Options Home Health of North Florida, Inc. et al v. Nurses Registy and Home Health Corporation et al
Filing
111
MEMORANDUM OPINION AND ORDER: (1) Dft's 82 Motion to Amend the Counterclaim is DENIED. (2) Dft's 78 Motion for Summary Judgment is DENIED. (3) Pla's 80 Motion for Summary Judgment on Counts II and III of Dft's Counterclai m is GRANTED and those claims are DISMISSED WITH PREJUDICE. (4) Plas' 81 Motion for Summary Judgment as to Count 1 and 79 Counts II and VI as they relate to Claims made by Medicare for Reimbursement are GRANTED IN PART AND DENIED IN PART. ( 5) This matter remains set for a final PTC on 5/20/2013 and trial on 6/11/2013. The Court further notes that this matter is set for a preliminary PTC before Judge Wier on 5/10/2013. The parties are encouraged to engage in settlement negotiations before that time. Signed by Judge Joseph M. Hood on May 6, 2013. (AWD) cc: COR,D
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION at LEXINGTON
OPTIONS HOME HEALTH OF
NORTH FLORIDA, INC.,
BRIAN VIRGO, and
JOSH GOODE,
)
)
)
)
)
)
)
)
)
)
)
)
)
Plaintiffs,
v.
NURSES REGISTRY AND
HOME HEALTH CORPORATION,
Defendant.
**
**
Action No. 5:11-cv-166-JMH
MEMORANDUM OPINION & ORDER
**
**
**
This matter is before the Court on Plaintiffs’ Motion
for Summary Judgment on Count I of the Complaint (D.E. 81),
Plaintiffs’ Motion for Summary Judgment on Counts II and VI
of the Complaint (D.E. 79), Plaintiffs’ Motion for Summary
Judgment on Counts II and III of Defendant’s Counterclaim
(D.E. 80), Defendant’s Motion for Summary Judgment (D.E.
78), and Defendant’s Motion to Amend the Counterclaim (D.E.
82).
All parties have responded (D.E. 83, 84, 85, 86, 91)
and replied (D.E. 87, 88, 89, 90, 92).
are now ripe for review.
1
Thus, these motions
This
dispute
centers
around
Defendant
Nurses
Registry’s purchase of the assets of Plaintiff Options Home
Health of North Florida, Inc. (“Options”) and the effect of
a change in the law prohibiting the transfer of Options’
existing Medicare License on the parties’ agreement.
the
reasons
that
follow
this
Court
will
grant
For
summary
judgment to Plaintiffs in part and deny it in part, deny
summary judgment to Defendant, and deny Defendant’s motion
The issue of damages remains pending for a jury1
to amend.
trial.
I. FACTUAL AND PROCEDURAL BACKGROUND
A.
Asset Purchase Agreement & Closing Statement
Plaintiff
Options,
a
Florida
company
founded
and
previously owned by Plaintiffs Brian Virgo and Josh Goode,
operated as a home healthcare service business.
2—3).
In
June
2009,
Plaintiffs
and
(D.E. 1 at
Defendant
Nurses
Registry and Home Health Corporation (“Nurses Registry”)
entered
providing
into
for
an
the
asset
sale
purchase
of
agreement
essentially
assets for a price of $650,000.
1
all
(the
of
“APA”)
Options’
(D.E. 101-1 at 10).
The
This Court’s scheduling order (D.E. 51) contemplated a
bench trial per the Complaint (D.E. 1).
Subsequently,
however, Defendant’s requested a jury trial in their
Amended Answer and Counterclaim (D.E. 56). The parties are
invited to address deadlines for jury instructions and
other related issues at the preliminary pretrial conference
(D.E.102) before Judge Wier on May 10, 2013.
2
assets covered by the agreement included Options’ tangible
personal
property,
contracts,
inventory,
work-in-process,
books, records, goodwill, intellectual property, licenses,
certain insurance proceeds, intangible assets, claims and
defenses, and leased personal property, as set forth in the
APA and schedules thereto.
(D.E. 101-1 at 8—9).
The APA
provided that the closing would occur on the later date of
August
25,
2009,
contingencies
set
or
on
the
forth
in
date
the
at
APA
which
were
all
met,
of
the
whichever
occurred later.
Plaintiff Goode was to remain on staff as an acting
DON/Administrator
for
transition,
under
and,
a
certain
the
APA
time
and
period
during
incorporated
the
Trust
Agreement, Nurses Registry was required to pay him $75,000
upon
his
Although
departure.
it
appears
(D.E.
that
101-1
Nurses
at
11;
Registry
D.E.
paid
100-3).
Plaintiff
Goode a sum classified as salary,2 it is undisputed that the
$75,000 fee was never paid.
(D.E. 78-2 at 6).
Following the execution of the APA, Options and Nurses
Registry executed a “Closing Statement” in February, 2010.
2
During his term of employment Plaintiff Goode was
entitled to receive a salary of $65,000 in addition to the
$75,000 payment.
(D.E. 100-2 at 95).
There has not been
any allegation by Plaintiffs that the salary was not paid,
only that the fee contained in Section 2.5 and the Trust
Agreement remains unpaid.
3
(D.E. 1-2 at 1).
issuance
of
the
condition
to
Purchase
Price
(D.E.
1-2
allocated
at
the
The Closing Statement stated that “the
Medicare
the
duty
set
1).
of
forth
License
[Nurses
in
Further,
purchase
is
this
the
price,
a
prerequisite
Registry]
Settlement
Closing
such
to
pay
the
Statement.”
