M-Audits, LLC v. Healthsmart Benefit Solutions, Inc.

Filing 65

Memorandum Opinion and Order: After a de novo review of the issues raised by HealthSmart's objections, the R&R (Doc. No. 50 ) is accepted and adopted, except with respect to the recommendation regarding an accounting, which is clarified and modified as described herein. No later than October 21, 2016, the parties shall submit a joint proposal outlining a procedure and criteria by which to calculate M-Audits' losses caused by HealthSmart's violation of the agreed order. Acc ordingly, M-Audits' first motion to show cause and for contempt (Doc. No. 24 ) is granted in part and denied in part as detailed in the R&R and as set forth herein. Additionally, HealthSmart's second motion to modify the agreed order (Doc. No. 52 ) is denied. Judge Sara Lioi on 9/29/2016. (P,J)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

M-AUDITS, LLC,

PLAINTIFF,
vs.

HEALTHSMART BENEFIT
SOLUTIONS, INC.,
DEFENDANT.

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CASE NO. 1:15-cv-1433

JUDGE SARA LIOI

MEMORANDUM OPINION AND
ORDER

This matter is before the Court on two issues:
1. The objection of defendant HealthSmart Benefit Solutions, Inc.’s
(“defendant” or “HealthSmart”) to the Report and Recommendation (Doc.
No. 50 [“R&R”]) of Magistrate Judge Burke regarding the motion of
plaintiff M-Audits, LLC’s (“plaintiff” or “M-Audits”) (Doc. No. 24 [“P.
Mot.”]) to show cause and application for an order of contempt against
HealthSmart1 for allegedly failing to comply with an agreed order filed by
the Court on August 24, 2015 (Doc. No. 22 [“Order”]). (Doc. No. 51
([“Obj.”].) M-Audits responded to HealthSmart’s objection (Doc. No. 54
[“Resp. to Obj.”]). HealthSmart filed a supplemental brief in support of its
objection to the R&R (Doc. No. 55), to which M-Audits also responded
(Doc. No. 56).
2. HealthSmart’s second motion2 to modify the Order (Doc. No. 52 [“D.
Mot.”]), to which M-Audits responded (Doc. No. 53 [“P. Resp.”]).

1

HealthSmart responded to M-Audits’ motion (Doc. No. 27 [“Def. Resp.”]), to which M-Audits replied
(Doc. No. 33 [“P. Reply”]).
2

HealthSmart’s first motion was stricken by the Court. (See Doc. No. 45.)

A. Background
1. Factual
This case was removed from the Lorain County Court of Common Pleas on July
21, 2015, on the basis of diversity jurisdiction, 28 U.S.C. § 1332. (Doc. No. 6 [“Notice of
Removal”].) As alleged in the state court complaint (Doc. No. 6-2 [“Compl.”]), plaintiff
is an auditing firm that provides claim review services for health benefit plans, including
health plans administered by Commerce Benefit Group (“CBG”); CBG is a third-party
administrator (“TPA”) for self-insured health care plans. (Compl. ¶¶ 5, 6.)
After lengthy negotiations, a deal was structured whereby defendant HealthSmart
would purchase the assets of CBG, M-Audits, and four other entities pursuant to an asset
purchase agreement (“APA”) for a total purchase price of $7 million dollars, with a
payment of $1.5 million dollars made by HealthSmart and $5.5 million dollar “pursuant
to three year earn-out schedules for CBG and M-Audits.” (Id. ¶¶ 4, 7, 8.)
Before closing, HealthSmart notified CBG and M-Audits that its lender, Silver
Point Finance, LLC (“Silver Point”), was demanding that all payments earned by CBG
and M-Audits pursuant to the earn-out schedule be subordinated to any debt owed to
Silver Point. (Id. ¶ 9.) M-Audits would not agree to the subordination, so an alternative
structure was developed whereby the assets of M-Audits were removed from the APA
and purchased separately by HealthSmart pursuant to a Side Letter Agreement. (Id. ¶¶ 4,
10.) The Side Letter Agreement provided that HealthSmart would use commercially
reasonable efforts to cause its customers to enter into M-Audits’ service agreement
contract for claim auditing instead of the agreed earn-out purchase price for the assets of

