Pharmacy Corporation of America et al v. Concord Healthcare Group, LLC et al
Filing
73
MEMORANDUM OPINION AND ORDER by Judge Greg N. Stivers on 8/23/2017. Plaintiffs' Motion for Attorney Fees (DN 25 ) is GRANTED IN PART and DENIED IN PART. If Plaintiffs wish to hold the SNF or LTACH Defendants liable for the attorneys' fees and costs they owe, Plaintiffs shall file additional documentation within 10 days of this opinion's entry that quantifies what they owe. If no additional documentation is filed by Plaintiffs within 10 days, this order shall become final and appealable. cc: Counsel; Sixth Circuit USCA (#17-5529) (CDR)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
LOUISVILLE DIVISION
CIVIL ACTION NO. 3:17-CV-00037-GNS
PHARMACY CORPORATION OF
AMERICA, et al.
PLAINTIFFS
v.
CONCORD HEALTHCARE GROUP,
LLC, et al.
DEFENDANTS
MEMORANDUM OPINION & ORDER
This matter is before the Court upon Plaintiffs’ Motion for Attorney Fees (DN 25). For
the reasons discussed below, the motion is GRANTED IN PART and DENIED IN PART.
Plaintiffs are GRANTED leave to file additional documentation.
I.
BACKGROUND
This action arises out of a billing dispute between Defendants Concord Healthcare
Group, LLC (“Concord”); Waco Healthcare Residence, LLC d/b/a Crestview Healthcare
Residence; Fairview Operations, LLC d/b/a Fairview Healthcare Residence; Manor Nursing &
Rehab Center, LLC d/b/a The Manor Healthcare Residence; Western Hills Nursing & Rehab
Center, LLC d/b/a Western Hills Healthcare Residence; Groesbeck Healthcare Residence, LLC
d/b/a Windsor Healthcare Residence; Mesa Hills Healthcare Residence Operator, LLC d/b/a
Mesa Hills Healthcare Residence; Plano Healthcare Residence Operator, LLC d/b/a Heritage
Manor Healthcare Center; Mesa Hills Specialty Hospital Operator, LLC; Plano Specialty
Hospital Operator, LLC; and Specialty Hospital of Midwest City Operator, LLC (collectively,
1
“Defendants”)1 and Plaintiffs Pharmacy Corporation of America d/b/a PharMerica; PharMerica
Long-Term Care LLC d/b/a PharMerica; and PharMerica Hospital Pharmacy Services, LLC
d/b/a PharMerica (collectively, “Plaintiffs” or “PharMerica”).
In 2014 and 2015, Plaintiffs contracted with Concord, the SNF Defendants, and the
LTACH Defendants to provide pharmacy-related goods and services to the residents of the
facilities operated by the SNF and LTACH Defendants (the “Services Agreements”).
(Tomassetti Aff. ¶¶ 3-4, DN 5-4). A billing dispute led Defendants to stop paying Plaintiffs for
goods and services provided under the Services Agreements.2
The parties negotiated and,
ultimately, executed two settlement and forbearance agreements: one between Plaintiffs,
Concord, and the SNF Defendants (the “SNF Settlement Agreement”) and another between
Plaintiffs, Concord, and the LTACH Defendants (the “LTACH Settlement Agreement”).3
(Nueman Aff. ¶ 6, DN 15-1; Tomassetti Aff. ¶¶ 5-6; SNF Settlement Agreement, DN 25-3;
LTACH Settlement Agreement, DN 25-4).
Under Section 5.01 of the SNF Settlement Agreement, Concord and the SNF Defendants
acknowledged and agreed that they owed Plaintiffs $621,998.07 for pharmacy goods and
services provided through December 31, 2015 (the “SNF Balance”).
(SNF Settlement
Agreement § 5.01). Under Section 5.01 of the LTACH Settlement Agreement, Concord and the
LTACH Defendants acknowledged and agreed that they owed $1,248,980.00 for pharmacy
goods and services provided through March 31, 2016 (the “LTACH Balance”).
1
(LTACH
Waco, Fairview, Manor, Western Hills, Windsor, Mesa Hills SNF, and Plano SNF are
collectively referred to as the “SNF Defendants” (“SNF” stands for “skilled nursing facility”).