Statement
that
and
$2,000
rewas
allocated to the tangible items set forth in 2.1(a) and
2.1(c) of the APA,3 and the remaining $648,000 towards the
intangible items set forth in Section 2.1 and Schedule 2.1
of the APA.4
The Closing Statement also provided that the
closing would be “void ab initio” and the total Purchase
Price, except for the $20,000 deposit, returned to Nurses
Registry “if the Medicare License is not issued to [Nurses
Registry] for any reason not within the control of [Nurses
Registry]. . . .”
(D.E. 1-2 at 2).
3
Section 2.1(a) includes all tangible owned personal
property,
including
“all
fixed
assets,
equipment,
machinery, supplies and other owned tangible personal
property set forth in Schedule 2.1(a).” (D.E. 100-1 at 8).
Section 2.1(c) includes all inventory and work-in-process
of Options. (D.E. 100-1 at 8).
4
Presumably, the remainder of Options’ listed assets in
Section
2.1
are,
under
the
contract
language,
the
intangible items.
They include Options’ contracts, books
and records, goodwill, licenses, intellectual property,
present and future insurance proceeds, counterclaims,
leased personal property, and all other intangible assets.
(D.E. 100-1 at 8).
Notably, under Section 2.1(g), which
purports
to
list
the
licenses
transferred
in
the
transaction, the parties listed “none.” (D.E. 100-2).
4
To transfer Options’ Medicare license, Nurses Registry
filed an Application for a “Change in Ownership” (“CHOW”).
(D.E.
78-2
at
5—6).
While
the
CHOW
application
was
pending, changes were made to federal law that prevented
Nurses Registry from obtaining Options’ Medicare license.
(D.E. 78-2 at 6).
Specifically, an amendment to 42 C.F.R.
§ 424.550 was enacted, which has been termed as the “36month rule.”
Under § 424.550,
[I]f there is a change in majority ownership of a
home health agency . . . within 36 months after the
effective date of the [home health agency]'s initial
enrollment in Medicare or within 36 months after the
[home health agency]'s most recent change in majority
ownership,
the
provider
agreement
and
Medicare
billing privileges do not convey to the new owner.
42 C.F.R. § 424.550(b)(1).
health
agency’s
owner
had
Instead, the prospective home
to
re-enroll
in
the
Medicare
program or obtain a state survey or accreditation from an
approved
accreditation
424.550(b)(1).
organization.
42
C.F.R.
§
Because this rule was deemed to apply to
the transaction at issue, it was determined that Options’
license
was
not
transferable.
(D.E.
78-12).
Nurses
Registry applied to acquire a new Medicare license of its
own and received final approval in August, 2011.
(D.E. 1
at 7; D.E. 56 at 6; D.E. 85-2 at 3—4).
To
date,
of
the
$650,000
purchase
price,
Nurses
Registry paid Options a $100,000 deposit under the APA,
5
$20,000
of
which
nonrefundable.
was
determined
by
the
parties
to
(D.E. 101-1 at 10; D.E. 101-7 at 2).
be
While
Nurses Registry has enjoyed the benefits of all of Options’
assets,
with
the
exception
of
the
transfer
of
Options’
specific Medicare license, Nurses Registry has refused to
pay the remainder of the purchase price, or the $75,000 fee
to Plaintiff Goode.
(D.E. 78-2 at 6).
B. Medicare Overpayments
While the CHOW was pending, as well as during the
period that Nurses Registry was waiting to receive its new
license, Nurses Registry billed Medicare using Options’ old
license number and accepted advance payments from Medicare
associated with these billed services.
56 at 6; D.E. 83-1 at 4).5
(“CMS”)
(D.E. 1 at 10; D.E.
When the Center for Medicare
determined that some of Nurses Registry’s billed
services were unnecessary (a routine practice according to
the
pleadings),
it
sought
to
re-claim
money
previous payments for the unnecessary services.6
5
from
its
(D.E. 1 at
While Nurses Registry does not seem to dispute that it
initially received the funds in question, it does dispute
the notion that it made a profit from the transaction in
its entirety. Only the first factual assertion is material
for the purposes of this summary judgment order; therefore,
since Nurses Registry does not dispute that it initially
received the Medicare funds, consideration of this fact at
the summary judgment stage is still appropriate.
6
This is a common Medicare practice.
As stated in the
Complaint, “Medicare often makes an advance payment for
6
10—11;
D.E.
56
letters
at
first
demand
letters
Options.
at
According
to
Nurses
but,
and
(D.E.
6).
1
forwarded
delinquent
at
these
later,
11;
56
CMS
at
now
ignored
the
notices
D.E.
documents,
Registry
these
accumulated
to
counsel
for
6—7;
D.E.
79-7).
seeks
to
recover
roughly $80,000 plus accumulating interest from Options, a
company that is no longer in existence.
(D.E. 79-7).
As
the previous owners of Options, Plaintiffs Virgo and Goode
are unable to apply for another billing number and/or open
another
healthcare
unpaid.7
agency
as
long
as
this
debt
remains
(D.E. 88 at 7).
II. STANDARD OF REVIEW
Under Rule 56(a), summary judgment is proper “if the
movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a
matter of law.”
Fed. R. Civ. P. 56(a).
In deciding a
motion for summary judgment, the factual evidence and all
reasonable inferences must be construed in the light most
favorable
to
the
nonmoving
party.
Anderson
v.
Liberty
services provided by a [Home Health Agency] and may seek
claw back or offset those payments at a later time if a
reimbursement is later disallowed.” (D.E. 1 at 10).
7
Federal regulations provide that “CMS may deny a
provider’s or supplier’s enrollment in the Medicare
program” if “[t]he current owner . . . has an existing
overpayment at the time of filing of an enrollment
application.” 42 C.F.R. § 424.530(a)(6).
