ProgenyHealth, Inc. v. CareSource Management Group Co.

Filing 13

ENTRY AND ORDER granting 10 Motion to Dismiss for Failure to State a Claim filed by Defendant Caresource Management Group. The Court GRANTS the Motion to Dismiss and DISMISSES the complaint in its entirety. Signed by Judge Thomas M. Rose on 6/15/2017. (jg)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION AT DAYTON
PROGENYHEALTH, INC.,

:
Case No. 3:17-cv-00065
:
Plaintiff,
:
Judge Thomas M. Rose
:
v.
:
:
CARESOURCE MANAGEMENT
:
GROUP, CO.,
:
:
Defendant.
:
______________________________________________________________________________
ENTRY AND ORDER GRANTING MOTION TO DISMISS (DOC. 10)
BY DEFENDANT CARESOURCE MANAGEMENT GROUP, CO.
______________________________________________________________________________
This case is before the Court on the Motion to Dismiss (Doc. 10) filed by
Defendant CareSource Management Group, Co. (“CareSource”). Plaintiff Progeny
Health (“Progeny”) provides neonatal case management and coordination services for
newborn infants. CareSource is a managed care company that contracts with state
agencies to provide managed care health plans to the public and, particularly, to
individuals who receive Medicaid or equivalent state-supported healthcare. In June
2015, CareSource entered into a three-year agreement with Progeny for its services. In
December 2016, CareSource decided that it would no longer refer newborns to Progeny,
although it expected Progeny to continue managing newborns who had already been
referred. Progeny alleges that CareSource’s decision to stop referring newborns is a
breach of their agreement and brought this lawsuit for declaratory judgment and breach
of contract against it.

CareSource moves to dismiss Progeny’s Complaint under Fed. R. Civ. P. 12(b)(6)
for failure to state a claim upon which relief may be granted. CareSource argues that it
does not have any obligation to continue referring newborns to Progeny and, therefore,
its decision to stop doing so was not a breach of their agreement.
As discussed below, the Court may construe the parties’ agreement as a matter of
law on CareSource’s Motion to Dismiss because its terms are clear and unambiguous.
Those terms do not place any duty on CareSource to refer any number of eligible
newborns to Progeny during the term of the agreement. Consequently, Progeny has not
alleged a breach of the agreement and CareSource is entitled to dismissal of the
Complaint. The Court therefore GRANTS the Motion to Dismiss (Doc. 10).1
I.

THE COMPLAINT’S ALLEGATIONS
Progeny has provided neonatal case management and coordination services to

more than 1,000 hospitals and 6,000 healthcare providers across the country. (Doc. 1 at
¶ 5.) CareSource is an Ohio-based, non-profit company that contracts with state
agencies to provide managed health care to the public, including to Medicaid and other
state-supported healthcare recipients. (Id. at ¶ 8.) In 2015, for example, CareSource
contracted with the Ohio Department of Medicaid to provide managed care plans to
eligible residents in the State of Ohio. (Id. at ¶9.)
On June 11, 2015, Progeny and CareSource entered into a Delegated Services
Agreement (the “Agreement”). (Doc. 1 at ¶ 11.) Under the Agreement, Progeny agreed,

The Court acknowledges the valuable contribution and assistance of judicial extern Christin
Dale in drafting this opinion.

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upon referral by CareSource, to coordinate continuing care for newborns who are
admitted to a hospital’s special care unit or Neonatal Intensive Care Unit (“NICU”) at
any time from birth through their first year of life. (Id. at ¶¶ 12-3; Doc. 1-2, Ex. A.) In
return, CareSource agreed to pay Progeny a one-time fee of $150,000 to implement the
program and an additional $2,150 for each newborn that it referred. (Doc. 1-2, Ex. A-1.)
The Agreement provides for a phased implementation of Progeny’s services,
beginning with a 120-day pilot program in Northeast Ohio. (Id., Ex. A.) After the
successful completion of the pilot, the parties could agree to extend the program
beyond Northeast Ohio. (Id.) The Agreement provides for a three-year term, unless
otherwise terminated by the parties. (Doc. 1-2 at ¶ 6.1.) From October 1, 2015 through
December 31, 2016, Progeny provided services to over 1,900 newborns referred by
CareSource pursuant to the Agreement. (Id. at ¶¶ 15-16.)
By letter dated December 8, 2016, CareSource told Progeny that, effective January
1, 2017, it would no longer refer newborns to Progeny for services. (Doc. 1-4.)
CareSource has not referred any newborns to Progeny in 2017. (Doc. 1 at ¶ 37.)
Progeny contends that CareSource’s refusal to refer newborns is a breach of the
Agreement. On February 24, 2017, Progeny filed this lawsuit against CareSource for
declaratory judgment and breach of contract. (Doc. 1.) Progeny seeks a declaratory
judgment holding that the Agreement does not permit CareSource “to unilaterally and
prematurely cease referring eligible newborns” to Progeny and, therefore, CareSource is
in breach of the Agreement. Under the breach-of-contract claim, Progeny alleges that it

