Cornerstone Therapy Services Inc v. Reliant Post Acute Care Solutions LLC et al

Filing 78

OPINION AND ORDER granting 63 Motion for Summary Judgment. Signed by Judge James P. Jones on 3/16/2018. (lml)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
BIG STONE GAP DIVISION
CORNERSTONE THERAPY
SERVICES, INC.,
Plaintiff,
v.
RELIANT POST ACUTE CARE
SOLUTIONS, LLC, ET AL.,
Defendants.

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Case No. 2:16CV00018
OPINION AND ORDER
By: James P. Jones
United States District Judge

Mary Foil Russell, Sands Anderson PC, Christiansburg, Virginia, for
Plaintiff; Gary L. Edwards and Ronald S. Range, Jr., Baker, Donelson, Bearman,
Caldwell & Berkowitz, P.C., Johnson City, Tennessee, for Defendants.
In this breach of contract case arising under Virginia law, the facts show that
the parties, contemplating the purchase and sale of a business, entered into a
written non-disclosure agreement that prohibited the prospective purchaser for two
years from soliciting for employment or hiring any manager of the seller. The sale
did not occur and it is alleged by the plaintiff seller that the purchaser did in fact
hire several managers of the seller in violation of the no-hire restriction.

The

defendant purchaser has now filed a Motion for Summary Judgment, contending
that the contract provision is not enforceable because the seller could not have
retained the managers in question in light of its loss of business and thus there was
no legitimate business interest to be protected by the no-hire restriction. The

defendant also contends that the plaintiff is unable to prove its damages with
reasonable certainty.
I.
The following facts are taken from the summary judgment record, viewed in
the light most favorable to the nonmoving plaintiff.
The plaintiff Cornerstone Therapy Services, Inc. (“Cornerstone”) provides
physical and occupational therapy to home health agencies and physical,
occupational, and speech therapy to skilled nursing facilities.
Cornerstone previously employed licensed therapists who provided therapy
to patients of Abingdon Health & Rehab Center, LLC (“Abingdon Health &
Rehab”) and SP Lee LLC d/b/a Lee Health & Rehab (“Lee Health & Rehab”), both
skilled nursing facilities. Both Abingdon Health & Rehab and Lee Health &
Rehab are owned by Commonwealth Care of Roanoke (“CCR”). Beginning in
2010, Cornerstone had a contract with CCR to provide therapy services at Lee
Health & Rehab. Beginning in 2014, Cornerstone had a contract with CCR to
provide therapy services at Abingdon Health & Rehab. Cornerstone’s contracts
with CCR were automatically renewable for one-year terms but could be
terminated by either party upon written notice of nonrenewal ninety days prior to
the end of a term.

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Defendants Reliant Post Acute Care Solutions, LLC, Reliant Medical
Management, LLC, and Reliant Rehabilitation Holdings, Inc., do business as
Reliant Post Acute Care Solutions. For convenience I will refer to the defendants
collectively as “Reliant.” Like Cornerstone, Reliant provides therapy services in
skilled nursing facilities.
In 2014, Reliant and Cornerstone began negotiations for the purchase of
Cornerstone by Reliant. As part of the negotiations, Cornerstone requested a nondisclosure agreement (“NDA”).

Reliant produced such an agreement and the

parties executed it on August 8, 2014. In addition to provisions concerning the
protection of confidential business information provided to Reliant by Cornerstone,
the NDA also contains the following no-hire provision:
Each Party agrees that during the term of this Agreement and for a
period of two years from the date of this Agreement, except per the
terms of a specific written consent of the other Party, neither Party,
nor any of its Representatives on its behalf, will directly or indirectly .
. . solicit for employment or engagement or hire or engage any
director, manager, officer, or managerial-level employee of the other
Party with whom it has had contact or who became known to it in
connection with consideration of the Proposed Relationship, except
that neither Party will be precluded from engaging in general
solicitations of employment not specifically directed at employees of
the other Party or hiring any employee who responds to such general
solicitation or has terminated employment with the other Party at least
six months prior to the date of such Party’s solicitation of such
employee.