7
Lobby, Inc., 477 U.S. 242, 255 (1986); Summers v. Leis, 368
F.3d 881, 885 (6th Cir. 2004).
The judge's function on a summary judgment motion is
not to weigh the evidence, but to decide whether there are
genuine issues of material fact for trial.
Anderson, 477
U.S. at 249; Multimedia 2000, Inc. v. Attard, 374 F.3d 377,
380 (6th Cir. 2004).
A material fact is one that may
affect the outcome of the issue at trial, as determined by
substantive law.
dispute
judgment
exists
is
Anderson, 477 U.S. at 242.
on
a
improper,
material
if
the
fact,
and
evidence
A genuine
thus
shows
summary
“that
a
reasonable jury could return a verdict for the nonmoving
party.”
Id. at 248; Summers, 368 F.3d at 885.
III. DISCUSSION
A. Defendant’s motion to amend the counterclaim
Nurses Registry filed a counterclaim in this action,
alleging that Plaintiffs induced them to enter the contract
through fraud and negligent misrepresentation.
(D.E. 56).
In the original counterclaim, Nurses Registry averred that
these two claims were based on the fact that Plaintiffs
knew or should have known at the time of contracting that
the
(D.E.
Medicare
55
judgment
at
billing
number
15—17).
After
motion
on
Nurses
could
not
Plaintiff
Registry’s
8
be
transferred.
filed
a
summary
counterclaim
(D.E.
80),
Nurses
counterclaim.
Registry
filed
(D.E. 82).
a
motion
to
amend
the
In this motion to amend, Nurses
Registry argues—for the first time in motions or pleadings
before
this
Court—that
its
fraud
and
negligent
misrepresentation claims are based on a statement made by
Plaintiffs
that
moratorium
on
Florida
the
was
transfer
of
planning
home
to
health
introduce
agencies
a
and
that, if Nurses Registry wanted to purchase Options, it
should move quickly.
(D.E. 82 at 1—2).
Although this is
the first time that the Court has seen this statement,
Defendant
disclosed
interrogatories
the
and
statement
Plaintiffs’
to
counsel
about the statement during depositions.
D.E. 82-2 at 5—6).
never occurred.
Defendant
Plaintiffs
asked
in
witnesses
(D.E. 92-1 at 8;
It is undisputed that this moratorium
(D.E. 82-2 at 6).
argues
that
it
should
be
given
leave
to
amend its counterclaim under Fed. R. Civ. P. 15(a)(2) to
include Plaintiffs’ alleged statement that Florida would be
enacting a moratorium on the transfer of home healthcare
services.
(D.E. 82).
Further, although Defendant does not
expressly make a motion to add Plaintiff Virgo as a party
to the counterclaim, he is added as a defendant to the
proposed
second
amended
counterclaim.
(D.E.
82-3).
Plaintiffs argue that Defendant has not shown good cause
9
for
such
amendments,
prejudicial
to
that
Plaintiffs
at
the
amendments
this
late
would
stage
in
litigation, and that the amendments would be futile.
91).
be
the
(D.E.
The Court agrees with Plaintiffs and, for the reasons
described
below,
Defendant’s
motion
to
amend
will
be
denied.
Under Fed. R. Civ. P. 15(a), the Court must give leave
to
a
party
requires.
deadline
to
Fed.
for
amend
R.
a
Civ.
amending
pleading
P.
whenever
15(a).
pleadings
justice
Further,
has
passed,
when
the
so
the
movant
seeking to amend “first must show good cause under Rule
16(b) for failure earlier to seek leave to amend before a
court will consider whether amendment is proper under Rule
15(a).”
Leary v. Daeschner, 349 F.3d 888, 909 (6th Cir.
2003).
The potential prejudice to the nonmovant must be
considered when deciding whether to grant the amendment.
Id.
Moreover, if a court determines that allowing the
amendment
would
be
futile
because
the
claim
would
not
survive a 12(b)(6) motion, it can deny leave within its
discretion.
Anderson v. Merck & Co., Inc., 417 F. Supp. 2d
842, 848 (E.D. Ky. 2006); Sinay v. Lamson & Sessions Co.,
948 F.2d 1037, 1041 (6th Cir. 1991).
First, the deadline for amendments to the pleadings
has long since passed and Defendant has not shown good
10
cause, or any cause, for its delay in this circumstance.
In this case, it appears that allowing the amendment to
include Plaintiffs’ alleged statement would not prejudice
Plaintiffs since the parties have conducted discovery as if
the statement were disclosed in the counterclaim.8
to
the
extent
that
Defendant
attempts
to
add
However,
Plaintiff
Virgo as a party to the counterclaim, the amendment would
be
prejudicial.
basis
for
disclosed
discovery
the
Defendant
claim
the
for
statement
process
and,
was
many
to
“obviously
aware
of
the
months,”
given
that
it
Plaintiffs
early
in
the
moreover,
it
was
the
Defendant’s
employees who came forward with the evidence supporting the
counterclaim.
not
Leary, 349 F.3d at 908.
presented
any
explanation
for
Yet, Defendant has
failing
to
include
Plaintiff Virgo as a party to the counterclaim earlier in
the
litigation.
Instead,
Defendant
simply
argues
Plaintiffs will not be prejudiced by the amendment.
92).
that
(D.E.
The Court disagrees; at this late stage, Plaintiff
Virgo would certainly be prejudiced by having to defend a
8
Specifically, in response to Plaintiffs’ interrogatory
asking for the basis of Defendant’s fraud and/or negligent
misrepresentation claims, Defendant disclosed the statement
at issue.
(D.E. 92-1).