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is entitled to damages for CareSource’s breach of the Agreement based on the same
conduct. (Id. at ¶¶ 50-57.)
On April 14, 2017, CareSource filed its Motion to Dismiss the Complaint. (Doc.
10.) Progeny filed a memorandum in opposition (Doc. 11), in response to which
CareSource filed a reply (Doc. 12). The Motion to Dismiss is therefore fully briefed and
ripe for review. The Court has diversity jurisdiction over this case under 28 U.S.C. §
1332 because there is complete diversity between the parties and the amount in
controversy exceeds $75,000. (Doc. 1 at ¶¶ 1-2 (Progeny is a PA corporation with its
headquarters in PA; CareSource is an OH corporation with its headquarters in OH).)
II.

LEGAL STANDARD
When considering a motion to dismiss under Rule 12(b)(6), courts must construe

the complaint in the light most favorable to the plaintiff and accept as true all “wellpleaded allegations” in the complaint. Republic Bank & Trust Co. v. Bear Stearns & Co.,
683 F.3d 239, 246 (6th Cir. 2012). The court need not accept, however, “a legal
conclusion couched as a factual allegation.” Id. (quoting Papasan v. Allain, 478 U.S. 265,
286 (1986)) (internal quotation marks omitted). “[A] plaintiff’s obligation to provide the
‘grounds’ of his ‘entitlement to relief’ requires more than labels and conclusions, and a
formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007) (internal alterations omitted). “To survive a motion to
dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(quoting Twombly, 550 U.S. at 570).

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III.

ANALYSIS
Progeny’s declaratory judgment claim and breach-of-contract claim both hinge

on whether CareSource’s decision to stop referring newborns to Progeny—a decision
that CareSource has adhered to—constituted a breach of the Agreement. In support of
its Motion to Dismiss, CareSource refers to Section 2.16 of the Agreement, which
conditions Progeny’s entitlement to payment on CareSource’s referral of newborns. It
states, for example, that “[i]f CareSource refers an eligible individual and Contractor
provides services based on that initial eligibility representation, those services shall be
eligible for payment,” and “[i[f CareSource does not refer an eligible individual and
Contractor provides services based on that initial eligibility, but no referral from
CareSource, those services shall not be eligible for payment,” and finally, “Neonatal
Medical Management and Case Management Services and coordination of care
provided to each CONTRACTOR Program Newborn admitted at birth to a hospital’s
special care unit or NICU during the First Year effective upon Newborn case referral
from CareSource.” (Doc. 10 at 9 (emphasis added).) CareSource argues that these
provisions can only be interpreted to provide CareSource the discretion, not the
obligation, to refer newborns to Progeny. CareSource further notes the absence of any
provision in the Agreement placing an affirmative obligation on it to refer any number
of newborns to Progeny during the term of the Agreement.
Conversely, Progeny argues that nothing in the Agreement permits CareSource
to “unilaterally and without cause” cease referring eligible newborns to Progeny. (Doc.
1 at 8.) Progeny claims that no fewer than nineteen provisions in the Agreement impose