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Am. Compl. Ex. C ¶ 4, ECF No. 35-3. 1
Following execution of the NDA, Reliant engaged in due diligence
examination of Cornerstone’s business, as permitted by the NDA, but without the
execution of a final agreement of sale. On June 3, 2016, CCR gave notice to
Cornerstone that it was terminating the Abingdon Health & Rehab contract for
services and it expired on September 3, 2016. On June 22, 2016, CCR similarly
gave notice to Cornerstone that it was terminating the contract at Lee Health &
Rehab, which accordingly expired on or about September 22, 2016.
After the expiration of the CCR contracts with Cornerstone, Reliant began
providing therapy services to the same two skilled nursing facilities and hired
Cornerstone employees who had been assigned to these facilities, some of whom
Cornerstone has identified as being its former managers.
This action was filed on July 1, 2016. In its initial Complaint, Cornerstone
sought damages and an injunction barring Reliant from contracting with CCR to
provide therapy services to Abingdon Health & Rehab and Lee Health & Rehab.
A hearing was held on August 26, 2016, on a motion by Cornerstone for a
preliminary injunction. At the conclusion of the hearing, a preliminary injunction
1

The term of the NDA was three years from the last date of disclosure of
confidential information, Am. Compl. Ex. C ¶ 9, which the record shows was January
2016. Tr. 47, ECF No. 39. However, the NDA’s no-hire provision also states that it is
effective for two years from August 8, 2014, the beginning date of the NDA. Reliant
does not contend that the no-hire provision is unenforceable because of the length of time
of its restriction.
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was denied by the court on the ground that Cornerstone had not shown irreparable
harm.

At the hearing, Steven Garrett, president of Cornerstone, testified that

“around 69 percent” of Cornerstone’s revenues came from the two CCR contracts
and with the loss of those contracts, Cornerstone would have to reduce its number
of therapist employees from 42 or 43 to “about 15.” Tr. 23, ECF No. 39.2
Following denial of its preliminary injunction, Cornerstone filed an
Amended Complaint, asserting claims of breach of contract, tortuous interference
with business expectancy, violation of the Virginia Trade Secrets Act, and
violations of certain federal healthcare laws. On a Motion to Dismiss by Reliant, I
dismissed all of Cornerstone’s claims in the Amended Complaint except that for
breach of contract of the no-hire clause of the NDA. Cornerstone Therapy Servs.,
Inc. v. Reliant Post Acute Care Sols., LLC, No. 2:16CV00018, 2016 WL 6871440,
at *8 (W.D. Va. Nov. 21, 2016).
Reliant’s Motion for Summary Judgment has been fully briefed and is ripe
for decision.3
2

In its Amended Complaint, Cornerstone alleged that “approximately 28 licensed
therapists” employed by it were assigned to the two skilled nursing facilities in question.
Am. Compl. ¶ 3, ECF No. 35. It appears from the record that those approximately 28
included five to seven therapists claimed to be managers.
3

I will dispense with oral argument because the facts and legal contentions are
adequately presented in the materials before the court and argument would not
significantly aid the decisional process.

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Summary judgment is appropriate when “the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). To raise a genuine issue of material fact
sufficient to avoid summary judgment, the evidence must be “such that a
reasonable jury could return a verdict for the nonmoving party.” Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In making this determination, “the
court is required to view the facts and draw reasonable inferences in a light most
favorable to the nonmoving party.” Shaw v. Stroud, 13 F.3d 791, 798 (4th Cir.
1994).
Rule 56 mandates the entry of summary judgment, after adequate time for
discovery and upon motion, against a party who fails to make a showing sufficient
to establish the existence of an element essential to that party’s case, and on which
that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S.
317, 322 (1986). Summary judgment is not a disfavored procedural shortcut, but
an important mechanism for weeding out claims and defenses that have no factual
basis. Id. at 327. It is the affirmative obligation of the trial judge to prevent
factually unsupported claims and defenses from proceeding to trial. Drewitt v.
Pratt, 999 F.2d 774, 778-79 (4th Cir. 1993).

