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

Filing 82

Memorandum Opinion and Order: HealthSmart's motion for reconsideration is denied. (Related Doc. No. 66 ). Judge Sara Lioi on 3/31/2017. (P,J)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

M-AUDITS, LLC,

PLAINTIFF,
vs.

HEALTHSMART BENEFIT
SOLUTIONS, INC.,
DEFENDANT.

)
)
)
)
)
)
)
)
)
)
)
)

CASE NO. 1:15-cv-1433

JUDGE SARA LIOI

MEMORANDUM OPINION AND
ORDER

This matter is before the Court on the motion of defendant HealthSmart Benefit
Solutions, Inc. (“defendant” or “HealthSmart”) for reconsideration (Doc. No. 66 [“Mot.”]), and
supplemental brief in support (Doc. No. 68 [“Supp.”]), of one aspect of Court’s Memorandum
Opinion and Order (Doc. No. 65 [“MOO”]) filed September 29, 2016. Specifically, defendant
seeks reconsideration of the Court’s denial of defendant’s second motion to modify the agreed
order (“agreed order” or “order”) entered by the Court on August 24, 2015 (Doc. No. 22
[“Order”]). Plaintiff M-Audits, LLC (“plaintiff” or “M-Audits”) opposes the motion (Doc. No.
69 [“Opp’n”]), and has filed a separate response to defendant’s supplemental brief (Doc. No. 76
[“Opp’n to Supp.”]), to which defendant replied (Doc. No. 77 [“Reply”]).
For the reasons that follow, HealthSmart’s motion for reconsideration is denied.

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”].) 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 Agency, Inc. (“CBG”), a third-party administrator (“TPA”) for selfinsured 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. The APA contemplated an
immediate payment of $1.5 million dollars, and $5.5 million dollars to be paid “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.) MAudits would not agree to the subordination, so an alternative deal was structured 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, instead
of the agreed earn-out purchase price for the assets of M-Audits, HealthSmart would use
commercially reasonable efforts to cause its customers to enter into M-Audits’ service agreement
contract for claim auditing. (Id. ¶ 13.) The APA and side letter agreement closed on July 1, 2014.
(Id. ¶ 12.)

2

M-Audits claims that HealthSmart violated the terms of the side letter agreement. (See id.
¶¶ 15-24.) M-Audits’ complaint alleges breach of contract and interference with contract, and
seeks injunctive relief. (Id. ¶¶ 29-47.)
2. Procedural
Resolution of plaintiff’s motion for injunctive relief—the Agreed Order
When defendant removed this case to federal court, a motion by plaintiff for a temporary
restraining order (“TRO”) was pending in state court. The Court was advised of the motion by
counsel during a telephonic status conference conducted on July 22, 2015.1 (See Minutes of
proceedings July 22, 2015.)
The Court referred the matter to Magistrate Judge Kathleen Burke (Doc. No. 10), and the
magistrate judge scheduled a mediation conference to address the issues raised by plaintiff in its
motion for a TRO (Doc. Nos. 12, 13). Before the mediation, defendant filed a motion to dismiss
or, alternatively, to stay proceedings and compel arbitration. (Doc. No. 19 [“MTD”].) Attached
to the motion to dismiss is the side letter agreement referred to in plaintiff’s complaint (Compl. ¶
13), which contains a provision that “[a]ny dispute or claim arising under or with respect to this
Agreement will be resolved . . . in accordance with the Rules for Commercial Arbitration of the
American Arbitration Association2 before a panel of three (3) arbitrators . . . The decision or
award of a majority of the arbitrators will be final and binding upon the parties.” (Doc. No. 19-1
at 237 (footnote added).) After removal, but before the motion to dismiss was filed, plaintiff
lodged a demand for arbitration. (Doc. No. 19-2 at 241.)

1

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.)
2

These rules can be found on the American Arbitration Association’s website at www.adr.org.

