HCP Laguna Creek CA, LP et al v. Sunrise Senior Living Management, Inc.

Filing 407

MEMORANDUM OPINION (see Order for complete details). Signed by District Judge Gerald Bruce Lee on 8/30/10. (tfitz, )

HCP Laguna Creek CA, LP et al v. Sunrise Senior Living Management, Inc.

Doc. 407

IN THE

UNITED

STATES

DISTRICT

COURT

FOR THE

EASTERN DISTRICT OF VIRGINIA ALEXANDRIA DIVISION

HCP LAGUNA CREEK CA, DARTMOUTH MA, MD, LP, LP,

LP,

HCP LP, AND

) ) ) )
)
)

HCP TOWSON

HCP CAMARILLO CA,

HRA MANAGEMENT CORPORATION,
Plaintiffs-CounterDefendants,

)
and HCP, INC., Counter-Defendant )

)
) )

)
V.
SUNRISE SENIOR LIVING INC.,

)

Case No.

l:09cv824(GBL/TCB)

)
) ) MANAGEMENT,

Defendant-Counterclaimant.

)

MEMORANDUM OPINION

THIS MATTER is before the Court on Plaintiffs' Defendants' Motion for Summary Judgment (Dkt. No.

and Counterand (Dkt.

317)

Defendant-Counterclaimant's Motion for Summary Judgment

No.

3 04).

This case concerns the HCP Plaintiffs'
Inc.

allegations
abused

that Sunrise Senior Living Management,

("Sunrise")

and neglected its management position in connection with the

operation of four HCP-owned and HRA-leased senior living facilities. There are nine issues before the Court. The first

issue is whether a genuine dispute of material

fact exists that

Sunrise violated the following provisions of the parties'
Management Agreement, as alleged in Counts III-XIII: § 4.02

Dockets.Justia.com

(Marketing Services);

§

4.07

(Purchasing);

§

4.09

(Ancillary

Activities); (Reports); §

§

6.01

(Accounting and Financial Records); § 11.02

§

6.02

7.01

(Annual Operating Budget);

(Repairs

and Equipment);
The second issue

and Article
is

I

(Definitions

-

Facility Expenses).
fact

whether a genuine dispute of material

exists

that Sunrise violated §
of

18

(Reports-Accounting

Information)

the Owner Agreement as alleged in Count XII.

The third issue is whether a fiduciary duty exists between the HCP Plaintiffs and Sunrise violations of
grant of

such that Sunrise's purported

the Management and Ownership Agreements warrant a
in favor of the HCP Plaintiffs as dispute of to

summary judgment The fourth

Count XIV.

issue

is whether a genuine

material

fact exists that Sunrise realized undisclosed profits
and made improper expenditures in violation of

and other income,

the Management and Owner Agreements,

as alleged in Count XV.

The fifth issue is whether a genuine dispute of material fact

exists that Sunrise retained funds from ancillary activities or
withheld discounts and rebates on purchasing contracts, violation of the Management and Owner Agreements,
Count XVI.

in

as alleged in

The sixth issue is whether the HCP Plaintiffs are entitled
to declaratory relief, as requested in Count I, based on claims

that Sunrise breached the parties'
Agreements. The seventh issue

Management and Owner
the HCP Plaintiffs

is whether

presented sufficient evidence of a likelihood of merits as to claims

success on the

that Sunrise breached the Management and
to justify granting issue injunctive relief

Ownership Agreements, under Count of material II.

The eighth that

is whether a genuine dispute

fact exists

the HCP Plaintiffs violated the

following provisions of Count I of
§

the Management Agreements, § 2.01

as alleged in

Sunrise's Counterclaim:
7.01 (Annual

(Appointment of
and § 10.03

Manager);

Operating Budget); and § 11.02 (Repairs

(Tenant's Obligations);

and Equipment).

The ninth issue
exists
HRA's

is whether a genuine dispute of material
Plaintiffs
the

fact

that

the HCP

intentionally interfered with
to warrant

performance under

Management Agreements,

granting summary judgment
the Counterclaim.

in favor of Sunrise as
the tenth issue

to Count

III of

Finally,

whether

the HCP

Plaintiffs

thwarted Sunrise's
so as

rights and interests under the
and

Management Agreements

to harm Sunrise's business

reputation, Sunrise as

to warrant granting summary judgment to Counts IV and V of

in favor of

the Counterclaim. in favor of Sunrise as
trier of fact could find

The Court grants
Counts

summary judgment

to

III-XIII because no reasonable

that Sunrise breached any of the Management Agreements'
provisions alleged by the HCP Plaintiffs. in favor of Sunrise as The Court grants

summary judgment

to Count XIV because no to whether Sunrise

genuine dispute of material

fact exists as

breached the parties' The Court grants
Counts that II,

fiduciary duties,

as no such duty exists.

summary judgment in favor of Sunrise as to
because the HCP Plaintiffs of cannot show

XV and XVI

they will

likely succeed on the merits grants summary judgment is

their claims. Sunrise Sunrise

Finally, as Count

the Court I because

in favor of

declaratory relief

improper where

did not breach the Management Agreements and Ownership Agreements, and was improperly terminated as manager of the

Camarillo Facility.

As judgment

to Sunrise's Counterclaims, in favor of

the Court grants

summary I because no

the HCP Plaintiffs as to Count fact could find that

reasonable trier of
alleged violations
Agreements

the HCP Plaintiffs'

of

the Management Agreements and Ownership
damage to Sunrise. The Court also

caused actual

grants
Count

summary judgment in favor of the HCP Plaintiffs
III because no reasonable trier of

as

to

fact could find that

the HCP Plaintiffs

intentionally interfered with HRA's Lastly,

obligations to Sunrise under the Management Agreements.
the Court grants as to Counts summary judgment in favor of

the HCP Plaintiffs insufficient

IV and V because Sunrise presents

evidence

to show that

the HCP Plaintiffs willfully and

maliciously injured Sunrise's business or reputation.

I.

BACKGROUND

A.

Parties

In 2003,
("Sunrise"),

Sunrise Senior Living Management,
a Virginia

Inc.
Sunrise

incorporated subsidiary of

Senior Living,

Inc.,

began managing a collection of

senior

living facilities owned by CNL Retirement Properties,

Inc.

("CNL").

Over time,

Sunrise became the manager of a large
including the MAI portfolio four senior living LP; Towson MD,

number of CNL-owned facilities, properties, facilities: which are

comprised of LP;

Laguna Creek CA,

Dartmouth MA,

LP;

and Camarillo CA,

LP

(the

"Facilities").

(Def.'s Mem.

Supp.

Summ.
Inc.

J.

H 1; Am.

Countercl.
estate

and Third-Party Compl.
investment trust

Hi.)

HCP,

("HCP")

is a real

incorporated in

Maryland that owns various assisted living community properties

throughout the United States, Corporation ("HRA"),

which it leases

to HRA Management (Compl.

a Delaware-

incorporated company.

111 10 & 11.)

The relationship between HCP and HRA,

therefore,

is one of landlord-tenant.
In 2006, CNL and HCP entered into a merger agreement,

valued at over $5 billion,

wherein HCP would acquire CNL assets,

including the Facilities.
Countercl.

(Def.'s Mem.
% 14.)

Supp.

Summ.

J.

1 2; Am.

and Third-Party Compl.

Although HCP became who

the owner of the Facilities,

it leased them to HRA,
the

entrusted the operation and management of

Facilities to

Sunrise,

pursuant

to

four identical

Management Agreements

("MAs").

(Compl.

1M 13 & 17-21.)

While not a party to the MA,
and benefits that flow

HCP nonetheless

receives

certain rights

from the Facilities'
Along with HRA, HCP

operation,
is

as their owner.

(Compl.

f 16.)

also a party to

four Owner Agreements

("OAs")

with Sunrise that govern the Facilities'

operation and

revenues.

(Compl.

HH 13 & 23.)

B.

HCP's Attempt
Before the

to Restructure the Management Agreements
CNL-HCP merger, HCP approached Sunrise and

proposed to alter Sunrise's

contractual

relationship with CNL by

having Sunrise lease rather than manage the Facilities.

(Am.

Countercl.
proposal,

and Third-Party Compl.
the

f 15.)

Sunrise rejected HCP's
caused Sunrise to

substance of which would have

take on the economic risks of ownership beyond simply managing

the Facilities.
In a move

(Am.