Mesa Hills LTACH, Plano LTACH, and Midwest City LTACH are collectively referred to as the
“LTACH Defendants” (“LTACH” stands for “long-term acute care hospital”).
2
Specifically, Defendants claim that Plaintiffs had overcharged and overstaffed Defendants, and
failed to give preferential pricing to Defendants. (4/7/16 Letter, DN 17-12).
3
These agreements contain nearly identical terms and are jointly referred to as the
“Agreements.”
2
Settlement Agreement § 5.01). In order to settle the outstanding amounts with Concord, the SNF
Defendants, and the LTACH Defendants, Plaintiffs agreed to accept $559,798.26 from Concord
and the SNF Defendants and $1,030,408.50 from Concord and the LTACH Defendants; both
balances were to be paid in accordance with the payment schedules attached to the Agreements.
(SNF Settlement Agreement § 5.02; LTACH Settlement Agreement § 5.02). However, in the
event Defendants failed to make payments in accordance with the payment schedules, the
outstanding SNF Balance and LTACH Balance, rather than the reduced amounts, would become
due. (SNF Settlement Agreement § 5.07; LTACH Settlement Agreement § 5.07). Moreover, the
Agreements contained Agreed Orders of Judgment for the outstanding SNF and LTACH
balances that Plaintiffs were entitled to have entered against Defendants upon default. (SNF
Settlement Agreement § 5.04; LTACH Settlement Agreement § 5.04; Agreed Orders J., DN 255).
Defendants repeatedly failed to make payments due under the Agreements. (Stinnett Aff.
4-7, DN 25-2). When further attempts at reconciliation proved fruitless, (See Stinnett Aff. 4-7),
Plaintiffs filed this action, moving the Court to enter the Agreed Orders of Judgment against
Defendants, as well as judgment against Concord, Mesa Hills LTACH, and Plano LTACH for
amounts allegedly owed for goods and services invoiced after March 31, 2016. (See Compl. DN
1; Pls.’ Mot. Entry Agreed Orders J., DN 5). The Court partially granted Plaintiffs’ motion,
entering the Agreed Orders of Judgment against Defendants for the amounts still owed on the
SNF and LTACH balances ($361,001.16 and $901,448.44, respectively) plus interest, but
declining to grant relief at that point on Plaintiffs claims against Concord, Mesa Hills LTACH,
and PLANO LTACH for goods and services invoiced after March 31, 2016. (Mem. Op. & Order
13, DN 22; Order Partial J., DN 24).
3
In their present motion, Plaintiffs argue that, under the terms of the Settlement
Agreements and Agreed Orders of Judgment, they are entitled to $72,922.50 in attorney fees and
$1,685.38 in costs, which they incurred between October 2015 and April 2017 in attempting to
collect the amounts owed by Defendants for goods and services provided under the Services
Agreements, i.e., the SNF and LTACH balances. Plaintiffs also maintain that they are entitled to
future attorneys’ fees and costs incurred as they attempt to enforce the judgment entered by the
Court. Defendants responded to Plaintiffs’ motion arguing that Plaintiffs are not entitled to
recover attorneys’ fees and costs at all and, even if they were, recovery is limited to fees and
costs incurred in enforcement and collection efforts following Defendants’ default of the
Settlement Agreements.
Additionally, Defendants argue that, assuming Plaintiffs are even
entitled to recover fees and costs incurred post-default of the Settlement Agreements, the amount
of fees and costs they seek must be discounted. Plaintiffs replied. The matter is ripe for
decision.
II.
JURISDICTION
The Court has jurisdiction over Plaintiffs’ claims because there is diversity of citizenship
among the parties and the amount in controversy exceeds $75,000, exclusive of interest and
costs. 28 U.S.C. § 1332(a)(1).
III.
DISCUSSION
The Settlement Agreements and corresponding Agreed Orders of Judgment entitle
Plaintiffs to all reasonable attorneys’ fees and costs incurred in attempting to collect the
outstanding SNF and LTACH balances. In Kentucky, a party can recover attorneys’ fees when a
specific contractual provision so provides. Aetna Cas. & Sur. Co. v. Commonwealth, 179
S.W.3d 830, 842 (Ky. 2005) (citation omitted); Secura Ins. Co v. Gray Constr., Inc., 717 F.
