidence that he had sustained any damages. Id. at *4.
Palmer noted that the plaintiff might be entitled to nominal damages, but questioned whether it
was economical to proceed to trial. Id. In the end, the court granted summary judgment because
“an award of nominal damages and [a] concomitant trial on liability would be a futile exercise
for all entities involved.” Id. at *5.
In contrast, here, the parties do not dispute that plaintiffs sustained damages from
defendant’s actions. While the damages limitations clause may preclude recovery of those
damages, on the current record, it does not entitle defendant to summary judgment against
plaintiffs’ breach of contract and implied covenant claims. See Asher Assocs., L.L.C. v. Baker
Hughes Oilfield Operations, Inc., No. 07-cv-01379-WYD-CBS, 2009 WL 1468709, at *2 (D.
Colo. May 20, 2009) (refusing to grant summary judgment against a breach of contract claim
when the contract prohibited the parties from recovering consequential damages because the
defendant was asking the court to render an impermissible advisory opinion).
Tortious Interference with Contract and Tortious Interference with
Prospective Business Expectancies and Relationships
Finally, defendant seeks summary judgment against plaintiffs’ claims for tortious
interference with contract (Count III) and tortious interference with prospective business
expectancies and relationships (Count IV). Defendant asserts three reasons why the court should
enter summary judgment on these claims. First, defendant argues that plaintiffs cannot maintain
these tort claims because they arise from the same conduct as plaintiffs’ contract claims. Next,
defendant argues that plaintiffs have failed to adduce admissible evidence that would permit a
reasonable factfinder to conclude that defendant acted maliciously, a necessary element of both
claims. Last, defendant argues that the damages limitations clause prevents plaintiffs from
recovering any damages for these torts.
As the following paragraphs explain, the court concludes that plaintiffs’ tort claims seek
to recover for the same conduct that plaintiffs rely on for their contract claim. Under Kansas
law, this unity of conduct means plaintiffs cannot proceed under both a contract and tort theory.
Summary judgment thus is appropriate under defendant’s first argument and dispenses with the
need to address defendant’s other two arguments.
In Kansas, “when conduct could satisfy the elements of both a breach of contract or of an
independent tort, unless the conduct is permitted by the express provisions of a contract, a
plaintiff may pursue both remedies.” Bittel v. Farm Credit Servs. of Cent. Kan., P.C., 962 P.2d
491, 498 (Kan. 1998). Thus, a plaintiff cannot maintain both a tort and contract claim if the
contract allows the conduct that purportedly constitutes a tort or if the parties bargained for the
same duties in the contract as plaintiff’s tort theory seeks to impose. Burcham v. Unison
Bancorp, Inc., 77 P.3d 130, 146 (Kan. 2003).
To be sure, the MSA does not allow defendant to interfere with plaintiffs’ other contracts,
business expectancies, or relationships. In fact, the agreement expressly prohibits this kind of
conduct. See MSA ¶ 23. But, because the parties bargained for the same duties in the MSA as
plaintiffs rely on for their two tortious interference claims, Kansas law does not permit plaintiffs
to sue under a tort theory.
Naturally, plaintiffs disagree. They argue that the MSA does not preclude their tort
claims. Plaintiffs cite three cases that purportedly support their position. These cases, however,
involve materially different facts.
The first case plaintiffs cite is Bittel v. Farm Credit. In Bittel, the plaintiff brought a
breach of contract claim and a negligent misrepresentation claim. 962 P.2d at 495. The plaintiff
claimed that the defendant had breached an oral contract to renew a loan and the defendant
negligently had misrepresented that it would renew the loan. Id. The trial court granted
summary judgment against the tort claim, concluding that the tort claim, in essence, was a
contract claim. Id. at 498. The Kansas Supreme Court disagreed. Id. The court held that in
situations “where a plaintiff is unable to recover under a breach of contract theory because an
enforceable contract was never made,” Kansas allows a plaintiff to pursue tort claims like fraud,
promissory estoppel, and negligent misrepresentation. Id. But this principle does not assist
plaintiffs’ tort claims here. The parties agree that the MSA is an enforceable contract. Doc. 120
¶ 2.a.1. So, unlike Bittel, plaintiffs can recover under a contract.
The second case plaintiffs cite is Burcham v. Unison Bancorp. In Burcham, the plaintiffs
tried to sell shares of a corporation they owned, but the corporate defendant blocked the sale. 77
P.3d at 136–38. Plaintiffs sued, asserting claims for breach of contract, tortious interference with
contract, tortious interference with prospective business expectancies and relationships, and
breach of fiduciary duty against the corporation—a party to a contract with plaintiffs. Id. at 138.