3

In addition to counsel, M-Audits’ principal, Thomasina Patton, as well as Tom Patton
(“Patton”) and Kathleen O’Leary (“O’Leary”), were present at the mediation conference. Party
representatives present for HealthSmart were Tom Kelly (CEO), Sarah Bittner (general counsel),
Mark Stadler (chief of marketing), and Loren Claypool (chief of operations). (Doc. No. 23.) The
parties reached an agreement to resolve plaintiff’s motion for a TRO at the mediation
conference, and memorialized the terms in a proposed agreed order. (Id.) Because the parties
settled their issues regarding plaintiff’s motion for injunctive relief, neither the Court nor the
magistrate judge conducted a hearing or issued an opinion regarding the merits of plaintiff’s
motion for a TRO. Thus, the Court made no findings regarding plaintiff’s likelihood of success
on the merits of its claims, or analyzed and balanced any of the other factors that must be
considered in ruling on a motion for injunctive relief.3
Directly after the mediation conference was concluded, counsel and their respective client
representatives appeared on the record before the Court. The Court conducted a detailed inquiry
of both counsel and Ms. Patton and Mr. Kelly as to whether they had an opportunity to review
the proposed agreed order with their respective counsel and teams, and whether they understood
and agreed with the terms of the order. While the Court had reservations regarding the clarity of
certain terms, both Ms. Patton and Mr. Kelly assured the Court that they understood and agreed
to the terms of the order. With these assurances, the Court entered the agreed order to
accommodate the parties’ resolution of plaintiff’s TRO motion.

3

In the Sixth Circuit, it is well-settled that the following factors are to be considered in determining whether a
temporary restraining order is necessary: (1) whether the movant has shown a strong likelihood of success on the
merits; (2) whether the movant has shown irreparable injury; (3) whether the issuance of a preliminary injunction [or
TRO] would cause substantial harm to others; and (4) whether the public interest would be served by granting
injunctive relief. Petronzio v. Smith, No. 1:14CV1202, 2014 WL 3513224, at *8 (N.D. Ohio July 11, 2014) (citing
Leary v. Daeschner, 228 F.3d 729, 736 (6th Cir. 2000)).

4

The parties’ agreement rendered plaintiff’s TRO motion and defendant’s motion to
dismiss moot, and both motions were denied as such. (Order at 259.) The parties also agreed that
plaintiff’s remaining claims were subject to arbitration, and the case was dismissed. (Id.) Nexteer
Auto. Corp. v. Korea Delphi Auto. Sys. Corp., No. 13-CV-15189, 2014 WL 562264, at *4 (E.D.
Mich. Feb. 13, 2014) (“When all of the issues before the district court are subject to arbitration,
the district court may dismiss the action.”) (citation omitted).
Aftermath of the Agreed Order
Within three weeks, the parties reported difficulty implementing the terms of the agreed
order. (See Minutes of proceedings Sept. 11, 2015.) Within three months, plaintiff sought an
order from the Court finding defendant in contempt of the agreed order. (Doc. No. 24.) The
Court referred the matter to Magistrate Judge Burke for a report and recommendation and, if
appropriate, to conduct an additional settlement conference. (Doc. No. 25.) The magistrate judge
established a briefing schedule, and conducted a hearing on January 4, 2016. (See Minutes and
Order Jan. 4, 2016.)4 Thereafter, Magistrate Judge Burke issued a report and recommendation
(“R&R”) recommending, among other things, that HealthSmart be found in contempt of the
agreed order. (Doc. No. 50 [“R&R”].)

4

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

5

HealthSmart filed a partial objection to the R&R, and a separate, second5 motion to
modify the agreed order pursuant to Rule 60. Defendant’s motion to modify the agreed order was
not before the magistrate judge and not addressed in the R&R. In the memorandum opinion and
order ruling on HealthSmart’s objections to the R&R, the Court also denied HealthSmart’s
second motion to modify the agreed order. (MOO at 866-67.)
Motion for reconsideration
The basis for defendant’s motion to modify was that determining the categories of claims
eligible for referral to M-Audits by HealthSmart is highly technical and complex, and
HealthSmart’s “high ranking” representatives present at the mediation conference and the
hearing before the Court, were mistaken about their ability to negotiate the terms of the agreed
order without input from “lower level employees.” (Doc. No. 52 at 563.) Thus, HealthSmart
argued that the agreed order should be modified because of the mistake and excusable neglect of
the HealthSmart team that negotiated the agreed order with M-Audits. (See MOO at 860-66.)
HealthSmart also argued that the agreed order should be modified pursuant to Rule 60(b)(5) and
(b)(6). The Court denied the motion on the grounds that HealthSmart failed to carry its burden
under both Rule 60(b) and Ohio law for reformation of contracts (Id. at 863-64 & n. 12).
HealthSmart now contends that “evidence has come to light in the correlating AAA
Arbitration, which was not capable of submission prior to mediation as well as the hearing
conducted on January 4, 2016.” (Mot. at 872.) Defendant seeks reconsideration pursuant to Rule
60(b)(2) based on alleged newly discovered evidence regarding “bill review” obtained from the
testimony of Patton and O’Leary in May, 2016 during the course of arbitration to resolve