2

M-Audits. (Id. ¶ 13.) The APA and Side Letter Agreement closed on July 1, 2014. (Id. ¶
4.)
M-Audits provided copies of its customer service agreement contracts to
HealthSmart. The contracts contain an automatic renewal provision if a termination
notice is not received pursuant to the terms of the agreement. M-Audits had not received
termination notices from any customers at the time of the closing. (Id. ¶¶ 14, 15.)
However, M-Audits’ revenues from customers now using HealthSmart as their TPA
(instead of CBG) declined over 200%. (Id. ¶ 15.) M-Audits alleges that its decline in
revenue is due to HealthSmart diverting business away from M-Audits. (Id. at ¶ 16.)
HealthSmart began to use a company called PHX to route claims to M-Audits.
PHX is primarily an auditing firm and a competitor of M-Audits. (Id. ¶ 18.) M-Audits
alleges that PHX was given full discretion by HealthSmart for routing (or not routing)
claims to M-Audits, thereby making it unlikely that M-Audits will be able to generate
revenue to cover its operating expenses or earn its owner the intended purchase price for
its assets. (Id. ¶ 24.)
Over the next several months and continuing through May 2015, HealthSmart
referred only a small percentage and a small dollar volume of claims to M-Audits. (Id. ¶
20.) In late May 2015, HealthSmart took the position that it had no obligation to make
efforts to cause HealthSmart customers to enter into M-Audits’ service agreement, and
that it was acting reasonably because it asked PHX to forward some claims to M-Audits.
(Id. at ¶ 21.) M-Audits’ state court complaint alleges breach of contract and interference
of contract, and seeks injunctive relief. (Id. ¶¶ 29-47.)

3

2. Procedural
When HealthSmart removed this case to federal court, a motion by plaintiff for a
temporary restraining order (“TRO”) was pending on the state court docket. The Court
was advised of the motion by counsel during a telephonic status conference conducted on
July 22, 2015.3 (See Minutes of proceedings July 22, 2015.)
The Court referred the case to Magistrate Judge Kathleen Burke to resolve the
TRO. (Doc. No. 10.) Magistrate Judge Burke conducted a settlement conference, and the
parties reached agreement and drafted an agreed order to resolve the TRO. Directly after
the settlement conference was concluded, counsel and their respective client
representatives went on the record before the Court, and advised the undersigned that
they understood, and agreed to, the terms contained in the agreed order that they
prepared. The Court approved the agreed order, and it was filed on the record. (See
Minutes of proceedings Aug. 24, 2015.) The Court retained jurisdiction to enforce the
terms of the agreed order. (Order at 259.)
Less than three months later, M-Audits filed its first motion to show cause and for
an order of contempt, claiming that HealthSmart was in violation of the agreed order. The
Court referred the motion to Magistrate Judge Burke for a report and recommendation,
and if appropriate, to conduct an additional settlement conference. (Doc. No. 25.)
Magistrate Judge Burke established a briefing schedule, and conducted a hearing on
January 4, 2016. (See Minutes and Order Jan. 4, 2016.)4

3

After the status conference, the TRO was filed on the docket at Doc. No. 9 at 86-117. All references to
page numbers are to the page identification numbers generated by the Court’s electronic filing system.
4

The transcript of proceedings conducted by Magistrate Judge Burke is filed on the docket of this case at
Doc. No. 58 (“Tr.”).

4

Thereafter, Magistrate Judge Burke issued an R&R, recommending, among other
things, that M-Audits’ motion be granted in part and denied in part. HealthSmart filed a
partial objection to the R&R, and a second motion to modify the agreed order, both of
which are before the Court. Thereafter, M-Audits filed a second motion to show cause
and application for an order of contempt, which is also before the Court.
B. HealthSmart’s objections to the R&R
1. The Report and Recommendation
The agreed order, which is central to both issues before the Court, provides in
relevant part that:
On or before September 8, 2015, HealthSmart shall forward to M-Audits
for bill review all claims of existing accounts of the Avon Lake office and
accounts developed through the Avon Lake office, unless contrary
instructions are received from the Plan fiduciary, that meet any of the
following criteria:
1. All institutional in-network claims of $10,000 or more;
2. All in-network multi-line physician claims; or
3. All out-of-primary network multi-line physician claims and
hospital claims with out of network discounts of less than 40%.
Following the three criteria, the agreed order states:
HealthSmart has neither the authority nor the obligation to refer
claims to M-Audits for services rendered by primary network
providers under Cigna or Aetna contracts which prohibit bill review.
(R&R at 522-23, citing agreed order.)