The breach of contract claim alleged that defendant breached a Stockholders’ Agreement. Id. at
139. Burcham held that plaintiffs’ tort claims could proceed because the tort claims relied on a
different set of duties than the ones imposed by the contract. For instance, plaintiffs’ breach of
fiduciary duty arose from the general rule that “ʻofficers and directors of a corporation [must] act
in the best interests of the corporation and its stockholders.’” Id. at 146 (quoting Miller v.
Foulston, Siefkin, Powers & Eberhardt, 790 P.2d 404, 416 (Kan. 1990)). The stockholders and
the corporation never negotiated this duty as an obligation in their contract. Id. The tort claim
thus did not duplicate the contract claims.
Likewise, the plaintiffs’ tortious interference with contract claim in Burcham sought to
enforce the rule in Kansas common law forbidding a person from inducing or causing a breach of
contract without justification. Id. at 150. The plaintiffs’ tortious interference with business
relations or expectancies claim sought to enforce Kansas law forbidding a person from
destroying future business or contractual relations. Id. at 151. The contract did not contain an
analogue to either duty. While the actions that allegedly violated the contract also formed the
factual basis for plaintiffs’ tortious interference claims, the contract did not expressly impose a
duty on defendant to refrain from interfering with a stockholder’s current or future contracts. See
id. at 146. The duties under the contract referenced defendant’s duty under Kansas tort law in a
tangential sense. It did not duplicate that theory.
Here, plaintiffs and defendant directly bargained to impose a duty on defendant to refrain
from competing with plaintiffs. The MSA expressly prohibits defendant from encouraging
plaintiffs’ clients from ending their contracts with plaintiffs. It also expressly forbids defendant
from soliciting or marketing to plaintiffs’ clients in any fashion that competes with plaintiffs.
MSA ¶ 23(i). The MSA thus imposes a duty on defendant to refrain from inducing plaintiffs’
clients to breach their contracts with plaintiffs and destroying future business relationships
between plaintiffs and their clients. Likewise, the tort of interference with contracts imposes a
duty on a party to refrain from inducing or causing a breach of contract. Burcham 77 P.3d at
150. And, the tort of interference with a prospective business expectancy or relationship imposes
a duty on a party to refrain from destroying future business relationships. Id. at 151. These torts
thus impose the same duties on defendant as the MSA imposes on defendant. This case thus
materially differs from Burcham.
The last case plaintiffs cite is Thayer Aerospace Plating, Inc. v. Wilson, Nos. 88,192 &
88,624, 2003 Kan. App. Unpub. LEXIS 1005 (Mar. 21, 2003). In Thayer Aerospace, the
plaintiff brought a breach of contract claim against the defendant for allegedly stealing
employees from plaintiff and a tortious interference with employment contract claim. Id. at *3–
*5. The Kansas Court of Appeals affirmed the district court’s decision granting summary
judgment against the plaintiff’s breach of contract claim because no reasonable interpretation of
the contract could impose a duty on the defendant to refrain from interfering with the plaintiff’s
employment contracts with plaintiff’s employees. Id. at *3. Given this, Thayer Aerospace held
that plaintiffs could pursue their tortious interference claim based on employment contracts
because the underlying contract did not impose the same duties as relied on by the tort claim. Id.
In sum, the MSA at issue here imposes precisely the same duties on defendant that
plaintiffs’ tort claims try to impose on defendant. Because plaintiffs’ tort claims duplicate
plaintiffs’ contract claims, plaintiffs cannot proceed with them under Kansas law. The court thus
grants summary judgment against plaintiffs’ tortious interference claims in Counts III and IV.
For the reasons explained above, the court denies defendant’s Motion for Summary
Judgment in its favor on its Counterclaim (Doc. 60). And, the court grants defendant’s Motion
for Summary Judgment against plaintiffs’ claims in part and denies it in part (Doc. 100). The
court grants this motion against Counts II, III, and IV. But, the court denies the motion as it
applies to plaintiffs’ claim in Count I.
IT IS THEREFORE ORDERED BY THE COURT THAT defendant’s Motion for
Summary Judgment (Doc. 60) is denied.
IT IS FURTHER ORDERED THAT defendant’s Motion for Summary Judgment
(Doc. 100) is granted in part and denied in part.
IT IS SO ORDERED.
Dated this 6th day of December, 2017, at Topeka, Kansas.
s/ Daniel D. Crabtree______
Daniel D. Crabtree
United States District Judge
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