Countercl.

and Third-Party Compl.

fl

15.)
it

that Sunrise

insists was an attempt

to pressure

into renegotiating the MAs,

HCP retained a forensic auditing

firm to inspect Sunrise's books and records just days after the
CNL-HCP merger. The audit, (Am. Countercl. and Third-Party Compl. 1 18.)

however,

did not reveal any breach of contractual
(Am.

obligations of other Sunrise-managed facilities.

Countercl.

and Third-Party Compl.

K

19.)

In February 2007,
agreement to

Sunrise and HCP reached a tentative
the MAs, whereby HCP would buy out a

restructure

limited number of

the MAs and

the

structure

of

the remaining MAs

would change.

(Keyes Decl.

Ex.

10;

Def.'s Mem.

Supp.

Summ.

J.

^

5;

Am.

Countercl.

and Third-Party Compl.

% 21.)

However,

despite months of negotiation,

no binding agreement culminated.

(Am.

Countercl.

and Third-Party Compl.

UH 21 & 22.)

Thereafter,
the MAs
(Am.

HCP served Sunrise with notices of default
and sought another audit of Sunrise's books

for breach of
and records.

Countercl.

and Third-Party Compl.

U 28.)

The parties met in

Virginia to discuss
buy out Sunrise's

the scope of the audit and HCP's proposal to
in certain properties. (Am.

interest

Countercl.

and Third-Party Compl.

f 29.)

After Sunrise sent a
the parties

letter to HCP refuting allegations of default,

signed a non-binding Summary of Terms,

and HCP

suspended its

audit.
However,

(Am.

Countercl.

and Third-Party Compl.

^U 30 & 31.)
terms of the

when negotiations over the definitive

Summary of Terms

ended in April

2009,

HCP recommenced the audit.

(Am.

Countercl.

and Third-Party Compl.

K 32.)

To date,

HCP has

not alleged that the audit revealed a breach of contractual
obligation by Sunrise.

C.

Alleged Violations of
According to HCP,

the Management and Owner Agreements

Sunrise has mismanaged and

misappropriated funds
CNL-HCP merger. HCP's

that rightfully belong to HCP,
contention that Sunrise

given the

abused and

neglected its management position pertains mainly to allegations
that Sunrise:

(1)

violated facility health and safety requirements,
leading to the revocation of the Medicare

certification for the Camarillo facility;
(2) took for itself rebates and so-called

"administrative fees"
purchased for the

and

"dividends"

([],

hidden rebates/kickbacks)
(3) charged HCP for

as a result of material

facilities;
those costs to the MAI

[Sunrise]'s own headquarters' "shared services";

costs by allocating

facilities under the guise of (4)

engaged in self-dealing by purchasing goods and

services (5)

from a[]

[Sunrise]

affiliate at inflated and

prices and with double-dipping surcharges;
to provide financial performance reports by
practices

attempted to hide these activities by refusing
frustrating audits and by misrepresenting its to HCP. Supp. Summ. J. 1-2.)

(Pis.' 1.

Mem.

Medicare Certification
the Centers for Medicare & Medicaid Services

In 2007,

("CMS")

inspected the Camarillo Facility and discovered a number

of deficiencies in the standards and quality of care available

to its residents.
Consequently,

(Nickelsburg Decl.

Exs.

19-22.)

CMS revoked the

Facility's Medicare certification.

(Nickelsburg Decl.

Exs.

20 & 23.)

Despite losing its

certification,

however,

the Facility still remained licensed by

the

State of California and continued its Exs. 30-37.) In an effort

operations.

(Keyes Sunrise

Decl. has

to become re-certified,

since hired a new consultant and Executive Director to

implement and oversee Facility.
225:15-20.)

the necessary changes Ex. 29 at 221:5-16,

to the Camarillo 223:5-224:14, &

(Keyes Decl.

2.

Retaining Rebates and Administrative Fees

Sunrise operates a national purchasing program whereby it
purchases supplies on behalf of the facilities it manages.

(Nickelsburg Decl.

Ex.

3 0 at 251:6-12.)
administrative

Under this program,
fees, and dividends Sunrise retains

Sunrise receives rebates, from various vendors. 20%

When a rebate is given,

for itself and allocates

80% to the Facilities.

(Nickelsburg Decl.

Ex.

33 at 257:2-10.)1

As to the

administrative fee that Sunrise charges vendors to participate in the purchasing program, (Nickelsburg Decl.
3.

Sunrise retains & Ex. 34

100% of the fees. at 253:7-254:1.)

Ex.

30 at 224:7

Allocating Corporate Costs
that Sunrise

to the Facilities

HCP alleges

improperly allocated the

Facilities'

corporate costs that HCP already pays
These costs include, among other,

for under the
payroll

management fee.
processing,

which HCP contends are not covered by the MAs and

Beginning in 2010, Sunrise agrees to allocate 100% of all rebates it receives to the Facilities. (Def.'s Opp'n Pis.' Mot. Summ. J. at 5 & 14.)

should be absorbed by Sunrise. 18-20.) 4. Self-dealing Sunrise

(Pis.'

Mem.

Supp.

Summ.

J.

7,

According to HCP,

engaged

in self-dealing with one

of

its subsidiaries,

Martha Child Interiors,

Inc.

("MCI"), Mem.

a

provider of Supp. Summ.

furniture, J. 7-8,

fixtures and equipment.

(Pis.'

20-22.)

Rather than purchase the through a competitive

Facilities'

supplies,

including furniture,

selection process

to ensure the lowest price,
for a 12% procurement

Sunrise allegedly
fee and 10% design

purchased them from MCI

fee,
Decl.
Ex.

which Sunrise
Ex.
at

then passed to the
&

Facilities.
Exs.
51 at

(Nickelsburg
46 & 47 ,

45

at

203:4-204:16
Ex. 49

2187:21-219:12,
at 73:2-13, Ex.

48

46:12-47:24,

68:17-67:2.)

5.

Financial

Reports

HCP alleges

it

is

entitled in the ordinary course of

business right,

to inspect

the Facilities'

books

and records.

This

however,

was allegedly obstructed by Sunrise,
occasions when HCP

who refused

to cooperate on a number of

requested

information concerning the rebates Sunrise received. (Nickelsburg Decl. Ex. 28 & 29.) Sunrise finally permitted HCP

to inspect the Facilities'
Notice of Default regarding Ex. 69.) However, the

books and records after HCP issued a
the Facilities. (Nickelsburg Decl.

inspection provided limited information

to allow HCP to reach any conclusions with regard to the

10

accuracy of

Sunrise's

compliance

with the MA.

Under duties,

the MAs, is

which cover HRA and Sunrise's responsible

rights

and of the

Sunrise

for the daily operations

Facilities and for overseeing

their financial

affairs.

(Compl.

H 17.)

Each of the MAs are divided into eighteen sections:
(Article I); Appointment of Manager and Primary Goal Management Fees IV); (Article III); Duties

Definitions of Agreement

(Article II);

and Rights of Manager
and Collections,

(Article

Operating Profits,

Credits

and Procedure

for Handling Receipts and

Operating Capital

(Article V);

Financial Records

(Article VI);

Annual Operating Budget (Article VIII);

(Article VII);

Environmental Matters (Article IX); General

Other Financial Matters

Covenants and Tenant and Manager Obligations

(Article X);

Repairs,
Damage,

Maintenance and Replacements
Condemnation, Force Majeure

(Article XI);

Insurance,
Termination
Legal

(Article XII);

of Agreement

(Article XIII);

Defaults

(Article XIV);

Actions,

Governing Law,

Liability of Manager and Indemnity (Article

(Article XV); XVI);

Regulatory and Contractual Requirements Intellectual Property (Article XVIII).

Proprietary Marks,

(Article XVII); (Mgmt. Agmt. i-

and Miscellaneous Provisions

iii.)

Like the MA,

the OA's material terms are nearly identical
(Compl. H 24.) Divided into twenty-two

between the Facilities.

sections,

the OA outlines,

among other things,

HCP's rights and

obligations as

landlord to HRA and as owner of the Facilities.

11

D.

Procedural

History dispute culminated in HCP and its Facilities,

The parties'

along with HRA

(the

"HCP

Plaintiffs"),

filing suit

in the that

Delaware Court of

Chancery alleging,

among other things,

Sunrise breached various provisions of

the MA.

(Am.

Countercl.

and Third-Party Compl.