5

HealthSmart’s first motion to modify the agreed order was stricken as premature. (Doc. Nos. 44, 45.)

6

plaintiff’s claims on the merits,6 and pursuant to Rule 60(b)(6) (any other reason that justifies
relief) because this alleged new evidence reveals that enforcement of the agreed order
purportedly causes HealthSmart to violate its contracts with Cigna and Aetna. (Supp. at 880.) In
response, M-Audits disputes that the testimony of O’Leary or Patton revealed new or
inconsistent evidence, or that the claim reviews violate HealthSmart’s contracts with Cigna and
Aetna.
B. Discussion
1. Standard of review
“Relief under Rule 60(b)(6) should be granted only in unusual and extreme situations
where principles of equity mandate relief.” EA Mgmt. v. JP Morgan Chase Bank, No. 07-11629,
2009 WL 36470, at *1 (E.D. Mich. Jan. 6, 2009) (citing GenCorp., Inc. v. Olin Corp., 477 F.3d
368, 373 (6th Cir. 2007)). Fed. R. Civ. P. 607 applies only to “final orders” and judgments, and
does not govern interlocutory orders. Rheinfrank v. Abbott Labs., Inc., 137 F. Supp. 3d 1035,
1037 (S.D. Ohio 2015) (citing authorities). In plaintiff’s view, the motion seeks reconsideration
of an interlocutory order. (Opp’n at 899.) “‘[D]istrict courts have authority under both common
law and Rule 54(b) to reconsider interlocutory orders and to reopen any part of a case before
entry final judgment.’” Allied Erecting & Dismantling Co Inc.. v. U.S. Steel Corp., 76 F. Supp.

6

The arbitration proceedings have been completed. (See Minutes of proceedings February 10, 2017.)

7

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.

7

3d 691, 692 (N.D. Ohio 2015) (quoting Rodriguez v. Tenn. Laborers Health & Welfare Fund, 89
F. App’x. 949, 959 (6th Cir. 2004) (further citation omitted)). “Traditionally, courts will find
justification for reconsidering interlocutory orders when there is (1) an intervening change of
controlling law; (2) new evidence available; or (3) a need to correct a clear error or prevent
manifest injustice.”8 Rodriguez, 89 F. App’x at 959 (citing Reich v. Hall Holding Co., 990 F.
Supp. 955, 965 (N.D. Ohio 1998)).
In this particular case, the factors supporting reconsideration argued by defendant under
Rule 60(b) or by plaintiff under Rule 54(b)—“newly discovered evidence,” and extraordinary
circumstances where “principles of equity mandate relief” and “manifest injustice”—overlap.
See e.g. Cimerman v. Cook, No. 3:12CV1036, 2013 WL 11326550, at *1 (N.D. Ohio Mar. 22,
2013) (“[T]his is one of those ‘exceptional or extraordinary circumstances,’ in which it is proper
to apply Rule 60(b)(6) to avoid manifest injustice.”) (internal citation omitted). HealthSmart’s
arguments fail under both rules.
2. Relief not available on the basis of newly discovered evidence
In order to constitute newly discovered evidence, the evidence must have been previously
unavailable. Cameron v. Hess Corp., No. 2:12-CV-00168, 2013 WL 6157999, at *3 (S.D. Ohio
Nov. 25, 2013) (citing GenCorp, Inc. v. American Intern. Underwriters, 178 F.3d 804, 834 (6th
Cir. 1999)). “A court will not reconsider based on evidence ‘which in the exercise of reasonable
diligence could have been submitted earlier.’” Id. (citing Kittle v. Ohio, 2:05–CV–1165, 2007
WL 543447, at *1 (S.D. Ohio Feb. 15, 2007)); Buell v. Security Gen.l Life Ins. Co., 987 F.2d
1467, 1472 (10th Cir. 1993), cert. denied, 510 U.S. 916, 114 S. Ct. 308, 126 L. Ed. 2d 255

8

While defendant bases its motion on Rule 60(b), it also argues that denial of its motion to modify the agreed order
is manifestly unjust because the agreed order, as written, requires HealthSmart to violate its contracts with Cigna
and Aetna. (Supp. at 886.)