4
Supp. 2d 710, 722 (W.D. Ky. 2010).4
Here, the Settlement Agreements contain identical
provisions regarding the recovery of attorneys’ fees and costs from a defaulting party, which
provide as follows:
All parties shall pay their own costs and legal fees to date. However, upon a
Settlement Default, [Defendants] promise to pay to PharMerica all reasonable
costs and expenses of collection, including but not limited to, reasonable
attorneys’ fees and court costs. This includes any costs and expenses in any action
or proceeding, including but not limited to, reasonable fees and disbursements of
attorneys incurred after a Settlement Default, but before such action or proceeding
is commenced, whether the action or proceeding is at law, in equity or in any
bankruptcy case or proceeding.
(SNF Settlement Agreement § 6.04; LTACH Settlement Agreement § 6.04). Meanwhile, the
Agreed Orders of Judgment, which were attached to and a part of the Settlement Agreements,
provide:
IT IS HEREBY FURTHER ORDERED AND ADJUDGED that PharMerica shall
be entitled to all reasonable attorneys’ fees and costs in the collection or
enforcement of this Judgment, including but not limited to all reasonable
attorneys’ fees and costs incurred before the Agreement was executed, and all
reasonable attorneys’ fees and costs incurred thereafter.
(Agreed Orders of Judgment 1-2, 5-6). The terms of the Settlement Agreements clearly entitle
Plaintiffs to attorneys’ fees and costs. Defendants have no basis for their argument otherwise.
Defendants’ argument that Plaintiffs are not entitled to attorneys’ fees incurred before
Defendants defaulted on the Settlement Agreements is also unpersuasive.
“[S]ettlement
agreements are a type of contract and therefore are governed by contract law . . . .” Frear v.
P.T.A. Indus., Inc., 103 S.W.3d 99, 106 (Ky. 2003) (internal quotation marks omitted) (citation
omitted). “The cardinal rule in the interpretation of contracts is to ascertain the intention of the
parties and to give effect to that intention.” Jones v. Riddell, 5 S.W.2d 1077, 1078 (Ky. 1928).
4
The Settlement Agreements are governed by Kentucky law. (SNF Settlement Agreement §
6.07; LTACH Settlement Agreement § 6.07).
5
In so doing, courts must construe the contract “as a whole, giving effect to all parts and every
word in it if possible.” City of Louisa v. Newland, 705 S.W.2d 916, 918 (Ky. 1986). Likewise,
“[a]n interpretation of a contract that gives meaning to all of its provisions is favored over an
interpretation that renders part of it superfluous.” JSC Terminal, LLC v. Farris, No. 5:10-CV00040-R, 2010 U.S. Dist. LEXIS 52481, at *8-9 (W.D. Ky. May 27, 2010) (citations omitted).
The Agreed Orders of Judgment entitle Plaintiffs “to all reasonable attorneys’ fees and
costs in the collection or enforcement of this Judgment, including but not limited to all
reasonable attorneys’ fees and costs incurred before the Agreement was executed . . . .”
(Agreed Orders J. 2, 6 (emphasis added)).5 The word “Agreement” refers to the respective SNF
and LTACH Settlement Agreements.
(Agreed Orders J. 2, 5).
This language completely
undermines Defendants’ position and supports the conclusion that Plaintiffs are entitled to all
reasonable attorneys’ fees and costs incurred in collecting the SNF and LTACH Balances,
regardless of whether Plaintiffs incurred those expenses before or after the Settlement
Agreements were defaulted upon.
Defendants maintain that the language used in Sections 6.04 of the Settlement
Agreements is at odds with this conclusion. For example, they argue that “the Settlement
Agreement’s explicit provision that ‘[a]ll parties shall pay their own costs and legal fees to date’”
explicitly contradicts the conclusion that Plaintiffs’ are entitled to pre-Settlement Agreement fees
and costs. The Court disagrees.
All along, Plaintiffs have been attempting to collect the amounts Defendants owe them
for goods and services provided under the Services Agreements (the terms of which are
5
Defendants reference this language in their response, contending that it supports their position.