H 33.)

The HCP Plaintiffs then filed
in

suit in this Court alleging the following sixteen Counts their Complaint: relief); III I (declaratory judgment); II

(injunctive IV

(breach of contract
-

- budget approval process);
V (breach of

(breach of contract

ancillary activities);

contract
contract

-

repairs and maintenance expenditures);
VII

VI

(breach of
-

- payroll outsourcing costs);

(breach of contract VIII (breach of facility

accounting systems and reporting software); contract - purchasing); IX

(breach of contract

expenses);

X

(breach of contract

- dues);

XI

(breach of contract

-

licenses); XII

(breach of contract - marketing services);
XV

XIII

(breach of contract
fiduciary duties);

financial reporting);

XIV

(breach of

(equitable accounting);

and XVI

(constructive trust).
In response,

(Compl.

M

122-204.)

Sunrise

filed a Counterclaim and Third-Party

Complaint against the HCP Plaintiffs,
five Counts: I (breach of contract);

alleging the following
II (breach of implied

12

covenant of good faith and fair dealing);2 III
interference with contractual conspiracy to harm business relations); VI

(tortious

{common law and V (conspiracy

and reputation);

to harm business

and reputation under Virginia Code

§

18.2-499

-

500).

(Am.

Countercl.

and Third-Party Compl.
its refusal

1M 50-74.)
to a

According to Sunrise,

to agree

restructuring plan led to retaliatory acts by HCP and HRA.

Specifically,

Sunrise insists

that HCP and HRA obstructed

Sunrise's ability to manage

the Portfolio Facilities by refusing
for the 2007, 2008 and

to approve or disapprove proposed budgets 2009 cycles,
terms of

and by refusing to negotiate
as

in good faith over the
the MA and OA.

the proposed budgets,

required under

(Am.

Countercl.

and Third-Party Compl.

f 34.)
has

This refusal to
allegedly caused

approve or disapprove

the proposed budgets

the

Facilities

to suffer due

to insufficient

funds.

(Am.

Countercl.
Before

and Third-Party Compl.
the Court now are

U 43.)
for Summary Judgment

Cross-Motions

by the HCP Plaintiffs

and Sunrise.

II.

STANDARD

OF REVIEW

Under Federal Rule of Civil
grant summary judgment if

Procedure 56,

the Court must
that

the moving party demonstrates

2 The Court dismissed Count II of Sunrise's Counterclaim and Third-Party
Complaint on November 6, 2009. (Dkt. No. 45.)

13

there

is no genuine

issue as

to any material

fact,

and that

the

moving party is entitled to judgment as a matter of Civ. P. 56 (c).
the

law.

Fed. the

R.

In reviewing a motion for summary judgment,
facts in a light most favorable to the non-

Court views

moving party. 255 (1986).

Anderson v.

Liberty Lobby,

Inc.,

477 U.S.

242,

Once a motion for summary judgment
the opposing party has the

is properly made
showing that

and supported,

burden of

a genuine dispute exists.
Radio Corp., 475 U.S. 574,

Matsushita Elec.
587 (1986).

Indus.

Co.

v.

Zenith

"[T]he mere

existence of

some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the

requirement is that there be no genuine issue of material
Anderson, A
of

fact."

477

U.S.

at

247-48 is a
at

(emphasis fact

added). affect
v.

"material

fact"
Id.

that might

the outcome
Wash. Sports

a party's

case.

248;

JKC Holding Co.

Ventures,

Inc.,

264

F.3d 459,

465

(4th Cir.

2001).

Whether a

fact is considered to be
substantive affect law, and

"material"

is determined by the
that might

"[o]nly disputes over facts the

the outcome of

suit under the governing law will

properly preclude the entry of U.S.
Cir.

summary judgment." 249 F.3d 259,

Anderson, 265 (4th
fact

All

at 248;
2001).

Hooven-Lewis v.
A "genuine"

Caldera,

issue

concerning a

"material"

arises when the evidence is sufficient
jury to return a verdict

to allow a reasonable
favor.

in the nonmoving party's

14

Anderson,

All U.S.

at 248.

Rule

56(e)

requires
its

the nonmoving
or

party to go beyond the pleadings and by

own affidavits,

by the depositions,
on file, genuine
317, 324

answers
specific

to interrogatories,
facts showing v. that

and admissions
there is a

designate issue for

trial.

Celotex Corp.

Catrett,

477 U.S.

(1986) .

Ill.

ANALYSIS

A.

HCP

Plaintiffs'

Claims

i.

Counts

III-XIII
summary judgment in favor of Sunrise as to

The Court grants

Counts

III-XIII because no reasonable

trier of

fact could find alleged by the

that Sunrise breached any of HCP Plaintiffs. claim,

the MA provisions

In order to recover for a breach of contract (1) existence of a contract;

a plaintiff must allege:

(2)

performance or offers by plaintiff (3) defendant

to perform under the

contract;

failed to perform under the contract or and (4) the breach caused actual damage 594 S.E.2d 610, 614 (Va. 2004).

breached the agreement; to plaintiff. Filak v.

George,

The principles governing contract

interpretation are well-

established:
unambiguous,

"when the terms of a contract are clear and
a court must give them their plain meaning."
v. Jewell Ridge
omitted).

Pocahontas Mining Ltd.
556 S.E.2d 769, 771

Liability Co.
2002)

Coal

Corp.,

(Va.

(citations

Courts must

15

look to

"the

intention of

the parties

as

expressed by them in

the words parties
Meade v.

they have used,

and

[]

are bound to say that

the

intended what
Wallen, 311

the written instrument plainly declares."
S.E.2d 103, 104 (Va. 1984). At dispute is

whether Sunrise failed to perform under certain provisions of
the MA.

a. §

7.01

(Annual

Operating Budget)

Section 7.01 of

the MA states,

[Sunrise]
approval,

shall

.

.

.

in relevant part: deliver to [HRA] for [HRA's]
for the next

a draft operations budget

year for the budget

Facilit[ies],

and a

final

operations shall be

....

The budget as proposed,

and
the

considered by [HRA] and, in consultation between [HRA] [Sunrise], the budget for the Facilit[ies] for the ensuing fiscal year will be prepared by [Sunrise] with
final contents of the budget to be determined

mutually by Budget").
to approve

[Sunrise] If there

and

[HRA]

(the or if

"Annual Operating [HRA] shall fail
shall

is a delay in the finalization of
[Sunrise]

a new Annual Operating Budget,

the newly proposed budget,

operate under the expired Annual Operating Budget,

increased by the greater of

increase

(i) 3 M% or (ii) the in the Index from the first day of the new
the Index on the first day of the

year compared to

previous year,
consensus

until a new budget is approved.
reached between the parties

If
as to

cannot be

the Annual Operating Budget within sixty

(60)

days of

[HRA's] receipt of the proposed budget, [Sunrise] and [HRA] shall submit the proposed budget to an [e]xpert
pursuant to Paragraph 18.8 below for a determination

as to any items contained in the Budget which remain
in dispute.

(Mgmt.
process

Agmt.

§

7.01.)

Thus,

§

7.01 sets

forth a three-step

that Sunrise must comply with after it proposes an

operating budget.

Moreover,

where the MA "calls

for a matter to

16

be referred to arbitration or an Expert

.

.

.

[u]nless

specifically stated to the contrary,
be the exclusive remedy . . . ."

the use of
Agmt. §

the

Expert shall
As

(Mgmt.

18.18(a).)

such,

expert resolution is HRA's,

and hence,

the HCP Plaintiffs'

exclusive remedy for any dispute about
budget.

a proposed operating

The HCP Plaintiffs contend that Sunrise's proposed budgets
for 2007, 2008, and 2009 lacked the requisite details required

by the MA,

which prevented them

from proper consideration and

approval.

Specifically,

Sunrise

allegedly increased expenses or to the Facilities.

attempted to pass

through certain expenses

(Compl.

f 138.)

In regard to the 2007 budget,

the HCP
it (Keyes

Plaintiffs did not respond to approve or disapprove

Decl.

Ex.

17,

Ex.
§

50 at 61:17-62:22;
7.01,

Dorrien Decl.

U 4);

and in

contravention of

the budget was not

submitted to an

expert,

despite

the parties'

inability to agree on it.