Plaintiffs’ counsel also asked
Defendant’s witnesses about the statement at depositions,
and made clear that he was asking the questions because he
believed the statement formed the basis for Defendant’s
fraud and negligent misrepresentation claims. (D.E. 82-2).
11
claim that was not brought against him, particularly when
Defendant’s
motion
did
not
explicitly
Plaintiff Virgo be added as a party.
request
that
See Brainard v. Am.
Skandia Life Assur. Corp., 432 F.3d 655, 666 (6th Cir.
2005) (district court’s refusal to allow plaintiffs to add
a new party defendant after the deadline was appropriate
when plaintiffs did not show good cause for delay and when
plaintiffs did not actually move to amend to add a new
party).
Moreover, because Defendant’s claims fail as a matter
of law, allowing the amendments would be futile.
Under
Kentucky law, both fraud and negligent misrepresentation
require that the defendant reasonably or justifiably rely
on
a
defendant’s
falsehood
or
misrepresentation.
See
Flegles, Inc. v. Truserv Corp., 289 S.W.3d 544, 549 (Ky.
2009)
(internal
citations
omitted)
(“The
plaintiffs
reliance, of course, must be reasonable . . . or, as the
Restatement
states,
‘justifiable.’”);
Presnell
Const.
Managers, Inc. v. EH Const., LLC, 134 S.W.3d 575, 580—82
(Ky.
2004)
negligent
(adopting
the
Restatement’s
misrepresentation,
which
elements
requires
of
justifiable
reliance).
In
this
case,
if
the
Court
accepts
as
true
that
Plaintiffs in fact made this statement, Defendant has not
12
presented any evidence of justifiable reliance.
to
the
testimony
of
Jeanie
Lemaster,
Virgo
According
and
Goode
indicated that Florida would be enacting a moratorium on
the issuance of new licenses on July 1, 2009.
at 3).
(D.E. 82-1
By that date, the parties had only signed a letter
of intent.
The APA, and certainly the Closing Statement,
came later.
To the extent that Nurses Registry relied upon
the pending moratorium as an impetus for entering into the
contract, it should have ascertained that the moratorium
had not, in fact, gone into effect on July 1, 2009, prior
to entry of the APA.
Moreover, Lennie House, the owner of Nurses Registry,
indicated in his deposition that after Plaintiffs told him
about
the
independent
upcoming
moratorium,
research
of
his
he
own
did
do
any
determine
to
not
the
reliability of this statement, instead merely noting that
he
assumed
that
since
Plaintiffs
were
in
Florida,
they
would have inside information about a potential moratorium
should one exist.
(D.E. 82-2 at 5—6).
Although he claims
in his deposition that he never would have entered into the
contract
if
he
had
known
that
there
would
not
be
a
moratorium, there was no mention of it in the APA, and the
moratorium date had come and gone by the time the parties
signed the APA, without any type of moratorium going into
13
effect.
(D.E. 82-2 at 10—11).
that
hadn’t
he
whether
or
even
read
the
APA
not
In fact, Mr. House admitted
all
of
and/or
mentioned the moratorium.
the
documents
accompanying
to
know
documents
(D.E. 82-2 at 6—11).
Quite
frankly, if this Court is to believe that Nurses Registry
would
not
have
entered
into
this
contract
without
the
moratorium, their level of reliance is neither justifiable
nor reasonable, particularly when one considers that Nurses
Registry is an experienced business entity. (D.E. 80-5 at
5); See Bassett v. Nat’l Collegiate Athletic Ass’n, 428 F.
Supp. 2d 675, 682 (E.D. Ky. 2006) (noting that the “Court
should
consider
[the
when
determining
party’s]
whether
knowledge
the
misrepresentation was reasonable”).
Court
accepts
as
statement
rely
that
the
about
reasonably
true
it,
on
the
Therefore, even if the
Plaintiffs
and
experience”
“reliance
moratorium,
on
and
its
made
the
Defendant
fraud
and
alleged
did
not
negligent
misrepresentation claims fail as a matter of law.
Accordingly,
Defendant’s
motion
to
amend
is
denied
because no good cause has been shown for the delay, adding
Plaintiff Virgo on this claim would be overly prejudicial
and the amendment would be futile because the claims fail
as a matter of law.
14
B. Motions for Summary Judgment
1)
Plaintiffs’
motion
for
summary
judgment
on
Defendant’s counterclaims for fraud and negligent
misrepresentation
Plaintiffs
argue
that
they
are
entitled
to
summary
judgment on Defendants’ original counterclaims for fraud in
the inducement and negligent misrepresentation on the basis
that Options and Goode were aware that Options’ Medicare
billing number could not be transferred to Nurses Registry,
but made false statements to the contrary.9
(D.E. 56).
Plaintiffs point out that there is no evidence that they
that were aware of the upcoming change in the law that
would render the Options’ Medicare license non-transferable
to
Nurses
Registry
or
that
Plaintiffs
made
any
false
statements about the transferability of Options’ license.
Nurses Registry agrees.
the
absence
counterclaims
of
for
(D.E. 84, 84-1).
evidence
fraud
and
9
to
Accordingly, in
support
negligent
Defendant’s
misrepresentation,
The Court notes that Defendant failed to plead fraud with
particularity, as required by Federal Rule of Civil
Procedure Rule 9(b).
See U.S. ex. Rel. SNAPP, Inc., v.
Ford Motor Co., 532 F.3d 496, 504 (6th Cir. 2008) (holding
that the requirement that a party plead fraud with
particularity is generally met when the party provides the
time, place and content of the alleged fraud).
Defendant
failed to even hint at the alleged false statement in its
counterclaim, let alone include the time, place, or
contents. However, Plaintiff has never raised this issue,
and the Court declines to address it further given the lack
of evidence supporting the claim.