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an affirmative duty on CareSource to refer all eligible newborns to Progeny. (Doc. 11 at
7-10.) Progeny refers, for example, to provisions stating that it must provide services to
“Contractor Program Newborns” and “Members” for certain periods. (Doc. 1-2 at 2021.) Progeny argues that, if CareSource were permitted to stop referring newborns at
will, it would render Progeny’s obligation to provide these services meaningless.
The parties agree that all disputes under the Agreement “shall be governed by,
construed and enforced according to the laws of the State of Ohio, without regard to the
conflict of laws or legal theory upon which such matter is asserted.” (Doc. 1-2 at § 6.12.)
Under Ohio law, “[w]hen a contract is clear and unambiguous, a court need not
interpret the language and must enforce the agreement by attributing the plain and
ordinary meaning to the language as written.” Mercer v. 3M Precision Optics, Inc., 2009Ohio-930, ¶ 9 (Ct. App.). Furthermore, “[a] contract does not become ambiguous
because its operation may work a hardship upon one party.” Fultz & Thatcher, 2006Ohio-7041, ¶ 29 (Ct. App.). “The law will not insert by construction for the benefit of
one of the parties an exception or condition which the parties either by design or neglect
have omitted from their own contract.” Id. (quoting Montgomery v. Bd. of Educ. of Liberty
Twp., Union Cty., 102 Ohio St. 189, 193 (1921)). Interpreting the terms of a clear and
unambiguous contract is a question of law to be decided by the court. Scartz, 2001-Ohio8866 at 4 (Ct. App.); Am. Coal Sales Co. v. Nova Scotia Power Inc., No. 2:06-CV-94, 2009
WL 467576, at *27 (S.D. Ohio Feb. 23, 2009).
Here, the Agreement is clear and unambiguous. Section 2.16 of the Agreement
provides that CareSource may or may not refer newborns to Progeny. This meaning is
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clearly expressed by the introduction of several of its clauses with the word “if.”
Washington Twp. Bd. of Trustees v. McLaughlin, No. 14830, 1995 WL 634374, at *2 (Ohio
Ct. App. Sept. 29, 1995)(observing “if” is used to introduce a negative conditional clause
or “to introduce a subjunctive clause, meaning in the event that, granting that, or on
condition that.”) (emphasis in original) (superseded on other grounds). The basic thrust
of these clauses is that, if CareSource refers an eligible newborn, then Progeny is
entitled to payment. CareSource’s discretion is underscored by the clause stating that,
without CareSource’s referral, Progeny is not entitled to payment, even if it rendered
services to an eligible newborn. (Doc. 1-2 at § 2.16.) This clause only makes sense if
CareSource has the discretion to decline to refer an “eligible” newborn—meaning a
newborn to whom Progeny could provide services and be paid under the Agreement.
Progeny fails to identify any provision in the Agreement that expressly imposes
an affirmative duty on CareSource to refer eligible newborns—or any number of
them—to Progeny. Instead, Progeny refers to language in nineteen different provisions,
most of which impose duties on Progeny. Progeny cites one of the introductory
“Whereas” clauses of the Agreement, which states only that CareSource “wishes to
engage” Progeny’s services. (Doc. 1-2 at 3.) This clause cannot be reasonably read to
impose any duty regarding referrals, especially in light of the qualifier—which Progeny
omitted from its brief—that CareSource wishes to engage Progeny’s services “under the
terms and conditions set forth herein.” (Id.) Section 1.1, which Progeny also cites,
likewise fails to impose any duty on CareSource. It states only that Progeny “shall

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provide the services” set forth in the Agreement, again “[s]ubject to the terms and
conditions contained herein.” (Id. at 4.)
Progeny also refers to Exhibit A of the Agreement, which “provides an overview
of the Neonatal Medical Management and Case Management Services that [Progeny]
will provide to [CareSource], as well as a framework for ramping up these services and
measuring the success of the program.” (Id. at 21.) The express purpose of Exhibit A is
to describe the scope of Progeny’s services, not CareSource’s duties and obligations. It
would be inconsistent with that express purpose to construe Exhibit A to impose a
material, affirmative obligation on CareSource. Yet, Progeny argues just that. Not only
is such an interpretation flawed ab initio for this reason, but Exhibit A does not support
Progeny’s interpretation in any event.
Progeny notes, for example, that Exhibit A requires Progeny to provide
“[n]eonatal case management and case management services and coordination of care”
to “each Contractor Program Newborn.” (Id.) This provision is qualified, however, by
the further statement that it is “effective upon Newborn case referral from
CARESOURCE.” (Id.) Other Exhibit A provisions cited by Progeny are likewise
accompanied by language indicating that Progeny’s obligations are conditional on
CareSource’s action or referral. Progeny is to provide “telephonic concurrent utilization
review of all NICU admissions,” but only “from the time of notification by CareSource
through discharge from the hospital.” (Id. at 21.) The plain language of this provision
states that Progeny’s review will be triggered by CareSource’s notification.