Although in

the HCP Plaintiffs disapproved of

the 2009 proposed budget

its entirety,
§7.01.

again,

they did not comply with the requirement of
the disputed proposed budgets were (Pis.' Opp'n Def.'s Mot. is the HCP

In both instances,

not submitted to an expert for review. Summ. J. 4.) Because

submission to an expert

Plaintiffs'

sole remedy for any dispute about a proposed budget,

Sunrise cannot be said to have breached §

7.01 of the MAs.

17

b.

§

4.09

(Ancillary Activities) in pertinent part:

Section 4.09 provides

with

[Sunrise] and/or its Affiliates, shall have the right, [HRA's] prior written approval or as part of
to utilize the Facilit[ies] .... for the revenues from which will

the Approved Budget, ancillary activities, not be

included in Gross Revenues

(Mgmt.

Agmt.

§ 4.09.)

According to the HCP Plaintiffs,

Sunrise

is a party to side-agreements with some ancillary service
providers, through which Sunrise received revenues that are not

included in the Facilities'

gross revenues.

These ancillary
space,

service providers allegedly utilized the Facilities'

equipment,
However, as

supplies and utilities.
stated, § 4.09 is

(Compl.

U1I 143 & 144.)
"Sunrise and/or

implicated only if

its Affiliates" provide ancillary services,
parties provide ancillary services.
Here, any ancillary healthcare

not when
Agmt.

third

(Mgmt.

§ 4.09.)

services provided at the

Facilities have been provided by third parties, Sunrise or an affiliate.
222:4-11.)

rather than

(Keyes Decl.

Ex.

51 at 90:3-91:1 &

The HCP Plaintiffs provide no evidence suggesting

that Sunrise inappropriately retained ancillary services revenue
(Keyes Decl. Ex. 52 at 205:21-206:19, Ex. 53 at 115:1-22) or

that third party ancillary service providers failed to reimburse
the Facilities for expenses incurred in the provision of such

services

(Keyes Decl.

Ex.

52 at 213:22-214:6).

Additionally,

there is no evidence the HCP Plaintiffs

suffered damages

18

resulting from the alleged loss of equipment,

supplies,

and

utilities consumed by the alleged ancillary services claimed in
Count IV. (Keyes Decl. Ex. 25 at 6.) Damage cannot be shown by

simply stating that the Facilities have been damaged in the
amount of rent not collected from third parties. (Pis.' Opp'n

Def.'s Mot.

Summ.

J.

14.)

Thus,

Sunrise committed no breach of

§4.09 where neither Sunrise nor its affiliates provided any

ancillary services at the Facilities,

and the HCP Plaintiffs

cannot identify damages from the so-called ancillary services.
(Keyes Decl. Ex. 52 at 205:21-206:4, Ex. 53 at 115:1-22.)

c.

§ 11.02

(Repairs and Maintenance Expenditures)

Under §

11.02,

the HCP Plaintiffs must create a furniture,

fixture and equipment reserve account

(the "FF&E Reserve")

at a

bank to cover the cost of repairs and equipment for maintaining the Facilities. Sunrise is obligated to fund the FF&E Reserve to a specific formula. (Mgmt. Agmt.

for each Facility,
§§ 11.02(a), (b) &

pursuant
(e).)

To do so:

[Sunrise] shall prepare an estimate (the "Repairs and Equipment Estimate") of the expenditures necessary for . . . the ensuing Fiscal Year and shall submit such Repairs and Equipment Estimate to [HRA] at the same time it submits the Annual Operating Budget . . . . [Sunrise] will endeavor to follow the applicable Repairs and Equipment Estimate, but shall be entitled
to depart therefrom, in its reasonable discretion,

provided that: (A) such departures . . . result from circumstances which could not reasonably have been
foreseen at the time of the submission .... and

(B)

such departures

.

.

.

result from circumstances

19

which require prompt repair and/or replacement
comply with Legal Requirements; and (C)

to

[Sunrise]

has submitted to

[HRA]

a revised Repairs and Equipment

Estimate setting forth and explaining such departures.

(Mgmt.

Agmt.

§ 11.02(d).)

When read in light of
§

§ 11.02(c)'s
furniture,

reference to

"total aggregate amount,"

11.02(d)'s

fixtures and equipment one. (Mgmt. Agmt. §

(FF&E)

spending limit is an aggregate It necessarily limits instances

11.02(c).)

where expenditures depart
The HCP Plaintiffs'

from the estimate as a whole.
allegations that Sunrise violated §

11.02

are based on

(1)

Sunrise's

substitution of

two items on

the Repairs and Equipment Estimate-patio furniture and a carpet
extractor-and (2) Sunrise's use of its design division, Martha

Child's Interiors

("MCI"),
Summ.

to purchase FF&E for the Facilities.
J. 5.) With regard to the patio

(Def.'s Reply Supp.

furniture and carpet extractor,

there is no provision in the MA

granting the HCP Plaintiffs any approval rights with respect to

the Repairs and Equipment Estimate presented by Sunrise,
as there are sufficient funds in the FF&E Reserve.

so long

On these

facts,

Sunrise made the furniture and equipment substitutions
The patio

for the safe and sound operation of the Facilities.

furniture had become wobbly and unsafe for residents
Decl. Ex. 110, Ex. 113 at 219:1-13),

(Keyes

and the carpet extractor is

necessary to maintain the Facilities Decl. Ex. 114 at 205:21-206:8, Ex.

in proper condition

(Keyes

115 at 203:7-11).

These

20

substitutions amount to a variation within,

rather than above,

the Repairs and Equipment Estimate,
the language of § 11.02(c)

and therefore comport with
require the HCP

and do not

Plaintiffs'

prior approval.

These

substitutions

are also the class

supported by §

11.02(d)'s requirement to operate the

that Sunrise make Facilities

necessary expenditures

in first

condition.
unapproved,

Furthermore,
there

even if

the substitutions were
that the HCP Plaintiffs the

is no evidence

suffered damage Facilities. As

from the repair and maintenance of

to the MCI

services,

the HCP Plaintiffs and surcharges

first allege to MCI, to date, which a 10%

that Sunrise paid inflated prices charged a 12% procurement fee

from October 2006

design fee,
& 7;

and other installation fees.
Ex.

(Jeannault Decl.
Ex.

UK 6

Nickelsburg Decl.

45 at 203:4-205:9,

51 at 68:20-

69:1.)

These allegations are contradicted by HCP's written
"that [MCI] should get a procurement fee and 12% seems

agreement

reasonable."

(Keyes Decl.

Ex.

28;

Def.'s Mem.

Supp.

Summ.

J.

6.)

Second,

the HCP Plaintiffs allege that Sunrise breached its
after a J. 21.)

obligations to procure goods at a fair market value, competitive selection process. (Pis.' Mem. Supp.

Summ.
(l)

These allegations are unavailing for three reasons:

the MA

contains no

"comparison shop"

or "competitive bid"

requirement"
that

for purchases

from third parties--it merely requires

21

expenditures first class

for FF&E be reasonable Facility; (2)

and necessary to maintain a without

HCP website print-outs,

evidentiary support competitive,

to show that MCI's prices are not and (3) act the HCP Plaintiffs in the Facilities'

are hearsay documents;

offer no evidence that Sunrise did not best Pis.'

interest when it purchased MCI's goods. Mot. Summ. J. 21.) Thus,

(Def.'s Opp'n fail to show

the HCP Plaintiffs'

that Sunrise exceeded the reasonable discretion provided to it
pursuant to § 11.02, and there is insufficient evidence § for a the

reasonable
MAS.

juror to

find that Sunrise breached

11.02 of

d.

§

6.01

(Payroll

and Systems Accounting) in relevant part:

Section 6.01 provides,

[Sunrise]
systems

shall,

at its

own expense,

establish and

administer accounting procedures and controls and
for the development, preparation and

safekeeping of records and books of accounting relating to the business and financial affairs of the

Facilit[ies],

including payroll,
....

accounts receivable

and accounts payable

(Mgmt.

Agmt.

§

6.01.)

However,

Sunrise is not responsible for
list of "Facility

any expense that
Expenses,

fall under the MAs'

which include:

[C]osts and expenses directly related to the operating costs and staffing of the Facilit[ies], . . . including,

without
Costs at

limitation

.

.