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M-Audits motion claims that HealthSmart violated the agreed order in three ways
when HealthSmart:
1. Stopped sending Cigna, Aetna, Cofinity, and FirstHealth claims to
M-Audits that met the criteria of the Order.
2. Sent SEBT5 claims to M-Audits at the $25,000 threshold level
rather than at the $10,000 threshold level.
3. Allegedly sent a letter dated November 6, 2015 to clients
discouraging the clients from using M-Audits’ services.
After an extensive analysis, the magistrate judge recommends that HealthSmart
be found in civil contempt for failing to comply with the agreed order with respect to
items 1 and 2, but that HealthSmart should not be found to have violated the agreed order
as to item 3. (See R&R at 528-37.) The magistrate judge also recommends that: (1) an
accounting be conducted at HealthSmart’s expense in order to compensate M-Audits for
losses sustained as a consequence of HealthSmart’s failure to comply with the agreed
order; (2) HealthSmart be fined $1,000 per day for each day after the Court’s ruling that
HealthSmart remains in violation of the agreed order; (3) HealthSmart be required to pay
reasonable attorney fees and costs to M-Audits in connection with the motion; and (4) the
Court consider appointing a special master to resolve additional disputes that may arise
regarding compliance with the agreed order, the cost to be shared equally between the
parties. (R&R at 537-39.)

5

SEBT stands for Student Educational Benefit Trust. (R&R at 519.)

6

2. Objections to the R&R
M-Audits did not object to the R&R. HealthSmart filed a partial objection6 to the
R&R, challenging three of the recommendations contained therein: (1) that it be found in
civil contempt for failing to send M-Audits SEBT claims that were below the $25,000
claim threshold; (2) that HealthSmart be required to pay M-Audits’ reasonable attorney
fees in connection with the motion; and (3) that a generic accounting is not an appropriate
remedy to determine damages.7 (Obj. at 540-41.) The Court reviews HealthSmart’s
objections de novo.8 See Damon's Rest., Inc. v. Eileen K Inc., 461 F. Supp. 2d 607, 611
(S.D. Ohio 2006) (de novo review of report and recommendation that plaintiff’s motion
for civil contempt be granted).
3. Analysis
SEBT claim thresholds
The agreed order provides that SEBT claims over $10,000 will be referred to MAudits.9 HealthSmart does not dispute that after the agreed order was entered, it only
referred claims above $25,000. HealthSmart’s stated reason for doing so is that the preclosing SEBT threshold was $25,000, and the purpose of the agreed order was to place

6

The failure to file written objections to the report and recommendation of a magistrate judge constitutes a
waiver of a de novo determination by the district court of an issue covered in the report. Thomas v. Arn, 728
F.2d 813, 815 (6th Cir. 1984), aff=d, 474 U.S. 140 (1985); see United States v. Walters, 638 F.2d 947, 950
(6th Cir. 1981). Therefore, all aspects of the R&R for which no objection has been filed are accepted and
adopted by the Court. The Court accepts the magistrate judge’s recommendation to consider appointing a
special master, but will defer making an appointment at this time.
7

If the Court overrules HealthSmart’s objection to an accounting, HealthSmart requests that the Court
modify that requirement so that HealthSmart must only pay reasonable accounting fees. (Obj. at 540-41.)
8

HealthSmart utilizes a de novo standard of review in arguing its objections. Plaintiff does not contend that
HealthSmart has utilized the incorrect standard of review.
9

The parties do not dispute that M-Audits’ allegation regarding the SEBT claim threshold refers to criteria
1 of the agreed order.