Defendants, however, conveniently omitted the clause “including but not limited to all
reasonable attorneys’ fees and costs incurred before the Agreement was executed.” (See Defs.’
Resp. 6, DN 41). They have made no attempt to address the import of this clause.
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incorporated into the respective SNF and LTACH Settlement Agreements). The Settlement
Agreements and corresponding Agreed Orders of Judgment were merely another step in
Plaintiffs efforts to collect those amounts.
The parties did agree in Sections 6.04 of the
Settlement Agreements that each party would bear their own expense “to date.” Importantly,
though, this depended upon Defendants living up to their end of the bargain, as Sections 6.04 go
on to provide that “upon a settlement default, [Defendants] promise to pay all reasonable costs
and expenses of collection, including but not limited to reasonable attorneys’ fees and costs.”
(SNF Settlement Agreement § 6.04; LTACH Settlement Agreement § 6.04) (emphasis added)).
In light of the terms of the Settlement Agreements as a whole—Agreed Orders of Judgment
included—the only reasonable conclusion is that, by failing to make the payments required by
the Settlement Agreements, Defendants are back on the hook for the attorneys’ fees and costs
Plaintiffs have incurred, and will incur, in attempting to collect the outstanding SNF and LTACH
balances. Indeed, the interpretation of the Settlement Agreements championed by Defendants
would render the language of the Agreed Orders of Judgment meaningless.
The remaining language of Sections 6.04 of the Settlement Agreements in no way limits
Plaintiffs to attorneys’ fees and costs incurred post-Settlement Agreement. Defendants note that
“the remainder of the provision specifically addresses recovery of amounts incurred after default
but before the commencement of an action or proceeding.” (Defs.’ Resp. 8). And, according to
them, “[t]his clarification would be entirely redundant if the provision that ‘[a]ll parties shall pay
their own costs and legal fees to date’ did not apply in the event of default.” (Defs.’ Resp. 8).
The portion of Sections 6.04 to which Defendants are referring provides that the fees and
costs to which Plaintiffs are entitled to upon default include “any costs and expenses in any
action or proceeding, including but not limited to, reasonable fees and disbursements of attorneys
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incurred after a Settlement Default, but before such action or proceeding is commenced, whether
the action or proceeding is at law, in equity or in any bankruptcy case or proceeding.” (SNF
Settlement Agreement § 6.04; LTACH Settlement Agreement § 6.04). The Court fails to see
how this language puts a temporal limit on what fees and costs Plaintiffs can recover. Instead,
the language following the phrase “including but not limited to,” expands the breadth of
Plaintiffs’ potential recovery by clarifying that, in the event Defendants default on the Settlement
Agreements and Plaintiffs are permitted to recover attorneys’ fees and costs, Plaintiffs are not
limited to adding subsequent fees and costs attendant to enforcing their rights in a court
proceeding (i.e., through the Agreed Orders of Judgment) to the pot, but can also throw in fees
and costs incurred before such an action is filed. See Cintech Indus. Coatings, Inc. v. Bennett
Indus., Inc., 85 F.3d 1198, 1203 (6th Cir. 1996) (recognizing that “including but not limited to”
phrase is often used to mitigate the rule of ejusdem generis) (citing Ramirez, Leal & Co. v. City
Demonstration Agency, 549 F.2d 97, 104 (9th Cir. 1976)).
Defendants argue that extrinsic evidence supports their position. But, in the absence of
ambiguity, there is no room for extrinsic evidence in contract interpretation. See 3D Enters.
Contracting Corp. v. Louisville & Jefferson Cty. Metro. Sewer Dist., 174 S.W.3d 440, 448 (Ky.
2005) (“When no ambiguity exists in the contract, we look only as far as the four corners of the
document to determine the parties’ intentions.” (citing Hoheimer v. Hoheimer, 30 S.W.3d 176,
178 (Ky. 2000))); Davis v. Siemens Med. Sols. USA, Inc., 399 F. Supp. 2d 785, 792 (W.D. Ky.