.
for all personnel such costs to employed

incurred by

[Sunrise] . . . ,

the Facilit[ies]

include

22

salary and wages, payroll taxes,
compensation, payments,

training programs, compensation,
compensation,

hiring expenses, bonus
retirement plan payable

workers'
incentive

travel

expenses

and other benefits

(including, insurance,

for example, life
. . .

health insurance,

dental

insurance and disability insurance)

to such personnel

Costs incurred by
used at (Mgmt. Agmt. the 3

[Sunrise]

for electronic data

processing equipment,

systems software or services
....

Facilities]

& 5.)

The HCP Plaintiffs allege that Sunrise: Facilities continues

(1)

charged the 2007 and

for unapproved payroll expenses since to do so;
software

(2)
for

charged unapproved accounting reporting
its corporate-level expenses; and (3)

and systems

failed to prepare monthly,

quarterly and annual financial

reports in accordance with the MAs.
158 & 177.)

(Compl.

KH 72,

154,

157,

The unapproved payroll expenses allegations concern

the amount of money paid to Automated Data Processing for the payroll processing costs
and how Sunrise allocates J. 18-20.) ADP's

("ADP") employees

for the Facilities'
(Pis.' Mem.

those costs. (1)

Supp.

Summ.

services include:

processing labor hours time and (2)

recorded by facility-level employees

in Sunrise's

attendance system to calculate employee paychecks;

calculating paychecks issued to facility-level employees and the
associated withholdings etc.); (3) (e.g., taxes, benefits, garnishments,

generating and distributing paychecks and pay
to employees; (4) providing payroll-related help-desk

statements

23

service personal

to facility-level

employees;

(5)

inputting employee facility-level
and (6) issuing Form

information received from Sunrise's
into the ADP processing platform;

employees

W-2s to facility-level employees.
2010.)

(Roder Decl.
for these

f 4,

Mar.

30,

Sunrise allocates the costs

services

to each

Facility.
however,

{Roder Decl.

1 4,

Mar.

30,

2010.)

Sunrise does not,

allocate to the Facilities
a general ledger system

the costs of maintaining
for the Facilities' books

Peoplesoft,

and records,

which Sunrise uses

to generate

the Facilities'

financial reports.
Under

(Roder Dec.

H 3,
§

Mar.

30,

2010.)
Sunrise's

the plain language of

6.01,

which governs

responsibility in establishing and administering accounting procedures for the development and reporting of records to the Facilities, Sunrise for the and

accounting books relating

is not

required to bear the payroll processing costs

Facilities.

(Mgmt.

Agmt.

§

6.01.)

Sunrise

is

simply required
its own of

to create and maintain payroll books expense, which it has

and records at

successfully done by bearing the costs

implementing and administering the PeopleSoft accounting system and generating relevant financial reports related to the

Facilities.

(Def.'s Mem.

Supp.

Summ.

J.

7.)

To do so,

Sunrise

simply centralized the accounts payable processing

function to

achieve efficiency in processing and in paying invoices received by all the facilities it manages. (Roder Decl. t 3, Apr. 16,

24

2010.)

In addition,

Sunrise bears

the

full

costs

of

the payroll

accounting team,

which is responsible

for recording general

ledger entries related to payroll activity and for reconciling

payroll-related accounts.

(Roder Dec.

HH 3 & 6,

Apr.

16,

2010.)

Because Sunrise was not obligated to perform payroll processing duties at its own expense, Sunrise did not breach the MAs by

hiring and compensating ADP
As systems to allegations software, the

for its payroll processing services.

of unapproved accounting reporting and HCP Plaintiffs insist that Sunrise

improperly charged the Facilities for the IT costs, desktop licensing software,

"AOD billings systems,

time and attendance and
in the

other systems and software,

and reporting expenses"

amount of $15,736.

(Compl.

K 75;

Def.'s Mem.

Supp.

Summ.

J.

8.)

Sunrise also allegedly charged the Facilities including: (1) accounts payable processing;

for other expenses registrar's

(2)

office;
support;
Supp.

(3)
and

telecommunications services;
(5)
J.

(4)

resident billing
(Pis.' Mem.

resident bill print and delivery.
These charges,

Summ.

18-20.)

according to the HCP

Plaintiffs,
Supp. Summ.

resulted in damages exceeding $260,000.
J. 20.) However, the HCP Plaintiffs,

(Pis.'

Mem.

not Sunrise,

are in fact responsible for the payroll processing costs and the
cost of any accounting reporting systems software. The MAs'

definition of Facility Expenses expressly includes costs for
"electronic data processing," systems, and services . . . ."

25

(Mgmt.

Agmt.

5.)

The AOD Billing System,

time

and attendance

and desktop software

licensing,

and IT costs constitute software. These costs

electronic data processing and systems

are directly associated with managing the Facilities'
timekeeping and attendance system. As such, they were

appropriately billed as

Facility Expenses.

The HCP Plaintiffs allege
monthly, quarterly, and annual

that

"Sunrise failed to prepare
reports in accordance

financial

with the requirements of Exhibit E of the

[MAs]

and to provide

such reports
requires,

[to]

Plaintiffs."

(Compl.

K 177.)

Exhibit E

among other things,

that Sunrise provide capital

expenditure reports,
the Facilities'

rent roll,

and variance reports

regarding

finances,

operations,

leasing and marketing.

(Mgmt.

Agmt.

Ex.

E.)

Exhibit E lists no requirement

that

Sunrise prepare monthly,
to the allegations,

quarterly or annual reports.

Contrary
all of

Sunrise provided the HCP Plaintiffs

the required financial reports.
requests for reports before

Sunrise fully complied with all
(Keyes

and after the CNL-HCP merger.

Decl.

Ex.

61 at 78:8-21,

Ex.

62 at 29:7-19,

33:11-20.)

Even

HCP's CEO publicly praised the quality of Sunrise's reporting,

telling investors that
property level

"the quality and the timeliness of the
information we get from Sunrise are as

accounting

good as anybody else in our senior housing portfolio."
Decl. Ex. 43 at 14.) Furthermore, despite their claims

(Keyes
of

26

damages,

it is unclear what harm the HCP Plaintiffs

suffered

other than their inability to monitor capital expenditures and the Facilities' performance. (Keyes Decl. Ex. 5 at 312:2-

313:6.)

Therefore,

no reasonable trier of

fact could find that for

Sunrise breached the MAs by charging the Facilities
unapproved payroll expenses

and accounting reporting and system

software,
reports.

and neglecting

to prepare

the required financial

e.

§

4.07

(Purchasing)

Section 4.07 states,

in pertinent part:

[Sunrise]

shall use,

on behalf of the Facilit[ies],

such purchasing systems and procedures developed by or otherwise available. . . . Any purchase by

[Sunrise] made pursuant to or otherwise ancillary to this Agreement shall be made with [Sunrise] acting
for and at the expense of the Facilit[ies] or [HRA]

.... [Sunrise] shall fully disclose to [HRA] any material interest of [Sunrise] and/or Affiliate in
any vendor and [Sunrise] shall establish to [HRA's]

reasonable satisfaction that the purchase or contract was made after a competitive selection process and at a fair market price. In the event that [Sunrise]

receives any competitive discounts and/or rebates due to its relationships with vendors, [Sunrise] covenants
to allocate the fair and reasonable portion of any

such discounts and/or rebates to the Facilit[ies] in order to reduce Facility Expenses.

(Mgmt. Agmt.

§ 4.07.)

The HCP Plaintiffs allege that Sunrise

improperly retained 20% of the rebates received from vendors to offset the cost of administering the purchasing department. (Pis.' Mem. Supp. Summ. J. 6-7; Compl. U 161.) However, §

27

4.07's

"fair and reasonable portion"

language does not

require

Sunrise to allocate 100% of the rebates or the amount remaining
after Sunrise's cost of generating the rebates are covered.

(Mgmt.

Agmt.

§ 4.07.)

Indeed,

20% would not be unfair and
fail to indicate

unreasonable where the HCP Plaintiffs

otherwise.

If the HCP Plaintiffs wanted Sunrise to turn over
to the Facilities, the proper

100% of all discounts and rebates

language to use in the MAs would not be a
portion," "all." meaning,

"fair and reasonable
the whole, but plain

which necessarily means a part of Agmt. § 4.07.)

(Mgmt.

In interpreting the MAs'

the Court cannot read § 4.07 to require that Sunrise

disclose any more than a
obtained.

"portion"

of any discounts or rebates

Additionally,
HCP, when asked,

evidence shows that Sunrise was candid with
savings and its method of

regarding its

accounting for the rebates.