7

the parties in the same position that they were prior to closing. HealthSmart contends that
the $10,000 claim threshold stated in the agreed order is a mistake of fact. (See R&R at
534.) M-Audits, on the other hand, maintains that the pre-closing SEBT claim threshold
was $10,000.
At the evidentiary hearing, the parties offered conflicting testimony as to the
SEBT claim referral threshold before the closing, but provided no documentary evidence.
The magistrate judge requested post-hearing documentation of the pre-closing claim level
for SEBT. (Id. at 534-35.) Upon considering the parties’ post-hearing documentation, the
magistrate judge observed that neither party’s evidence is conclusive on the issue, but
that HealthSmart’s evidence was more convincing than M-Audits regarding pre-closing
SEBT thresholds. (Id. at 535.)
Supplemental briefs were filed by both sides on this issue after the R&R was
issued. The Court has reviewed these filings, and finds that the information and
arguments contained therein only reinforces the parties’ fact dispute regarding the preclosing threshold levels, and does nothing to clarify the issue.
While the parties dispute the pre-closing thresholds, the language of the agreed
order is clear and unambiguous that the threshold is $10,000. At the hearing conducted by
the Court to review the agreed order after the settlement conference, both HealthSmart’s
and M-Audits’ counsel and party representatives represented to the Court that they
understood and approved the agreed order. Thus, the Court must conclude that, at the
time they crafted the agreed order, the parties intended to set the claim threshold at
$10,000. G.G. Marck & Assoc., Inc. v. Peng, 309 F. App’x 928, 934 (6th Cir. 2009) (the
interpretation of a consent decree is a question of contract interpretation under the law of

8

the state in which it was formed, and the court’s task is to ascertain the intent of the
parties at the time of the settlement) (citations omitted). HealthSmart’s entire objection
centers on the contention that the parties actually intended the claim threshold to be
$25,000, even though the agreed order sets the threshold at $10,000, and thus
HealthSmart did not violate the agreed order when it used $25,000 as the threshold to
send claims to M-Audits for review. (Obj. at 542-45.) Even if both parties intended that
the agreed order place them in their pre-closing positions with respect to claim review,
there is no agreement—or conclusive evidence—that the pre-closing threshold was
$25,000.
After conducting a de novo review, the Court concludes the magistrate judge’s
recommendation the HealthSmart is in civil contempt with respect to the SEBT threshold
is correct. The plain language of the agreed order with respect to SEBT claim thresholds
is unambiguous, and there is nothing in the agreed order that makes the $10,000 threshold
susceptible to more than one interpretation. Infocision Mgmt. Corp. v. Found. for Moral
Law Inc., Nos. 5:08CV1342, 5:08CV1412, 2010 WL 4365514, at *5 (N.D. Ohio Oct. 27,
2010) (“‘Contractual language is ambiguous only where its meaning cannot be
determined from the four corners of the agreement or where the language is susceptible
of two or more reasonable interpretations.’”) (quoting Covington v. Lucia, 151 Ohio App.
3d 409, 414 (Ohio Ct. App. 2003) (further citations omitted)). Because the agreed order is
unambiguous that the claim threshold is $10,000, the agreed order must be construed
within its four corners, and not by reference to what might serve one party’s purpose. See
G.G. Marck & Assoc., 309 F. App’x at 934 (citations omitted).

9

HealthSmart admits that it did not comply with the agreed order as to the $10,000
threshold level for SEBT claims. Thus, M-Audits has established HealthSmart’s
noncompliance by clear and convincing evidence, and HealthSmart has not shown that it
was unable to comply. Indeed, HealthSmart’s noncompliance is intentional. Glover v.
Johnson, 138 F.3d 229, 244 (6th Cir. 1998) (citations omitted).
HealthSmart’s objection is overruled. The recommendation of the magistrate
judge that HealthSmart be found in civil contempt for violation of the agreed order with
respect to SEBT claims is accepted and adopted.10
Attorney fees
Finding HealthSmart to be in civil contempt, the magistrate judge recommended
that HealthSmart be required to pay reasonable attorney fees and costs to M-Audits
related to the motion. In objecting to this recommendation, HealthSmart recognizes that it
is within the Court’s discretion to award attorney fees for noncompliance with an order.
(Obj. at 545.) HealthSmart argues, however, that such an award in this case would
constitute an abuse of discretion due to “uncertain terms contained in the order and the
changing position of M-Audits” with respect to HealthSmart’s noncompliance of its
obligations under the order concerning Cigna, Aetna, Cofinity, and First Health claims.
(Obj. at 545-46.) That said, the Court notes that HealthSmart did not object to the
recommendation that it be found in civil contempt for violating the agreed order with
respect to Cigna, Aetna, Cofinity, and First Health claims.