8

(1993) (“[T]he movant must show either that the evidence is newly discovered [and] if the
evidence was available at the time of the decision being challenged, that counsel made a diligent
yet unsuccessful effort to discover the evidence.”).
The testimony of Patton and O’Leary is not newly discovered evidence. That evidence
was available and known to defendant before the Court issued its ruling denying defendant’s
motion to modify the agreed order. At no time did HealthSmart seek to supplement its pending
motion, or otherwise make the Court aware of this “new evidence,” before the Court ruled.
HealthSmart is not entitled to waste judicial resources by withholding evidence that it believes to
be relevant while its motion is pending, and then bring that evidence forward after the motion is
denied and take a second bite at the apple in the form of a motion for reconsideration. See Skurka
Aerospace, Inc. v. Eaton Aerospace, L.L.C., No. 1:08 CV 1565, 2013 WL 12130434, at *1 (N.D.
Ohio Aug. 19, 2013) (“‘parties should not use [motions for reconsideration] to raise arguments
which could, and should, have been made before judgment issued’”) (quoting Sault Ste. Marie
Tribe of Chippewa Indians v. Engler, 146 F.3d 367, 374 (6th Cir. 1998)). It is not unjust for the
Court to now refuse to consider evidence that was admissible, but not presented prior to the time
the Court ruled on HealthSmart’s motion to modify the agreed order. Rodriguez, 89 F. App’x at
959 (finding that district court did not abuse its discretion by refusing to consider evidence
pursuant to Rule 54(b) that was in defendant’s possession at the time of the district court’s earlier
decision).
Accordingly, the evidence at issue is not newly discovered, and HealthSmart’s motion for
reconsideration on that basis is denied.

9

3. Relief not available due to the alleged impact of the agreed order
on Cigna and Aetna contracts
“A court’s application of Rule 60(b)(6) requires ‘exceptional and extraordinary
circumstances’ warranting relief in the absence of an appeal on the merits.” Cequent Trailer
Prod., Inc. v. Intradin (Shanghai) Mach. Co., Ltd., No. 1:05-CV-2566, 2007 WL 1362457, at *2
(N.D. Ohio May 7, 2007) (quoting Hopper v. Euclid Manor Nursing Home, Inc., 867 F.2d 291,
294 (6th Cir. 1989)); Horton v. Sheets, No. 2:07-CV-525, 2012 WL 3777431, at *2 (S.D. Ohio
Aug. 30, 2012) (“Rule 60(b)(6) requires a showing of ‘exceptional or extraordinary
circumstances.’”) (quoting Taylor v. Streicher, 469 F. App’x 467, 468 (6th Cir. 2012)). The
determination of whether there are exceptional and extraordinary circumstances supporting relief
under Rule 60(b)(6) involves a “‘case-by-case inquiry that requires the trial court to intensively
balance numerous factors, including the competing policies of the finality of judgments and the
incessant command of the court’s conscience that justice be done in light of all the facts.’” Fitts
v. Snyder, No. 12-CV-13575, 2016 WL 4089219, at *2 (E.D. Mich. Aug. 2, 2016) (quoting
Thompson v. Bell, 580 F.3d 423, 442 (6th Cir. 2009)). Under Rule 54(b), relief from
interlocutory orders “is available whenever justice requires.” Lanier v. U.S. Dep’t of Labor, No.
5:14-CV-168-GNS, 2015 WL 4530435, at *1 (W.D. Ky. July 27, 2015) (citing Rodriguez, 89 F.
App’x at 959).9