2005) (citing Frear v. P.T.A. Indus., Inc., 103 S.W.3d 99, 106 (Ky. 2003)). A contract is
ambiguous if it is “capable of more than one different, reasonable interpretation.” Cent. Bank &
Tr. Co. v. Kincaid, 617 S.W.2d 32, 33 (Ky. 1981). As discussed, considering the language of the
Settlement Agreements as a whole, the only reasonable interpretation is that Plaintiffs are
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entitled to all attorneys’ fees and costs incurred in collecting the SNF and LTACH balances,
regardless of whether those expenses were incurred before or after the Settlement Agreements
were defaulted upon. There is no ambiguity.
Because Plaintiffs are entitled to recover attorneys’ fees and costs for their pre- and postSettlement Agreement default collection efforts, the Court must now determine whether the
amounts Plaintiffs seeks are reasonable. Defendants suggest that the Court should apply federal
common law (the “lodestar method”) in making this determination. They rely on Graceland
Fruit, Inc. v. KIC Chemicals, Inc., 320 F. App’x 323 (6th Cir. 2007), for support.
First,
Graceland is an unpublished decision and therefore not binding. United States v. Sanford, 476
F.3d 391, 396 (6th Cir. 2007). Second, putting aside its precedential effect, Graceland does not
require the Court to apply federal common law.
In Graceland, the court noted that “the
reasonableness of an award of attorneys’ fees can be analyzed under the federal common
law . . . .” Graceland Fruit, Inc., 320 F. App’x at 328 n.6 (emphasis added). However, the court
also explained that, because a contract governed by New York law established the defendant’s
right to attorneys’ fees, “[i]t would appear that New York law should apply to the award of
attorneys’ fees . . . .” Id. Graceland merely provides, rightly or wrongly, that federal common
law can be used to assess the reasonableness of an attorneys’ fee award, not that it must be used.
Here, the Settlement Agreements establish Plaintiffs’ right to attorneys’ fees.
The
Settlement Agreements are contracts governed by Kentucky law; thus, the Court will apply
Kentucky law in determining a reasonable fee award pursuant to those contracts. McKinstry v.
Genser, No. 13-135-ART, 2014 U.S. Dist. LEXIS 109299, at *9 (E.D. Ky. 2014) (explaining
that “Graceland conflicts with a longstanding principle in Sixth Circuit law: State substantive
law governs contract interpretation . . . .” (citation omitted)).
9
The reasonableness of an attorneys’ fees award is a question of law for a trial court to
decide “when the attorney and/or client seeks to recover a reasonable attorney fee from an
opposing or third party.” Inn-Grp. Mgmt. Servs., Inc. v. Greer, 71 S.W.3d 125, 130 (Ky. 2002).
“The trial judge is generally in the best position to consider all relevant factors and require proof
of reasonableness from” the party seeking attorneys’ fees.
Capitol Cadillac Olds, Inc. v.
Roberts, 813 S.W.2d 287, 293 (Ky. 1991). Ultimately, the question is whether that party has
demonstrated that “the amount sought is not excessive and accurately reflects the reasonable
value of bona fide legal expenses incurred.” Id.
Plaintiffs seek $72,922.50 in attorneys’ fees. An affidavit submitted by Plaintiffs sets out
the work performed by their attorneys.
(Stinnett Aff. 1-9).
It also contains a detailed
spreadsheet that provides each task performed by each of Plaintiffs’ attorneys, the time it took to
complete each task, and the amount charged for each task. (Stinnett Aff. 25-53). The tasks
outlined in the affidavit and corresponding spreadsheet were performed as part of Plaintiffs’
prolonged effort to collect the substantial amounts of money Defendants owe them. No task
appears to be an unreasonable use of time.6 Furthermore, upon review of the affidavit and
spreadsheet, the Court does not believe that Plaintiffs’ attorneys spent an unreasonable amount of
time on any task. And the rates charged by Plaintiffs’ attorneys were the rates normally charged
to and paid by PharMerica and its affiliates and are within the range of what is commonly
Plaintiffs’ attorneys’ work can be outlined briefly as follows: In October 2015, they began
negotiating with Defendants to collect past due amounts for goods and services provided under
the Services Agreements. After months of negotiations, they obtained the Settlement
Agreements.