10

The Court notes that HealthSmart’s violation of the agreed order in this regard ceased on January 1,
2016, because the plan fiduciary for SEBT terminated its TPA contract with HealthSmart. (Doc. No. 48-1
(Affidavit of James McGlamery) ¶ 16.)

10

The Court has found HealthSmart to be in civil contempt with respect to two
provisions of the agreed order. As a consequence of HealthSmart’s non-compliance, MAudits has been required to expend financial resources in the form of attorney fees.
“The primary purpose of a civil contempt order is to ‘compel obedience to a court
order and compensate for injuries caused by non-compliance.’” McMahan & Co. v. Po
Folks, Inc., 206 F.3d 627, 634 (6th Cir. 2000) (quoting TWM Manuf. Co. v. Dura Corp.,
722 F.2d 1261 (6th Cir. 1983)). An award of attorney fees is appropriate for civil
contempt where the Court’s order has been violated. Id. (citing Redken Lab., Inc. v.
Levin, 843 F.2d 226 (6th Cir. 1988)); see also Williamson v. Recovery Ltd. P’ship, 467 F.
App'x 382, 392–402 (6th Cir. 2012) (affirming an order of contempt for willfully
violating a discovery order and awarding attorney fees and costs).
After conducting a de novo review, the Court concludes that it is an appropriate
exercise of its discretion to award reasonable attorney fees to M-Audits to compensate
M-Audits for the expenditure of attorney fees necessitated by HealthSmart’s violation of
the agreed order. HealthSmart’s objection is overruled, and the magistrate judge’s
recommendation that HealthSmart be required to pay reasonable attorney fees and costs
related to M-Audits’ motion is accepted and adopted.
Accounting
The magistrate judge recommended an accounting be performed at HealthSmart’s
expense to determine the appropriate compensation for M-Audits for the losses it
sustained as a consequence of HealthSmart’s violation of the agreed order. To perform
this accounting, the magistrate judge recommended that the parties utilize the Claims

11

List11 provided by HealthSmart, from which M-Audits estimates that approximately
15,000 claims would have been sent to it for review if HealthSmart had not violated the
agreed order. (R&R at 537-38.) The underlying premise is that M-Audits is compensated
for its services by being paid a percentage of the dollar amount its claim reviews save the
insurer and/or benefit plan. (Id. n.19.) The recommendation does not address a specific
procedure or method by which to actually calculate the damages sustained by M-Audits
with respect to the claims identified on the Claims List that M-Audits should have
received for claims review.
HealthSmart objects, arguing that M-Audits’ compensation for some of the claims
that should have been referred depends upon a finding of savings for the provider, and
that an audit of those claims cannot now be performed, thus the damages estimated for
those claim would be mere speculation. (Obj. at 546.) HealthSmart seeks a modification
of the magistrate judge’s recommendation and suggested a procedure to identify claims
that were eligible for code editing and fraud and abuse, and base M-Audits’ damages
upon an average net loss per claim determined by a review of past revenues based on
similar claims. (Id.) In responding to HealthSmart’s objection, M-Audits concedes that
some assumptions will have to be made in order to calculate its damages. (Resp. to Obj.
at 592.)
To the extent that HealthSmart’s objection seeks a modification of the
recommendation in order to clarify the procedure and criteria to be used for calculating
M-Audits’ damages, the objection is sustained. To the extent that HealthSmart’s

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The R&R defines the Claims List as all claims submitted to HealthSmart since September 8, 2015 that
pertain to the clients identified in the Client List (defined in the R&R at 524), and that meet the three
criteria outlined in the agreed order. (R&R at 525.)