(Krummel Decl.

%

11.)

During a

meeting with HCP's Vice-President of Asset Management,

Sunrise's

representative answered questions about how Sunrise receives
rebates and administrative fees. (Krummel Decl. HH 11-13.)

The mere fact that Sunrise secured more than $6,000 in surplus

in 2008 for the management of approximately 400 facilities is
insubstantial evidence
the HCP Plaintiffs.

that

it

improperly withheld money from

28

Moreover, rebates is

the

retention of

a portion of

the discounts or

consistent with

language providing that purchases

"shall be made with the Facilities] or

[Sunrise] [HRA] ."

acting for and at (Mgmt. Agmt. §

the

expense of Thus, the

4.07.)

HCP Plaintiffs have not shown that Sunrise acted contrary to an
express application of § 4.07 as written.

f.

Facility Expenses travel costs are allocated to the Facilities

As discussed,

under the definition of Facility Expenses,
Costs incurred by
at the

which includes:

[Sunrise]
...

for all personnel employed
employed in part
of costs of such

Facilit[ies]

or the regional business

manager or such additional personnel

at the

Facilit[ies] . . . ,

and in part at other facilities not
share

owned by Tenant,

a reasonable

personnel
expenses

such costs

to include

.

.

.

travel

....

(Mgmt.

Agmt.

5.)

Additionally,

Exhibit B of the MA lists

"quality assurance"
Facilities. {Mgmt.

as an expense to be allocated to the
Agmt. Ex. B.)

The HCP Plaintiffs argue that Sunrise improperly charged

the Facilities for two corporate-level travel expenses related
to two Quality Services Review ("QSR") programs: (l) Quality

Services Review and Nursing.
ensure

(2)

Quality Services Review for Skilled Both programs are run by Sunrise to
its national standards for

(Compl.

U 164.)

that each Facility meets

resident care.

(Keyes Decl.

Ex.

58 at

84:2-85:5.)

HCP also

29

seeks damages

for charges

incurred by Sunrise's

corporate

employees

to attend retreats held at resorts. Summ. J. 21.) The HCP Plaintiffs

(Pis.'

Mem.

Opp'n

Def.'s Mot.

further allege

that Sunrise charged the Facilities for Sunrise's and its
employees' dues and due-like subscriptions to the Assisted

Living Federation of America.

(Compl.

f 167.)

However,

there

is no evidence that

the
the

two QSR programs are
Facilities or that

unnecessary to the proper maintenance of
the travel expenses As to for those programs the Assisted Living

were

billed to the

Facilities.

Federation of America

memberships,

they are maintained in the name of The

individual not

Sunrise communities. Sunrise.
under fit.

Facilities hold the membership, Facilities, Sunrise

As manager of

the

is permitted,
as it sees

the MA, Because

to operate and maintain the these dues are

Facilities

"costs and expenses directly

related to the operating costs"
properly charged as Consequently, the

of

the

Facilit [ies],
(Mgmt. Agmt.

they were
at 3.)

Facility Expenses. fail

HCP Plaintiffs

to show that

a genuine

issue exists the MA's

for trial

regarding Sunrise's alleged violation of

Facility Expenses provision.

g.

§12,06

(Licensure Issues)

30

Section 12.06(a)

requires Sunrise and HRA to
efforts . . .

"use all

commercially reasonable hundred twenty (120)

during the period of one

days"

to reinstate a withdrawn or revoked

license

that

is material

to the Facilities'

operation.

(Mgmt.

Agmt.

§

12.06)(a).)

Medicare

is a federal

reimbursement

program.

Medicare certification is not a

license or permit;

rather,

it creates an entitlement

to certain reimbursements.

(Keyes Decl.
not a license
Mem. Supp.

Ex.

79 at

12-13.)

Thus,

Medicare certification is
(Def.'s

to operate an assisted living facility.
J. 10-11.) Under the applicable

Summ.

statute,

proper

licensing is a predicate to certification.

See 42 U.S.C.

§ 1395i-3(d)(2)(A)
under applicable

{"A skilled nursing facility must be licensed
and local law.") Sunrise improperly caused

State

The HCP Plaintiffs allege

that

the loss of
2008, 13.)

the Camarillo Facility's Medicare certification in
§ 12.06. (Pis.' Mem. Supp. Summ. J. 9-

in violation of However,

nothing in the MA requires

Sunrise to obtain or

maintain Medicare certification at the Camarillo Facility.
after losing its certification in 2008, continued to operate and maintained its

Even

the Camarillo Facility license, thereby

allowing it to operate and maintain a skilled nursing facility.
(Keyes Decl. Exs. 30-37.) In fact, during its first three years

of operation,

the Facility was without Medicare certification
from HCP. (Keyes Decl. Ex. 60 at

and received no complaints

31

161:2-11.) confirmed,

As HCP's Medicare

former Vice

President of Asset Management "an option. It can be a
or

certification is
. . . Ex. ," 60 but at

good marketing tool license. (Keyes

is not a requirement 25-162:1.)

Decl.

Furthermore,

when Sunrise

lost

the

certification,

HCP

failed to act
16.)

for eight months.

(Keyes Decl.

Ex.

100 at 32:12-

When HCP finally complained by sending a

letter to

Sunrise,
breach of

it

is unclear that HCP equated the loss to Sunrise's
(Nickelsburg

the standard of care under the MAs.

Decl.

Ex.

23.)

While the remedy sought by the HCP Plaintiffs
loss of Medicare certification was

for the Camarillo Facility's

the

termination of

the

Camarillo Facility's MA,
identify the actual

nowhere
damages

in the
they

record do the HCP Plaintiffs

suffered.

(Compl.

1M 132,

135(v),

Relief Requested

(pp.

53-54)

1M

(b),

(d).)

Because certification is not a requirement under
is no precise showing of damages, the HCP

the MA and there

Plaintiffs cannot prevail under their breach of contract claim
as to § 12.06.

h.

§4.02

(Marketing Services)

Section 4.02 of the MA states that Sunrise shall:
(a) Prepare marketing plan and marketing strategy for the Facilit[ies], and a budget (the "Marketing

Budget")

for such plan and strategy.

The Marketing

Budget shall be revised annually at the time of the submission of the Annual Operating Budget.

(b)

Direct the marketing efforts for the Facilit [ies]

32

(c)

Plan and implement

community outreach, events programs.

public

relations and special

(Mgmt.

Agmt.

§ 4.02.)

The HCP Plaintiffs argue that Sunrise a marketing (Compl. requires § 4.02.)

is

required to provide HRA with a marketing plan, strategy, 91 & 174.)

and a marketing budget on an annual basis. The express language of § 4.02, however, Agmt.

HU

Sunrise to prepare, There

not provide,

them.

(Mgmt.

is no dispute that Sunrise prepared marketing plans, and proposed budgets for 2007, 2008, and 2009.

strategies,

(Keyes Decl.

Ex.

38,

Ex.

51 at 119:9-120:10

& 122:1-127:6.)

The

marketing budgets identified by category the marketing techniques that Sunrise planned to employ at each Facility and expected to devote to each technique.

the resources Sunrise

(Keyes Decl.

Ex.

51 at

122:1-127:6.)

Although not required,

Sunrise also included in its annual marketing budgets,
flash reports, monthly focus reports,

weekly

and competitive business

reviews.

(Keyes Decl.

Exs.

39-41.)

Thus,

any argument that strategy,

Sunrise failed to provide an annual marketing plan, and budget, claims, are unfounded.

Like their other breach of contract failed to identify any damages

the HCP Plaintiffs

resulting from Sunrise's alleged violation of § 4.02.
reasons, no reasonable trier of fact could find that

For these
Sunrise's

alleged violations of various provisions
breach of contract.

in the MAs amount to a

33

ii.
The

Count XIV

(Breach of

Fiduciary Duties)
fact

Court holds

that no genuine dispute of material

exists as

to whether Sunrise breached the parties'
no such duties exist as to Sunrise.

fiduciary
A fiduciary

duties because

relationship exists where a party vests

the other party with

significant discretion in the management of affairs on its behalf. Oden v. Salch, 379 S.E.2d 346, 351 (Va. 1989). This is

unlike an agency relationship,

where the principal controls the
its duties. Murphy v.

manner in which the agent undertakes

Holiday Inn,

Inc.,

219 S.E.2d 874,

876

(Va.