15
Plaintiffs’ summary judgment motion on Counts II and III of
Defendant’s counterclaim will be granted.
2) Summary judgment motions on breach of contract
claims and unjust enrichment claims relating to the
purchase of Options.
In
their
motions,
Complaint
Plaintiffs
and
focus
various
primarily
summary
on
two
judgment
alternative
arguments.
First, they contend that the APA and Closing
Statement,
read
together,
are
a
valid,
enforceable
contract, the terms of which are met if a Medicare license,
even a new license, was issued to Nurses Registry.
If
enforced, Plaintiff argues, the contract requires Defendant
to pay the purchase price, Plaintiff Goode’s $75,000 fee,
and the Medicare overpayments.
alternative,
unjustly
Plaintiffs
enriched
by
(D.E. 79; D.E. 81).
argue
the
that
retention
Defendant
of
has
Options’
In the
been
assets
without payment, and, thus, that the above monetary amounts
should be restored to Plaintiffs.
(D.E. 1 at 13).
On the other hand, Defendant argues that because the
transfer
of
Options’
Medicare
license
was
never
effectuated, the entire contract became void ab initio per
the Closing Statement’s instruction.
(D.E. 101-7 at 2).
Thus, Defendant maintains that the contract was void, that
it does not have to pay the purchase price, fee to Goode or
Medicare
overpayments,
and
that
16
Options
should
return
$80,000 of the $100,000 deposit.
(D.E. 78).
Therefore,
despite its conclusion that the contract is void and that a
purchase
price
is
not
owed
to
Options,
Nurses
Registry
apparently believes that it is entitled to retain all of
Options’ assets previously transferred to it.
The Court does not wholeheartedly agree with either
party’s
analysis.
On
one
hand,
the
Court
agrees,
as
explained below, that the parties contemplated the purchase
of
Options’
Medicare
Statement.
license
under
the
APA
and
Closing
However, because the Closing Statement modified
the APA to make the acquisition of this license an absolute
condition
to
the
contract,
the
contract
became
void
ab
initio under its terms when the 36-month rule came into
effect and the transfer could no longer be completed.
being
said,
contract
Plaintiffs
was
correctly
considered
obligation
to
either
Plaintiffs
for
the
void,
return
value
of
argue
that
Nurses
once
Registry
Options’
assets
what
it
That
acquired.
the
had
or
an
pay
Quite
simply, Nurses Registry cannot simultaneously consider the
contract void ab initio and retain all of Options’ assets
free-of-charge.
Thus, because Defendant retained all of
Options’ assets without ever paying for their value, Nurses
Registry
has
been
unjustly
quantum meruit is in order.
enriched,
and
application
of
For the more detailed reasons
17
which
follow,
partial
summary
judgment
is
granted
to
Plaintiffs, and summary judgment is denied to Defendants.
A triable issue remains as to damages.
a)
The
The Closing Statement created an absolute
condition that required the transfer of
Options’ Medicare license before the contract
would be complete.
parties’
arguments
about
the
validity
of
the
contract primarily focus on whether the APA specifically
contemplated
an
actual
transfer
of
Options’
Medicare
license to Defendant, or if the condition that Defendant
acquire a license could be satisfied by the issuance of a
completely
argue
new
that
Medicare
the
license
plain
language
from
CMS.
of
the
Both
parties
contract
is
unambiguous, yet they each subscribe different meanings to
it.
This Court does not agree.
The
APA
defines
“Licenses”
as
“all
licenses.
.
.
granted or issued by any Person and associated with or
related to the Purchased Assets.” (D.E. 100 at 5).
APA
provides,
purchased
along
assets,
transferred.
with
that
the
“All
(D.E. 100 at 8).
itemization
Licenses”
of
all
are
The
other
to
be
However, Options’ Medicare
license is not specifically listed, defined or otherwise
referred to in the APA outside of the global references
therein.
In fact, the schedule attached to the APA which
18
purports
to
list
states, “none.”
the
licenses
referenced
therein
simply
(DE 100-2 at 72).
The Closing Statement, executed subsequent to the APA,
operated as a valid modification to the APA, a fact to
which the parties agree.
Francis v. Nami Resources Co.,
LLC, No. 04-510, 2008 WL 852047, at *5 (E.D. Ky. Mar. 28,
2008) (internal quotations and citations omitted) (“parties
who have the right to make a contract have the power to
unmake or modify . . . in any manner they choose” and
simply making the mutual promise to modify is a “valid form
of consideration.”).
The Closing Statement provided that
“the issuance of the Medicare License is a prerequisite and
condition
to
Purchase
Price
(D.E. 101-7).
the
duty
set
of
forth
[Nurses
in
this
Registry]
Settlement
to
pay
the
Statement.”
Earlier in the Closing Statement, it states
that Section 5.1 of the APA “requires the State of Florida
to issue a license to the Seller…”
(D.E. 101-7). Like the
APA, the Closing Statement does not reference or identify
Options’ particular Medicare license by name, number, or
any other identifying factor.
Plaintiffs argue that because the plain language of
the
Closing
Statement
only
requires
that
“the
Medicare
license” be “issued” to Defendant, the requirement could be
fulfilled so long as Defendant eventually received such a
19
license.
(D.E. 86 at 6—11).
There is no dispute that
Nurses Registry did in fact receive a new Medicare license
from
CMS
in
Plaintiffs’
August
2011;
argument,
thus,
then
the
if
the
contract
enforceable once the license was issued.
4).
Court
adopted
became
fully
(D.E. 85-2 at 3—
On the other hand, Defendant argues that, pursuant to
the APA, it purchased “all Licenses” of Options.