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objection seeks to exclude from the accounting any claims that should have been referred
to M-Audits had HealthSmart complied with the agreed order, the objection is overruled.
The Court orders the parties to confer and develop a joint proposal outlining the
procedure and criteria to be followed to calculate damages due M-Audits for claim
reviews that it should have received if HealthSmart had complied with the agreed order.
HealthSmart’s suggested use of averages for similar claims is an example of one possible
method. Depending upon the nature of the procedure and criteria agreed upon, it may be
possible for the parties to perform the damages review in-house without the need for an
accountant. If, however, the agreed upon process requires the use of external resources,
HealthSmart shall bear all reasonable costs and expenses associated therewith.
The joint proposal shall be filed with the Court by October 21, 2016. If the parties
cannot jointly agree on a damages computation procedure, the Court will intervene. The
parties are cautioned, however, to work together cooperatively and in good faith, and to
make every effort to develop an agreed process.
Accordingly, the magistrate judge’s recommendation as to the accounting is
clarified and modified in accordance with the terms of this opinion and order.
B. HealthSmart’s Second Motion to Modify the Order
HealthSmart moves to modify the agreed order pursuant to Fed. R. Civ. P. 60(b),
and submits a proposed modification. (D. Mot. at 566-67.) HealthSmart filed this motion
on the same day it filed its objections to the R&R.
According to HealthSmart, it became evident to HealthSmart after the contempt
hearing “that the SEBT Claim issue is only one of many complications created by the
Order’s overly broad characterizations of the categories of claims and types of bill review

13

services the parties intended M-Audits to receive and provide. . . . Although the Order
was negotiated in good faith by high-ranking representatives from both parties, the
complete lack of specificity and granularity in describing the distinct categories of claims
and types of bill review services . . . has rendered its consistent and uniform
implementation impracticable, if not impossible.” (Id. at 549.) HealthSmart attributes this
situation to a lack of input
from the lower level employees, who are also the technical experts on the
claims process and bill review standards and thresholds, [and who] should
have played a larger role in crafting the Order. As a result of the parties’
excusable neglect and mutual mistake regarding the process for directing
claims for bill review, the resulting Order failed to establish a consistent
and workable framework for directing claims to M-Audits. Given the high
level at which the detailed, technical and complex claims process was
addressed in the Order, it is clear that the high ranking officers on both
sides were mutually mistaken as to the level of expertise required to
implement a clear and precise Order governing the flow of claims from
HealthSmart to M-Audits for bill review.
(Id. at 563.)
1. Governing Law
This matter is before the Court on diversity jurisdiction, therefore the Court
applies the substantive law of Ohio with respect to interpretation of the agreed order. See
State Farm Fire & Cas. Co. v. Rowland Plumbing, Ltd., No. 5:11CV316, 2012 WL
169960, at *2 (N.D. Ohio Jan. 18, 2012) (citing Erie v. Tompkins, 304 U.S. 64, 58 S. Ct.
817, 82 L. Ed. 1188 (1938)); Savedoff v. Access Grp., 524 F.3d 754, 762 (6th Cir. 2008)
(citation omitted). HealthSmart’s motion for relief from judgment pursuant to Fed. R.
Civ. P. 60(b), however, is a procedural matter which is controlled by federal, not state,
law. See Davis by Davis v. Jellico Cmty. Hosp. Inc., 912 F.2d 129, 131 (6th Cir. 1990)
(citing Still v. Townsend, 311 F.2d 23, 24 (6th Cir. 1962) (holding that Rule 60(b) is

14

controlled by federal, not state, law)); Conte v. Gen. Housewares Corp., 215 F.3d 628,
639 (6th Cir. 2000) (citing Davis).
Rule 60(b) governs the criteria for determining whether relief from an order is
warranted, and provides that:
On motion and just terms, the court may relieve a party or its legal
representative from a final judgment, order, or proceeding for the
following reasons: (1) mistake, inadvertence, surprise, or excusable
neglect; (2) newly discovered evidence that, with reasonable diligence,
could not have been discovered in time to move for a new trial under Rule
59(b); (3) fraud (whether previously called intrinsic or extrinsic),
misrepresentation, or misconduct by an opposing party; (4) the judgment
is void; (5) the judgment has been satisfied, released, or discharged; it is
based on an earlier judgment that has been reversed or vacated; or
applying it prospectively is no longer equitable or (6) any other reason that
justifies relief.
In its motion, HealthSmart argues the agreed order should be modified because of
the parties’ excusable neglect and mistake, and because the terms are no longer equitable
in light of subsequent developments between the parties. (D. Mot. at 562-63.)
Fed. R. Civ. P. 60(b)(1)
“Relief under Rule 60(b)(1) is proper ‘in only two situations: (1) when a party
has made an excusable mistake or an attorney has acted without authority, or (2) when
the judge has made a substantive mistake of law or fact in the final judgment or order.’”
Sipers v. Madison Cnty., No. 12-1130, 2015 WL 237217, at *2 (W.D. Tenn. Jan. 16,
2015) (quoting United States v. Reyes, 307 F.3d 451, 455 (6th Cir. 2002)). The party who
attacks an order entered in connection with a settlement agreement bears the burden of
proof. See Harney v. Walden, Civil Action No. 10-200-JBC, 2012 WL 4329281, at *1
(E.D. Ky. Sept. 19, 2012) (citing Brown v. County of Genesee, 872 F.2d 169, 174 (6th
Cir. 1989)).