1975)(stating that

the existence of agency relationship depends on whether the
agreement gave the alleged principal "control or [the] right to

control the methods

or details of doing the work."

(quoting

Wells v.

Whitaker,

151

S.E.2d 422,

429

(Va.

1966));

Allen v.

Lindstrom,

379 S.E.2d 450,

454

(Va.

1989).

A party may bring a

claim for breach of

fiduciary duty only where the duty breached

is a common law duty and "not one existing between the parties
solely by virtue of
Mason,

the contract."
293, 295 (Va.

Augusta Mut.
2007)

Ins.

Co.

v.

645 S.E.2d 290,

(citations omitted)

("Any fiduciary duty allegedly breached in this case existed
solely because of the contractual relationship between Augusta

Mutual and Lee-Curtis,

and in turn,

its employee,

Jones.

Therefore,

we hold that Augusta Mutual

failed to assert a valid

34

claim

for breach of

fiduciary duties.").

Where

there
that

is a
the

"typical business

relationship"

without evidence

parties
may not

"intended to create a
create one. Vicente

fiduciary relationship,"
v. Obenauer, 736 F. Supp.

the court
679, 695

(E.D.

Va.

1990).
of the MAs states:

Section 18.14

The relationship between
shall not be one of

[HRA]

and

[Sunrise]
but

.

.

.

general

agency,

shall be that

of

[HRA]

with an independent contractor;
to those specific and

provided however,

that with respect

limited circumstances in which (a) [Sunrise] is holding funds for the account of [HRA] or (b) [Sunrise] is required
to act as authorized representative for

[HRA] with respect to agreements with residents pursuant to licenses or Legal Requirements, the
relationship of [Sunrise] to [HRA] shall be that of authorized representative (with limited agency). Neither this Agreement nor any agreements,

instruments,
hereby shall

documents or transactions contemplated
in any respect be interpreted,
[HRA]

deemed or

construed as making

a partner or joint venturer

with

[Sunrise]

or as creating any similar relationship it will not make
contention, claim or

or entity,

and each party agrees that

any contrary assertion, proceeding involving

counterclaim in any action,

suit or other legal

the other.

(Mgmt.

Agmt.

§ 18.14.)

The MAs makes no reference to a

fiduciary duty.

It expressly limits Sunrise's relationship to

the HCP Plaintiffs as one of an independent contractor and not
one of agency. Any genuine dispute of material fact that

Sunrise owed a fiduciary duty to the HCP Plaintiffs must arise from the contractual relationship between the parties.
& Loan Ass'n v. Ultimate Sav. Bank, 737 F.

See
Supp.

Guaranty Sav.

35

366,

371

(W.D.

Va.

1990)

(explaining that
the

Service Agreement
"independent

provided that party would service contractor"

loan as an

and contained no reference

to a fiduciary

relationship and thus must look to the

no fiduciary duty existed). the parties as

As

the

Court

intention of

expressed in the

MAs,

there can be no finding of a fiduciary duty and the HCP
therefore, fail to assert a valid claim for breach

Plaintiffs,
of

fiduciary duties.

iii.
The Counts

Counts

II,

XV & XVI

(Injunctive Relief
in favor of Sunrise as cannot show to

Court grants

summary judgment

II,

XV and XVI because

the HCP Plaintiffs

that they will

likely to succeed on the merits

of

their claims. show that: (1)

A plaintiff seeking a preliminary injunction must he is likely to succeed on the merits; (2)

he is likely to (3)

suffer irreparable harm in absence of preliminary relief; the balance of equities tips in his favor; and (4)

an injunction

is in the public interest.
Fed. Election Comm'n, 575

The Real Truth About Obama,
F.3d 342, 346-47 (4th Cir.

Inc.

v.

2009)

(citing
365, 374

Winter v.
(2008)).
II,

Natural Res.

Def.

Counsel,

Inc.,

129 S.Ct.

In Count

the HCP

Plaintiffs

request

that

the

Court

issue an injunction to:

(1)

prevent Sunrise from making further from the Portfolio

unauthorized withdrawals and expenditures

36

Facilities'

accounts;

(2) (3)

require require

Sunrise Sunrise

to vacate

the

Portfolio Facilities;

to transfer the

Portfolio Facilities pursuant (4) require Sunrise

to

§§

10.01

and 13.02

of

the MA;

to grant HCP access

to the (5)

Portfolio to

Facilities' vacate

account books and records; and (6)

require Sunrise to

the Camarillo Facility;

require Sunrise §§

transfer the Camarillo

Facility pursuant to

10.01 and 13.02

of the MA.
allege

(Compl.

1 135.)
(1)

In Count XV,

the HCP Plaintiffs

that Sunrise

realized undisclosed profits and other

income and

(2)

made

improper expenditures

from the Facilities'

accounts.

{Compl.

1M 191-193.)

The HCP Plaintiffs seek an
in accordance with the MA.

injunction to adjust the accounts

(Compl.

H 195.)

Similarly,

Count XVI sets forth allegations
in violation

suggesting that Sunrise received and retained funds

of

its fiduciary duties,

including:

(1)

funds obtained through
and allocations; (2)

undisclosed and improper charges,

fees,

funds obtained from the unauthorized provision of ancillary

activities at the Facilities by third-party ancillary service
providers; and (3) funds obtained by withholding amounts due to

the Facilities under the MA.

(Compl.

fl 198.)

The HCP

Plaintiffs seek an injunction requiring Sunrise and its affiliates to hold these funds in a constructive trust for the

HCP Plaintiff's benefit.
Plaintiffs'

(Compl.

H 204.)

A grant of the HCP

requests on these Counts depends on whether Sunrise

37

breached the MAs

and OAs,

which,

as discussed above, could find that

it has Sunrise

not

because no reasonable

trier of

fact

violated the aforementioned provisions. Plaintiffs
merits

Because

the HCP

cannot

show that

they would likely succeed on the
the Court grants summary

for the

reasons

discussed above,

judgment

in favor of

Sunrise as to Counts

II,

XV and XVI.

iv. The

Count

I

(Declaratory Judgment) summary judgment is in favor of Sunrise

Court grants

because declaratory relief breach the MAs and OAs,

improper where Sunrise did not improperly terminated from the

and was

Camarillo Facility,
released from the

such that the HCP Plaintiffs
and obtain further access

cannot be
to the

MAs

Facilities'

records beyond what Sunrise has provided. 28 U.S.C. § 2201(a),

Under the

Declaratory Judgment Act,
"may declare the

a federal court
of any

rights and other

legal relations

interested party seeking such declaration,
further relief is or could be is sought." the 28

whether or not
U.S.C. sought § 2201(a). (1) will

Declaratory relief

awarded if

relief

serve a useful purpose

in clarifying and settling the legal

relations in issue,

and

(2)

will terminate and afford relief
rise to

from the uncertainty,

insecurity and controversy giving

the proceeding.
Supp. 2d 479, 482

Dourous v.
(E.D. Va.

State Farm Fire
2007)

& Cas.

Co.,

508

F.

(internal citation omitted).

38

Here, that: (1)

the HCP Plaintiffs

request a judicial declaration

Sunrise breached the MA and OA through the commission
(2) the HCP

of various monetary and non-monetary defaults;

Plaintiffs may terminate

the MAs;

(3)

HRA properly terminated

Sunrise as manager of
the

the Camarillo Facility under §

12.06 of

Camarillo MA for failure to obtain proper Medicare and (4) that Sunrise grant the HCP Plaintiff's account book and

certification;

independent auditors access

to the Facilities'

records.

(Compl.

1M 130-133.)

The Court denies the HCP
no reasonable

Plaintiffs'

first request because as discussed,

trier of

fact could find that
Plaintiffs.

Sunrise violated the MAs and OAs
The Court also denies same reasons. the HCP the

alleged by the HCP Plaintiffs'

second request

for the

Because

Court

finds that Sunrise did not breach the MAs or OAs,

the HCP

Plaintiffs may not invoke its right
The Court further denies the request

to terminate the MAs or OAs.
that HRA be permitted to

terminate Sunrise from the Camarillo Facility because Medicare
certification is not a license to operate an assisted living

facility.

As discussed,

nothing in the MAs requires Sunrise to

obtain or maintain Medicare certification at the Camarillo Facility. Finally, the Court denies the HCP Plaintiffs' request

that Sunrise grant the HCP Plaintiffs'
access to the Facilities'

independent auditors
Sunrise has

account book and records.

successfully introduced evidence

that contradicts

any dispute of

39

material
Court

fact

that

it violated the MAs

and OAs.