101-1 at 8).
are
Thus, when the APA and the Closing Statement
construed
Medicare
(D.E.
together,
license
referred
Defendant
to
in
concludes
plain
that
language
of
the
the
Closing Statement must be construed as Options’ specific
Medicare license.
Despite
the
(D.E. 78).
APA’s
failure
to
specifically
identify
Options’ Medicare license in its text, the Court finds that
its
language
refers
to
the
Medicare
license
owned
by
Options at the time parties entered into the agreement.
However,
issue.
the
Closing
Statement’s
language
muddies
the
The term “transfer” suggests, in this case, the
transfer of ownership from one entity to another.
However,
transfer is not used in the Closing Statement—it uses the
term “issue.”
This plain reading of that term suggests to
this Court that the parties contemplated the issuance of a
20
new, initial license.10
refers
to
“the
suggesting
License”
Medicare
Options’
in
suffice.
Moreover, the Closing Statement
License”
Medicare
any
some
license—and
others—suggesting
Without
in
that
type
of
instances—
“a
any
Medicare
license
definition
or
would
further
identification by the parties in the agreement itself, this
Court finds that these terms are ambiguous.
Once an ambiguity is determined to exist, the Court is
entitled
to
utilize
parties’ intent.
extrinsic
evidence
to
determine
the
See Davis v. Siemens Med. Solutions USA,
Inc., 399 F. Supp. 2d 785, 793 (W.D. Ky. 2005) (explaining
that under Kentucky law, if there is an ambiguity on the
face
of
a
contract,
interpret
the
material
fact
extrinsic
evidence
language).
Where,
in
this
dispute,
as
Court
may
here,
may
be
used
there
is
determine
to
no
the
parties’ intention, and interpret the contract, as a matter
of
law.
FS
Invs.,
Inc.
v.
Asset
Guar.
Ins.
Co.,
196
F.Supp.2d 491, 498-99 (E.D. Ky. 2002)(citing Cook United,
Inc. v. Waits, 512 S.W.2d 493, 495 (Ky. 1974)).
Options
and Nurses Registry admitted that the original intent of
all
parties
involved
was
that
10
Options’
Medicare
license
By way of example, even the parties in their briefs and
depositions have used “transfer” to consistently refer to
the purchase of the Options Medicare license by Nurses
Registry and have used “issue” or “issuance” to refer to
the new license given to Nurses Registry. (DE 85-2 at 3).
21
would transfer to Nurses Registry.
2 at 2).
(D.E. 59 at 3; D.E. 78-
The parties do not argue and, indeed, there is
no evidence to suggest, that they intended for the Closing
Statement to alter the original meaning of the APA – or
remedy the transferability issue created by the 36-month
rule.
In
Statement
fact,
was
the
parties
provided
to
agree
that
satisfy
the
Florida
Closing
state
authorities’ request for evidence of the completion of the
transaction,
issue.11
rather
than
to
(D.E. 81-1 at ¶15).
address
the
transferability
Although “ambiguity lurks” in
the language of the Closing Statement, summary judgment is
proper since “the extrinsic evidence presented to the court
supports
only
one
of
the
conflicting
interpretations”
GenCorp., Inc. v. Am. Int’l Underwriters,
818—19 (6th Cir. 1999).
178 F.3d 804,
Accordingly, this Court concludes
that the parties intended for the license referred to in
the
Closing
Statement
to
be
Options’
specific
Medicare
license.
The
Closing
Statement
provides
that
the
closing
is
“void ab initio,” “if the Medicare License is not issued to
[Nurses Registry] for any reason not within the control of
11
Nurses Registry, counsel for which drafted the Closing
Statement, maintains that it’s principals were unaware of
the 36-month rule at the time the Closing Statement was
submitted to Options. (D.E. 81-1 at 4; D.E. 78-2 at 5-6).
22
[]
[Nurses
agrees
Registry]…”
with
Statement
Nurses
(D.E.
101-7).
Registry’s
modified
the
APA
Thus,
this
argument
that
to
extent
the
the
Court
Closing
that
it
transformed the requirement that Defendant receive Options’
Medicare license into an absolute condition, which, if not
met,
would
make
the
contract
void
ab
initio,
relieve
Defendant of its obligation to pay the remainder of the
purchase price, and require Options to return $80,000 of
the $100,000 already paid by Defendant in deposits.
101-7 at 2).
(D.E.
Because CMS could not issue Options’ Medicare
license to Defendant given the newly adopted 36-month rule,
the fulfillment of this condition became impossible.
Thus,
per the Closing Statement, the party’s transaction became
void ab initio.
b) Because Defendant has been unjustly enriched,
application of quantum meruit is necessary.
This
does
not
end
the
analysis,
Defendant has been unjustly enriched.
circumstance
is
not,
as
Nurses
however,
because
The remedy in this
Registry
suggests,
that
Nurses Registry is relieved of its obligation to compensate
Options.
Nurses Registry did not treat the contract as
void ab initio–to do so would have required the return of
Options’ assets.
Now, due to the passage of time and other
practical considerations, the parties cannot be returned to
23
their
respective
Thus,
this
Court
positions
must
before
turn
to
the
contract
equitable
existed.
remedies.
In
Kentucky, a claim for unjust enrichment requires a showing
that 1) a benefit was conferred at the plaintiff’s expense;
2)
the
defendant
appreciated
that
benefit;
and
3)
the
defendant’s retention of the benefit without payment for
its
value
would
be
inequitable.
S.W.3d 73, 78 (Ky. App. 2009).
Jones
v.
Sparks,
297
These three elements have
been satisfied in this case.
First,
Defendant
Plaintiffs
by
clearly
transferring
all
conferred
benefits
on
Options’
tangible
and
of
intangible assets to Defendant.