“Relief from interlocutory orders is available whenever justice requires, though ‘[t]raditionally, courts will find
justification for reconsidering interlocutory orders when there is (1) an intervening change of controlling law; (2)
new evidence available; or (3) a need to correct a clear error or prevent manifest injustice.’” Lanier, 2015 WL
4530435, at *1 (quoting Rodriguez, 89 F. App’x at 959). Having already concluded that newly discovered evidence
is not a basis upon with HealthSmart can obtain reconsideration, the only remaining applicable factor under a Rule
54(b) analysis to consider is whether manifest injustice justifies reconsideration.
9

10

HealthSmart argues that, as written, the agreed order requires it to violate its contracts
with Cigna and Aetna. M-Audits vociferously disagrees. HealthSmart has not cited any case that
supports the application of Rule 60(b)(6) (or Rule 54(b)) to this circumstance.
As discussed earlier, HealthSmart’s counsel and team engaged in lengthy discussions
with M-Audits’ counsel and team before arriving at the agreed order. The agreed order reflects
that the issue of the Cigna and Aetna contracts was addressed by the parties during their
negotiations: “HealthSmart has neither the authority nor the obligation to refer claims to MAudits for services rendered by primary network providers under Cigna or Aetna contracts which
prohibit bill review.” (Order at 259.) If this language was incomplete or inadequate to protect
HealthSmart’s interests, it should have negotiated different or more detailed terms. If
HealthSmart needed more information regarding the nature of M-Audits’ bill review process and
what impact, if any, that process had with respect to HealthSmart’s compliance with its contracts
with Cigna and Aetna, it could have and should have obtained that information before agreeing
to any terms resolving M-Audits’ TRO motion.
The circumstances that HealthSmart claims violate its contracts with Cigna and Aetna
flow from its own actions and decisions, and principles of equity do not warrant the
extraordinary relief of Rule 60(b)(6), nor is such relief appropriate to prevent manifest injustice.
See Lehman v. United States, 154 F.3d 1010, 1017 (9th Cir. 1998) (affirming district court’s
denial of plaintiff’s motion to vacate voluntary dismissal by plaintiff where plaintiff failed to
diligently protect her rights in an agreement with defendant to voluntarily dismiss the case and
later engage in settlement negotiations); Cohen v. Abramowitz, 549 B.R. 316, 326 (W.D. Pa.
2016) (extraordinary circumstances rarely exist when a parties seeks relief from a judgment that
resulted from a party’s own choices and decisions) (collecting cases); Lane v. Lucent Techs.,

11

Inc., No. 104CV00789, 2007 WL 2079879, at *2 (M.D. N.C. July 13, 2007) (“[T]o receive relief
under Rule 60(b), ‘a moving party must show both injury and that circumstances beyond its
control prevented timely action to protect its interests.’”) (quoting Lehman, 154 F.3d at 1017);
Draper v. Bacon, No. 1:04-CV-167, 2005 WL 2016755, at *3 (E.D. Tenn. Aug. 22, 2005) (citing
Pioneer Inv. Servs. Co. v. Brunswik Assoc. Ltd. P’ship, 507 U.S. 380, 393, 113 S. Ct. 1489, 123
L. Ed. 2d 74 (1993) (noting subsections (1) and (6) are mutually exclusive provisions
distinguished by presence or lack of party’s fault in connection with the circumstances)).
HealthSmart was not required to agree to any terms to resolve M-Audits’ TRO motion.
Nevertheless, HealthSmart’s team and counsel negotiated such terms and agreed to those terms
on the record after being questioned by the Court. Defendant’s belated dissatisfaction with the
alleged consequences of the agreed order it negotiated does not constitute unusual and extreme
circumstances where principles of equity mandate the relief requested by HealthSmart, or which
require such relief to avoid manifest injustice. Accordingly, HealthSmart’s motion for
reconsideration pursuant to Rule 60(b)(6) is denied.10
C. Conclusion
For the foregoing reasons, defendant’s motion for reconsideration is denied.
IT IS SO ORDERED.

Dated: March 31, 2017
HONORABLE SARA LIOI
UNITED STATES DISTRICT JUDGE

10

To the extent that a Rule 54(b) analysis is applicable, the motion would be denied based on the same facts that
support denial pursuant to Rule 60(b)(6).

12