Because the

finds

that

Sunrise is

did not breach the MAs and OAs, Therefore, the Court grants

declaratory relief

improper.

summary judgment

in favor of

Sunrise as

to Count

II.

B.

Sunrise's

Counterclaim

i. Count

I

(Breach of Contract) summary judgment in favor of the HCP

The Court grants

Plaintiffs as to Count I because no reasonable trier of
could find that the HCP Plaintiffs'
MAs and OAs caused actual damage

fact
of the
is

alleged violations

to Sunrise.

At dispute

whether the HCP Plaintiffs'

alleged obstruction of

Sunrise's

ability to effectively manage the

Facilities

caused financial

harm to Sunrise.

As stated in the MAs,
[HRA] and,

"the budget as proposed,
[HRA]

shall be considered by

in consultation between

and

[Sunrise],

the budget

for the Facilities] [Sunrise]

for the ensuing

fiscal year will be prepared by
contents of the budget

with the final
[Sunrise]

to be determined mutually by

and

[HRA]

.

.

.

."

(Mgmt.

Agmt.

§ 7.01.)

Sunrise must also

prepare a Repairs and Equipment Estimate of the Facilities' expenditures and submit
Budget. (Mgmt. Agmt. §

it along with the Annual Operating
11.02(d).) Aside from these

requirements,

Sunrise has

"complete and full control and
direction, management and

discretion in the operation,

40

supervision of
As party to

the Facilities]
HRA "agrees

.

.

.

."

(Mgmt.

Agmt.

§ 2.01.)
the

the MAs,

to comply with all of

applicable provisions of

[the MA]

and to perform all

obligation[s]"

set

forth therein.

(Mgmt.

Agmt.

§

10.03.)

Sunrise asserts that the HCP Plaintiffs engaged in various bad faith conduct in an effort to force Sunrise to restructure the Facilities' MAs. Specifically, the HCP Plaintiffs refused
negotiation with

to approve budgets and engage

in meaningful

Sunrise regarding the budgets.

(Am.

Countercl.

and Third-Party

Compl.

11 3 6.)

According to Sunrise,

the HCP Plaintiffs also

obstructed capital expenditures at the Facilities by refusing to
advance sufficient funds to Sunrise. (Am. Countercl. and Third-

Party Compl.

UU 41 & 43.)

Sunrise further insists that the HCP
(1) information

Plaintiffs made bad faith demands by requesting: regarding the Facilities' licensing;, (2)

all reports filed by

the Facilities with any agency in connection with any legal requirement; (3) marketing and financial data; and (4) proof

that the prices Sunrise paid for services are reasonable and

competitively priced.
45.)

(Am.

Countercl.

and Third-Party Compl.

%

While Sunrise has sufficiently shown that no disputed
material fact exists concerning the HCP Plaintiffs' perform under the MAs,
caused actual damage.

failure

to

it has not shown that the alleged breach
Sunrise claims that its share of the

41

Facilities

revenue was

depressed due

to the HCP

Plaintiffs'

bad

faith conduct.
44.)

{Am.

Countercl.

and Third-Party Compl.
that it

KH 43-

Specifically, due

Sunrise claims

suffered a loss of

$191,000

to HCP's

alleged failure

to approve capital Summ. j. 29.) stock. Sunrise These

expenditures. also points
statements

{Def.'s Opp'n Pis.'

Mot.

to a diminution in the value of
alone, however, do not

its

show how Sunrise

suffered

actual damage when its corporate representative,
Weil, harm." indicated that Sunrise's parent company (Nickelsburg Decl. Ex. 93 at

Mr.

Eugene

"suffered the Am.

96:20-99:5;

Counterclaim and Third-Party Comp.
Mot. Summ. J. 27.)

UH 43-44;

Def.'s Opp'n Pis.'
to suggest that

Sunrise provides no evidence

a trickle down effect caused financial damage to its ability to
manage the Facilities. Rather, Sunrise recognizes that

corporate entities are separate and distinct,
does not bear the damage

suggesting that it
and

suffered by its parent company;

Sunrise offers no facts that would allow the Court to pierce corporate veil to find the necessary damages.
Summ. J. 26-28. Because Sunrise fails

the

(Def.'s Opp'n

to establish a genuine

issue of material fact with respect to damages,
to satisfy all elements
such, the Court grants

it thereby fails
As

for a breach of contract claim.
summary judgment in favor of

the HCP

Plaintiffs on Count I of the Counterclaim.

42

ii.

Count III

(Tortious

Interference with Contractual

Relations
The Court grants summary judgment in favor of the HCP

Plaintiffs because no reasonable trier of
the HCP Plaintiffs

fact could find that

intentionally interfered with HRA's

obligations to Sunrise under the MA.

The elements of tortious (1)
(2)

interference with contractual relations include:
contractual relationship or business expectancy;

a valid
knowledge

of

the relationship or expectancy on the part of the interferor;

(3)

intentional interference inducing or causing a breach or
and (4) resultant

termination of the relationship or expectancy;

damage to the party whose relationship or expectancy has been disrupted. Chaves v. Johnson, 335 S.E.2d 97, 102 (Va. 1985)

(citation omitted).

Sunrise alleges that the HCP Plaintiffs conspired with HRA
to cause HRA to breach its contractual obligations to Sunrise.

(Am.

Countercl.

and Third-Party Compl.

H 63.)

Sunrise argues

that the HCP Plaintiffs had a plan to threaten Sunrise with

terminating the MA if

the

latter refused to restructure the MAs.

(Def.'s Opp'n Pis.'
11.) However,

Mot.

Summ.

J.

29-30;

Keyes Decl.

Exs.

9&

it is unclear from the record how HCP

intentionally induced or caused a breach or termination of the relationship between Sunrise and HRA.
80:7-81:15 & 94:5-96:21.) Moreover,

(Keyes Decl.

Ex.

100 at

while Sunrise asserts that

43

its

share of

the

Facilities

revenue has been depressed,

it is

unclear under what parent company, is

theory and how Sunrise, actually damaged. (Am.

rather than its Countercl. and Third-

Party Compl.

tH 43-44;
Mot.

Nickelsburg Decl.
Summ. J. 25-28.)

Ex.

93 at 96:4-99:5;
the

Def.'s Opp'n Pis.' Court grants

Consequently,

summary judgment

in favor of

the HCP Plaintiffs.

iii.

Counts

IV & V

(Conspiracy to Harm Business and

Reputation

The Court grants summary judgment

in favor of the HCP

Plaintiffs as to Sunrise's conspiracy claims because no reasonable trier of fact could find the HCP Plaintiffs willfully

and maliciously injured Sunrise's business or reputation.
common law conspiracy consists of to accomplish,

A

"two or more persons combined some criminal or

by some concerted action,

unlawful purpose or some unlawful means."
Servs., Inc., 453

lawful purpose by a criminal or Sys.,
(Va.

Commercial Bus.
S.E.2d 261, 267

Inc.
1995).

v.

Bellsouth
The damage caused

by the acts committed in furtherance of the conspiracy is the foundation of a civil claim of conspiracy. Id (citations

omitted).
attempts

Similarly,
to procure

Virginia law provides that any person who
in an attempt to

the participation of others

willfully and maliciously injure another in his reputation,
trade, business or profession can be liable for statutory See Va. Code Ann. § 18.2-4 99. A plaintiff proceeding

conspiracy.

44

under this evidence.

statute must prove his See Va. Code Ann. §

case by clear and convincing Instead of actual

18.2-500.

malice, i.e.,

the statute . . .

"merely requires[s]

proof

legal malice, and without 453 S.E.2d

that

acted intentionally,

purposely, Sys.,

lawful justification."
at 267.

Commercial Bus.

Inc.,

From the

record,

it

is unclear how the HCP Plaintiffs

willfully and maliciously injured Sunrise's business or

reputation by attempting to get Sunrise to alter its contractual
relationship with HCP before and after the CNL-HCP merger. It

is also unclear how HCP joined forces with HRA to drive Sunrise out of business. The mere fact that HCP wishes to have Sunrise without more, does not
that the

lease rather than manage the Facilities,
amount to unlawful intent,

where Sunrise acknowledges

parties engaged in discussions at length regarding possible
restructuring of the MAs. (Am. Countercl. and Thir