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Progeny also cites a provision in the “High Risk Case Management Services”
section of Exhibit A stating that Progeny “will engage at least forty percent (40%) of
Members eligible for high risk case management.” (Doc. 1-2 at 22.) Progeny argues that
it would be impossible for it to meet this requirement if CareSource does not refer any
newborns to it. Read in context, however, this provision provides assurance that
Progeny has the staff and resources to service a minimum number of newborns
requiring urgent care. This provision also cuts against Progeny’s argument that
CareSource was obligated to refer “all” eligible newborns to Progeny for services. If
CareSource expected to refer all eligible newborns to Progeny, there would be no
reason to explicitly state that Progeny must engage at least 40% of those requiring high
risk case management services. Progeny also refers to a provision in the same section
stating that it “will ensure staffing ratio of 1:25 exists for high risk case manager to
Member.” (Id.) This provision also serves to ensure that Progeny is properly staffed to
service a high risk population, not that CareSource will refer a certain number of
newborns to Progeny.
Progeny also refers to the three-year term of the Agreement and various
provisions indicating that the parties’ obligations run through the Agreement’s entire
term. Progeny further argues that the Agreement may only be terminated for cause, but
CareSource effectively terminated the Agreement when it stopped making referrals.
Neither the three-year term nor the termination-for-cause provision were rendered
meaningless, however, when CareSource stopped referring newborns. Until the
Agreement expires, Progeny still must provide services to newborns who were
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previously referred. In its letter to Progeny, CareSource expressly stated that it expected
Progeny to continue providing these services. (Doc. 1-4.) In addition, if CareSource were
to resume referrals to Progeny before the three-year term expires, Progeny would be
required to provide services to those newborns pursuant to the Agreement. Progeny’s
argument that CareSource effectively terminated the Agreement therefore fails.
Progeny finally claims that interpreting the Agreement to permit CareSource to
stop referring newborns, at its discretion, would render the Agreement illusory. (Doc.
11 at 12.) As Progeny notes, “[a]n illusory promise arises when a promisor retains the
right to decide whether or not to perform the promised act.” Floss v. Ryan's Family Steak
Houses, Inc., 211 F.3d 306, 315 (6th Cir. 2000). When one party to a contract has made
only illusory promises, or none at all, the contract fails because there is no mutuality of
obligation. “Stripped to its essence, the concept of mutuality of obligation expresses the
idea that ‘both parties to the contract must be bound or neither is bound.’” Stepp v. NCR
Corp., 494 F. Supp. 2d 826, 834 (S.D. Ohio 2007).
Here, both CareSource and Progeny had and continue to have obligations to each
other, even though the Agreement permits CareSource the discretion to stop referring
newborns to Progeny. First, CareSource was required to pay Progeny a $150,000
implementation fee upon execution of the Agreement, regardless of whether
CareSource ever referred a single newborn to Progeny. (Doc. 1-2, Ex. A-1 ($150,000 due
in two installments: first $75,000 upon execution and second $75,000 upon the sooner of
expansion statewide or on six month anniversary of execution).) Second, as noted
above, Progeny is obligated to maintain certain staffing levels to service CareSource
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referrals. Third, upon referral by CareSource, the parties’ mutual obligations are plain.
Progeny must provide the services described in Exhibit A and CareSource must pay
Progeny the management fees set forth in Exhibit A-1. (Doc. 1-2.) Fourth, Progeny’s
obligation to provide services to newborns who have already been referred continues
through their first year of life, therefore Progeny’s obligations are ongoing even though
it has not received any new referrals this year. (Doc. 1-2, Ex. A.) In addition, Progeny
agreed to “coordinate the process of transitioning Newborns requiring ongoing case
management services after the First Year to the case management program within
CARESOURCE.” (Id.) CareSource has a reciprocal obligation to work in collaboration
with Progeny to complete this transition of newborns into CareSource’s case
management program. (Id.) A mutuality of obligation therefore exists under the
Agreement, whether or not CareSource refers newborns to Progeny for its entire threeyear duration.
In the end, this is a case where the Court must accept the clear and unambiguous
terms of an Agreement entered into by two sophisticated parties. The Sixth Circuit has
held that, under Ohio law, where “parties are experienced businessmen, regularly
engaged in contract negotiation, formation and contract modification, they are charged
with applying the meaning and intent that the express language of their contracts
manifests.” Energy Mktg. Servs. v. Homer Laughlin China Co., 186 F.R.D. 369, 376 (S.D.
Ohio 1999); see also Skivolocki v. East Ohio Gas Co., 38 Ohio St. 2d 244, 247 (1974) (“It is a
well-known principle that contracts are to be interpreted so as to carry out the intent of
the parties, as that intent is evidenced by the contractual language.”) Progeny’s claims
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are premised upon a construction of the Agreement that contradicts its plain language.
Progeny therefore fails to state a claim for breach of contract as a matter of law.
Progeny argues that CareSource has not challenged its declaratory judgment
claim, but CareSource moved to dismiss the Complaint “in its entirety.” (Doc. 10 at 1-2.)
Moreover, both the declaratory judgment claim and breach-of-contract claim seek the
same relief—a ruling that CareSource breached the Agreement when it stopped
referring newborns to Progeny. The Court’s interpretation of the Agreement as a matter
of law is dispositive of both of Progeny’s claims. The declaratory judgment claim
therefore must be dismissed with the breach-of-contract claim.
IV.

CONCLUSION

For the foregoing reasons, the Court GRANTS the Motion to Dismiss (Doc. 10) and
DISMISSES the Complaint (Doc. 1) in its entirety.
DONE and ORDERED in Dayton, Ohio, this Thursday, June 15, 2017.
s/Thomas M. Rose
________________________________
THOMAS M. ROSE
UNITED STATES DISTRICT JUDGE

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