Indeed, in addition to
Options’ tangible property, Defendant acquired, among other
things, Options’ contracts, goodwill, insurance proceeds,
and accounts payable.
(D.E. 101-1 at 8—9).
Given that
Nurses Registry operated in Florida as a home healthcare
service using Options’ tangible and intangible assets for a
number
of
years,
Nurses
Registry
has
appreciated
this
benefit.
The
Court
has
no
doubt
that,
to
the
extent
these
assets were worth more than the $100,000 deposit, allowing
Defendant to retain these benefits would be inequitable.
As
it
stands,
there
is
no
dispute
that
Defendant
essentially acquired these benefits for free since, aside
24
from
the
purchase
$100,000
price
deposit,
for
the
Defendant
acquired
has
assets,
not
paid
nor
has
the
it
compensated Options for the temporary use of its Medicare
billing
number.
Moreover,
not
only
did
Defendant
use
Plaintiffs’ number without compensating them, it has also
stuck
Plaintiffs
with
a
bill
that,
according
to
the
Complaint, amasses more than $80,000 worth of liabilities
that Plaintiffs did not incur, as discussed below.
(D.E. 1
at 11).
Defendant
does
not
dispute
that
it
used
Options’
Medicare license number to bill CMS while it was waiting to
receive
its
own
license,
money as a result.
amassing
a
substantial
sum
of
Therefore, to the extent that Options’
assets and temporary use of its Medicare license number are
worth more than the $100,000 deposit in escrow, a decision
which this Court declines to make today, they represent
benefits conferred upon and appreciated by Defendant that
will leave Defendant unjustly enriched if Plaintiffs remain
uncompensated.
Although there is also no dispute that Defendant did
not pay the $75,000 payment to Plaintiff Goode, all appear
to be in agreement that Goode received his bi-weekly salary
amounting to $65,000.
Assuming this amount represents the
reasonable value of Goode’s services, a fact about which
25
the Court cannot decide based on the information before it,
then Plaintiffs are not entitled to receive damages for
this payment.
--,
Nos.
See Thoro-Graph, Inc. v. Lauffer, -- S.W.3d
2010-CA-000891-MR,
2010-CA-000914-MR,
2012
WL
5038254, at *3 (Ky. App. Oct. 29, 2012) (citing Cherry v.
Augustus, 245 S.W.3d 766, 779 (Ky. App. 2006)) (noting that
recovery
in
quantum
meruit
entitles
reasonable value of provided services).
one
only
to
the
The value of those
services is, however, an issue for another day.
Accordingly,
it
remains
for
the
trier
of
fact
to
determine the amount of damages due to Plaintiffs for their
unjust enrichment claim.
3) Motions for summary judgment based on the Medicare
overpayments.
As discussed above, Nurses Registry has been further
unjustly enriched by using Options’ Medicare license and
receiving funds billed under that license but refusing to
repay the overpayments.
From the Court’s understanding, if
Plaintiffs had not allowed Nurses Registry to use Options’
Medicare license for some time period, Defendant would have
been completely unable to earn income during that time.
Moreover, Defendant also extracted an additional benefit
from
the
use
of
Plaintiffs’
billing
number
through
its
refusal to pay the Medicare overpayments demanded from CMS
26
for the services that it actually billed.
In essence, by
refusing to pay the liability, it is retaining money that
it otherwise would have had to pay back to CMS if Defendant
had
been
operating
under
its
own
billing
number.
Therefore, this temporary use of Options’ Medicare number
and refusal to pay the liabilities associated with that use
constitute
benefits
conferred
upon
and
appreciated
by
Nurses Registry.
In response to Plaintiffs’ claim with respect to the
Medicare
Count
overpayments,
VI
of
Defendant
Plaintiffs’
points
Complaint
out
(seeking
that
under
injunctive
relief on the Medicare overpayment liabilities), Plaintiffs
only
claim
that
Virgo
and
Goode
were
harmed
by
Nurses
Registry’s failure to pay the overpayment liability, not
Options.
(D.E. 78-1 at 14—18).
Therefore, it argues that
any claim by Options for injunctive relief concerning the
Medicare overpayment liabilities is not properly before the
Court.
(D.E. 78-1 at 14—18).
Defendant also argues that Plaintiffs Virgo and Goode
do not have standing because they cannot show an injury, as
they are unable to show that Medicare will seek to recover
the funds from them personally.
Further,
Defendant
argues
that
(D.E. 78-1 at 15—18).
Plaintiffs’
claim
is
not
ripe, as Plaintiffs Virgo and Goode cannot show that they
27
plan
to
company.
open
or
have
sought
(D.E. 78-1 at 15—18).
to
open
a
new
healthcare
Using these arguments as a
vehicle, Defendant suggests that, because Options is now
defunct and because there is no evidence that Plaintiffs
Virgo and Goode engaged in any misconduct giving rise to a
piercing of the corporate veil, CMS will never be able to
recover the money from Virgo and Goode, personally, and,
thus,
Virgo
and
Goode
should
just
ignore
the
demands.
(D.E. 78-1 at 16).
The Court is puzzled by Defendant’s arguments, and is
somewhat baffled by the notion that Defendant essentially
asks this Court to authorize Plaintiffs to hide from their
federal
debt.
Regardless,
a
brief
analysis
shows
that
Plaintiffs’ claim for the Medicare overpayment liabilities
is ripe and properly before the Court.
First, because the Court has chosen to resolve the
Medicare
overpayment
liability
issue
under
Plaintiffs’
theory of unjust enrichment instead of granting injunctive
relief and because Plaintiffs clearly asserted under Count
II of the Complaint that “Nurses Registry will be unjustly
enriched if any of the Plaintiffs, or their affiliates, is
required to refund Medicare overpayments caused by services
provided
and
bills
by
Nurses
Registry
using
the
assets
purchased from Options,” the claim by Options is, contrary
28
to Defendant’s argument, properly before the Court.