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In opposing the motion, M-Audits is unequivocal that there was no mistake on the
part of M-Audits with respect to the agreed order, and submits the affidavit of its CEO,
Tom Patton, who participated in the settlement negotiations and drafting of the agreed
order. (Doc. No. 53-1 (Affidavit of Thomas Patton [“Patton Aff.”]) ¶ 5 (“First and
foremost, M-Audits did not make any mistake with respect to the Agreed Order.”).)
Patton further maintains that, on the part of M-Audits, all of the individuals required by
M-Audits to negotiate the agreed order, including M-audits technical expert, Kathleen
O’Leary, were present for the negotiation. (Patton Aff. ¶ 2.)
HealthSmart has failed to carry its burden to establish excusable mistake or
neglect in the negotiation of the agreed order. Beyond the argument of counsel in its brief
and attached worksheets and flow charts, HealthSmart provides no affidavit or other
evidence that HealthSmart’s “lower level employees” were needed by, but not available
to, HealthSmart’s “high ranking officers” during the parties’ negotiation of the agreed
order, or that HealthSmart’s “high ranking officers” made a mistake in connection with
parties’ negotiated order.
Moreover, immediately after the parties negotiated the agreed order on August 24,
2015, the Court conducted a hearing to review the agreed order with counsel and the
party representatives for both sides. In addition to counsel, present for M-Audits was MAudits’ principal, Thomasina Patton, as well as Tom Patton and Kathleen O’Leary. Party
representatives present for HealthSmart were Tom Kelly (CEO), Sarah Bittner (general
counsel), Mark Stadler (chief of marketing), and Lauren Claypool (chief of operations).
At the hearing, the Court inquired of Ms. Patton and Mr. Kelly as to whether they
understood the terms of the agreed order and were in agreement with those terms, and

16

whether they had an opportunity to review the proposed order with their respective
counsel and teams. Both Ms. Patton and Mr. Kelly answered the Court in the affirmative.
At no time did Mr. Kelly, counsel, or any other representative for HealthSmart indicate to
the Court that further information was necessary, or that they needed to consult with
other employees of HealthSmart that were not available, in order to understand or
negotiate the agreed order.
Accordingly, HealthSmart’s motion to modify the agreed order on the basis of
Rule 60(b)(1) is denied.12
Fed. R. Civ. P. 60(b)(5) and (6)
HealthSmart also argues that the agreed order should be modified because it is no
longer equitable in light of “subsequent developments.” (D. Mot. at 562-63.). The
subsequent developments to which HealthSmart refers are the same reasons that
HealthSmart argued in support of reformation of the order due to excusable neglect or
mutual mistake—HealthSmart’s officials were mistaken as to the level of expertise
required to negotiate the order and did so without consulting “lower level employees.”
(Id. at 563.)
Rule 60(b)(5) does not allow modification of an agreed order absent a “significant
change either in factual conditions or in law.” Northridge Church v. Charter Twp. of
Plymouth, 647 F.3d 606, 614 (6th Cir. 2011) (quoting Rufo v. Inmates of Suffolk Cnty.
Jail, 502 U.S. 367, 378, 112 S. Ct. 748, 116 L. Ed. 2d 867 (1992)); Horne v. Flores, 557

12

An analysis of mutual mistake under Ohio law yields same result. Ohio law permits reformation of a
contract “to remedy a mutual mistake, but not a unilateral one.” Drillers Place Ltd. v. Mormack Indus.,
Inc., 2016 WL 228842, at *6 (Ohio Ct. App. Jan. 19, 2016) (quoting Gen. Tire, Inc. v. Mehlfeldt, 691
N.E.2d 1132, 1136 (Ohio Ct. App. 1997)). “The party alleging mutual mistake has the burden of proving its
existence by clear and convincing evidence.” Id.