Plaintiffs’ attorneys then monitored Defendants’ compliance with those
agreements. When Defendants failed, on multiple occasions, to make payments under the
Settlement Agreements, they further negotiated with Defendants and prepared multiple default
letters. Ultimately, in January 20, 2017, they initiated this lawsuit on Plaintiffs’ behalf. A
couple of months later, after briefing and oral argument, the Court awarded Plaintiffs a
substantial judgment.
6
10
charged in Louisville, Kentucky, for commercial litigation attorneys. (Stinnett Aff. 12).7 The
attorneys’ fees that Plaintiffs seek are less than 6% of the principal balance of the judgments
entered by this Court. Those judgments do not include the payments that Defendants made to
Plaintiffs after they retained counsel but prior to this litigation, which payments total more than
$2 million. (See Stinnett Aff. 9). Given the amounts at stake and concerns over Defendants’
solvency, the attorneys’ fees Plaintiffs have incurred to date are not excessive or unreflective of
the reasonable value of bona fide legal expenses incurred.
Plaintiffs also seek $1,685.38 in costs. These costs include, among other things, filing
fees, FedEx delivery fees for notices and demands sent to Defendants, fees for legal research and
record searches, fees for telephonic conference calls, and copying expenses. (Stinnett Aff. 54).
Upon review of the affidavit submitted by Plaintiffs, the Court finds this amount to be reasonable
as well.
But now we reach an impasse. In the proposed order Plaintiffs tendered with their
motion, Plaintiffs ask the Court to award “judgment against Defendants, jointly and severally, for
the amount of their reasonable attorneys’ fees and costs . . . .” (Proposed Order, DN 25-6
(emphasis added)). However, there is no basis for holding Defendants jointly and severally
liable. The Settlement Agreements are what allow Plaintiffs to recover attorneys’ fees and costs,
and any such recovery is constrained by the terms of those agreements. In the SNF Settlement
Agreement, Concord and the SNF Defendants agreed that Plaintiffs could recover from them
attorneys’ fees and costs incurred in collecting the SNF Balance in the event of default. In the
LTACH Settlement Agreement, Concord and the LTACH Defendants agreed that Plaintiffs
7
Defendants do not dispute this in their response.
11
could recover from them attorneys’ fees and costs incurred in collecting the LTACH Balance in
the event of default.
It is apparent that Concord is liable for all attorneys’ fees Plaintiffs incurred in collecting
the SNF and LTACH balances. No further accounting is needed as to Concord. The Court will
assess the entire balance of Plaintiffs’ attorneys’ fees and costs against it.
The same cannot be done in regards to the SNF Defendants and LTACH Defendants.
The SNF and LTACH Defendants are only liable for the attorneys’ fees and costs incurred by
Plaintiffs’ in collecting their respective debts, and Plaintiffs have made no effort to quantify what
fees and costs they incurred in collecting the SNF Balance versus those incurred in collecting the
LTACH Balance.8 The Court will not do Plaintiffs’ work for them and thus cannot assess
attorneys’ fees and costs against the SNF and LTACH Defendants at this juncture. Additional
documentation is needed.
IV.
CONCLUSION
Plaintiffs are entitled to attorneys’ fees and costs they have incurred, and will incur, in
their collection efforts and the amount of fees and costs they have incurred to date is reasonable.
Under the terms of the Settlement Agreements, Concord shall pay Plaintiffs all such attorneys’
fees and costs that Plaintiffs have incurred ($74,607.88) and will incur, in their collection efforts.
However, Plaintiffs have failed to quantify how much of those fees and costs the SNF
Defendants and LTACH Defendants owe separately.
Accordingly, IT IS HEREBY
ORDERED that Plaintiffs’ Motion for Attorney Fees (DN 25) is GRANTED IN PART and
DENIED IN PART. If Plaintiffs wish to hold the SNF or LTACH Defendants liable for the
attorneys’ fees and costs they owe, Plaintiffs shall file additional documentation within 10 days
8
Defendants have not addressed this issue.
12
of this opinion’s entry that quantifies what they owe. If no additional documentation is filed by
Plaintiffs within 10 days, this order shall become final and appealable.
Greg N. Stivers, Judge
United States District Court
August 23, 2017
cc:
counsel of record
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