(D.E.
1 at 13) (emphasis added).
Moreover, Plaintiffs Virgo and Goode do indeed have
standing
to
bring
the
claim,
as
they
have
suffered
an
“injury in fact” from Nurses Registry’s failure to pay the
Medicare overpayment liabilities.
Wildlife,
504
U.S.
555,
plaintiff
to
suffer
560
an
Lujan v. Defenders of
(1992).
injury
In
order
sufficient
to
for
a
confer
standing, there must be an “invasion of a legally protected
interest”
which
is
“concrete
and
particularized”
and
“actual or imminent, not conjectural or hypothetical”.
Id.
(internal quotations and citations omitted).
In this case,
the law is clear that if Plaintiffs decided to re-enroll in
the
Medicare
program
as
uncollected
debt
enrollment
application
overpayment
to
Manual
§
would
prohibit
CMS
because
Options.
15.8.4
healthcare
See
(Nov.
from
of
Medicare
19,
providers,
the
granting
their
pre-existing
Program
2012)
their
Integrity
available
at
http://www.cms.gov/Regulations-and-Guidance/Guidance/
Manuals/Downloads/pim83c15.pdf (“Per 42 CFR 424.530(a), the
contractor must deny an enrollment application if . . .
[t]he current owner . . . has an existing overpayment at
the
time
present
of
filing
inability
to
an
enrollment
return
29
to
application.”).
work
in
the
This
healthcare
provider business represents a concrete actionable injury.
Further, there is no question that Options, as a corporate
entity, has been concretely injured by being assessed with
overpayment liabilities that it did not incur.
Finally, even though Plaintiffs have not applied to
form a new home healthcare service, and, thus, have not had
an application formally denied by CMS, their claim is still
ripe
for
review.
Determining
whether
a
claim
is
ripe
involves evaluating “both the fitness of the issues for
judicial
decision
and
the
hardship
to
the
parties
of
withholding court consideration.” Airline Prof’ls Ass'n of
Int'l Bhd. of Teamsters, Local Union No. 1224, AFL-CIO v.
Airborne,
Inc.,
332
F.3d
983,
987—88
(6th
Cir.
2003)
(citing Abbott Labs. v. Gardner, 387 U.S. 136, 149 (1967)).
The ripeness doctrine, however, does not require the harm
to have actually occurred. See Pac. Gas & Elec. Co. v.
State Energy Res. Conservation, 461 U.S. 190, 201 (1983)
(“One does not have to await the consummation of threatened
injury to obtain preventive relief.”).
In this specific case, the issue of whether Nurses
Registry has been unjustly enriched by refusing to pay the
Medicare
Nurses
overpayment
Registry
liabilities
openly
admits
is
that
purely
it
received the initial payments from CMS.
30
is
legal
the
since
one
who
Thus, it is simply
a legal question of whether or not this constitutes unjust
enrichment.
Moreover, if a decision were postponed until
Plaintiffs
Virgo
and
Goode
actually
submitted
an
application, substantial hardship would incur because the
interest on the overpayment debt is continually increasing.
Therefore,
decision,
because
and
the
because
issues
are
substantial
fit
for
hardship
judicial
would
be
incurred if a decision is postponed, the claim is ripe.
Airline Prof’ls Ass'n of Int'l Bhd. of Teamsters, Local
Union No. 1224, AFL-CIO, 332 F.3d at 987—88.
Defendant
does
not
dispute
that
it
used
Options’
Medicare license number to bill CMS while it was waiting to
receive
its
own
license,
money as a result.
amassing
a
substantial
sum
of
Therefore, to the extent that Options’
assets and temporary use of its Medicare license number are
worth more than the $100,000 deposit in escrow, a decision
which this Court declines to make today, they represent
benefits conferred upon and appreciated by Defendant that
will leave Defendant unjustly enriched if Plaintiffs remain
uncompensated.
Therefore, for the reasons stated above, Defendant’s
summary
judgment
counterclaim
are
motion
denied.
and
motion
Plaintiff’s
to
amend
various
the
summary
judgment motions are granted in part and denied in part.
31
As previously alluded to, triable issues of fact remain as
to the worth of Options’ assets acquired by Defendant, the
amount of overpayments made to Nurses Registry, and the
value of services provided by Plaintiff Goode.
IV. CONCLUSION
For the reasons stated above, IT IS ORDERED:
(1) that Defendant’s Motion to Amend the Counterclaim
(D.E. 82) is DENIED;
(2) that Defendant’s Motion for Summary Judgment (D.E.
78) is DENIED;
(3) that Plaintiff’s Motion for Summary Judgment on
Counts II and III of Defendant’s Counterclaim (D.E. 80) is
GRANTED and those claims are DISMISSED WITH PREJUDICE;
(4) that Plaintiffs’ Motion for Summary Judgment as to
Count 1 (D.E. 81) and Counts II and VI as they relate to
Claims made by Medicare for Reimbursement (D.E. 79) are
GRANTED IN PART AND DENIED IN PART; and
(5)
this
matter
remains
set
for
a
final
pretrial
conference on May 20, 2013 and trial on June 11, 2013,
subject
to
intervening
orders
of
this
Court.
The
Court
further notes that this matter is set for a preliminary
pretrial conference before Judge Wier on May 10, 2013 at
32
10:00
a.m.
The
parties
are
encouraged
settlement negotiations before that time.
This the 6th day of May, 2013.
33
to
engage
in
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