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U.S. 433, 447, 129 S. Ct. 2579, 174 L. Ed. 2d 406 (2009) (Rule 60(b)(5) “provides a
means by which a party can ask a court to modify or vacate a judgment or order ‘if a
significant change either in factual conditions or in law’ renders continued enforcement
‘detrimental to the public interest.’”) (quoting Rufo). As the party seeking modification of
the agreed order, HealthSmart “bears the burden of establishing that a significant change
of circumstances warrants revision of the [order].” Northridge Church, 647 F.3d at 614
(quoting Rufo, 502 U.S. at 383).
HealthSmart has failed to carry its burden. HealthSmart does not contend that
changes in the law prompted its motion to modify the order. The changed circumstances
that HealthSmart argues support modification, to the extent they are changed
circumstances at all, did not arise outside of HealthSmart’s control. The team selected by
HealthSmart to negotiate the agreed order, and their decisions regarding who should be
consulted regarding the terms of the order, was HealthSmart’s choice. Here, the claimed
ignorance of HealthSmart’s party representatives regarding the complexity of claim
processing, and purported later realization of the need for those representatives to consult
“lower level employees,” is not the kind of changed circumstance that warrants the
extraordinary remedy of modification of the order. See Northridge Church, 647 F.3d at
614 (citing East Brooks, Inc. v. City of Memphis, 633 F.3d 459, 465 (6th Cir. 2011)).
HealthSmart’s choices regarding selection of the negotiation team and preparation for the
settlement negotiation were entirely within HeathSmart’s control, and HealthSmart’s
unilateral dissatisfaction with those consequences does not justify modification of the
order under Rule 60(b)(5). Northridge Church, 647 F.3d at 618 (“Unlike many cases
considering Rule 60(b)(5) challenges, where the change in factual circumstances was

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outside the movant's control, here the changed factual landscape stems mostly from
Northridge's growth—something entirely within its own power. To allow a party to
escape a consent judgment based on its own voluntary actions strikes us as unjustified.”)
(emphasis in original).
Neither do these reasons support modification of the agreed order under Rule
60(b)(6). This “catch-all” provision provides an alternative basis for relief “only in
‘exceptional or extraordinary circumstances which are not addressed by the first five
clauses of the Rule’ and where principles of equity mandate relief.” Commodity Futures
Trading Comm’n v. Allied Fin. Grp., Inc., No. 2:94-cv-981, 2008 WL 755216, at *4
(S.D. Ohio Mar. 20, 2008) (quoting Olle v. Henry & Wright Corp., 910 F.2d 357, 365
(6th Cir. 1990) (emphasis in original)). Courts “must apply subsection (b)(6) only ‘as a
means to achieve substantial justice when ‘something more’ than one of the grounds
contained in Rule 60(b)’s first five clauses is present.’” Olle, 910 F.2d at 365 (quoting
Hopper v. Euclid Manor Nursing Home, Inc., 867 F.2d 291, 294 (6th Cir. 1989) (internal
quotation marks omitted)).
For all of the foregoing reasons, HealthSmart’s motion to modify the agreed order
pursuant to Rule 60(b) is denied.
C. Conclusion
After a de novo review of the issues raised by HealthSmart’s objections, the R&R
is accepted and adopted, except with respect to the recommendation regarding an
accounting, which is clarified and modified as described herein. No later than October 21,
2016, the parties shall submit a joint proposal outlining a procedure and criteria by which
to calculate M-Audits’ losses caused by HealthSmart’s violation of the agreed order.

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Accordingly, M-Audits’ first motion to show cause and for contempt (Doc. No. 24) is
granted in part and denied in part as detailed in the R&R and as set forth herein.
Additionally, HealthSmart’s second motion to modify the agreed order (Doc. No. 52) is
denied.
IT IS SO ORDERED.

Dated: September 29, 2016
HONORABLE SARA LIOI
UNITED STATES DISTRICT JUDGE

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