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II.
In this diversity action, the parties are agreed that Virginia substantive law
must be applied. To recover under a claim of breach of contract, a plaintiff must
prove: “(1) a legally enforceable obligation of a defendant to a plaintiff; (2) the
defendant’s violation or breach of that obligation; and (3) injury or damage to the
plaintiff caused by the breach of obligation.” Navar, Inc. v. Fed. Bus. Council, 784
S.E.2d 296, 299 (Va. 2016) (internal quotation marks and citations omitted).
Ultimately, “a plaintiff must show a causal connection between the defendant’s
wrongful conduct and the damages asserted.” Id. (internal quotation marks and
citation omitted).
At least for the purposes of the present motion, Reliant does not contest that
Cornerstone can show that it did in fact hire several managers of Cornerstone
during the term of the no-hire provision.4 Nevertheless, it argues that the no-hire
provision is not enforceable as against public policy because it provides no
“legitimate interest to protect,” citing Therapy Services, Inc. v. Crystal City
Nursing Center, Inc., 389 S.E.2d 710, 712 (Va. 1990). In that case, a skilled
nursing facility contracted with another party to provide therapists to work in the
4

Reliant concedes that it does not dispute for the purposes of summary judgment
that “only five (5) and under no circumstances more than seven (7), of the
‘approximately’ twenty-eight (28) therapist employees referenced in Cornerstone’s
Amended Complaint, are Cornerstone managers to which the scope of the No-Hiring
Provision is limited.” Defs.’ Mem. Supp. Mot. Summ. J. 5 n.3, ECF No. 64.
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facility, with a contract provision that prohibited the facility from hiring away any
of the therapists for six months following the duration of the contract period. The
Virginia Supreme Court upheld the no-hire provision even though it held that such
a provision “is a contract in restraint of trade and will be held void as against
public policy if it is unreasonable as between the parties or is injurious to the
public.” Id. at 711. The court found that because the provider of therapist
services had “a legitimate interest in protecting its ability to maintain professional
personnel in its employ,” the no-hire provision was valid. Id. at 711-12.
Reliant contends that because Cornerstone had lost its contracts to provide
therapists for the two CCR facilities, it had no need for managers, and thus no
legitimate interest to protect. However, while the managers in question were
working at the CCR facilities, there is no proof in the present record that
Cornerstone could not have used the managers, or some of them, in other aspects
of its business. In fact, in its answers to interrogatories, it asserted that it would
have “relocated some therapists in its home health business on at leat a part-time
basis.” Defs.’ Mem. Supp. Mot. Summ. J. Ex. 1, Resp. Interrogs. 4, ECF No. 64-1.
Reliant may be correct that Cornerstone had no further need for any of the

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managers hired away by Reliant, but that undisputed fact does not appear in the
present summary judgment record.5
III.
For its remaining ground for summary judgment, Reliant contends that
Cornerstone cannot prove any damages from a violation of the no-hire provision of
the NDA.
“As a general rule, damages for breach of contracts are limited
to the pecuniary loss sustained.” Kamlar Corp. v. Haley, 224 Va. 699,
705, 299 S.E.2d 514, 517 (1983) (quoting Wright v. Everett, 197 Va.
608, 615, 90 S.E.2d 855, 860 (1956)). Proof of damages is an essential
element of a breach of contract claim, and failure to prove that
element warrants dismissal of the claim. Filak [v. George], 267 Va.
[612] at 619–20, 594 S.E.2d [594] at 614-15 [2004]. The plaintiff also
has the “burden of proving with reasonable certainty the amount of
damages and the cause from which they resulted; speculation and
conjecture cannot form the basis of the recovery.” Shepherd [v.
Davis], 265 Va. [108] at 125, 574 S.E.2d [514] at 524 [2003]
(citations omitted).
Sunrise Continuing Care, LLC v. Wright, 671 S.E.2d 132, 136 (Va. 2009).

In its Amended Complaint, Cornerstone sought damages of $4 million,
which it contends is the value of its business, but there is no support for that claim
under the facts of this case. In its response to the Motion for Summary Judgment,
it proposes two theories of recovery. First, it seeks its loss of profits from the
5

Reliant relies on remarks made by the court during the preliminary injunction
hearing expressing concern that the Cornerstone employees would suffer if Reliant was
enjoined from hiring them and Cornerstone had no need for them. Tr. 48, ECF No. 39.
But those were not findings binding on the merits of Cornerstone’s case. And in fact, I
noted that Cornerstone might not have need for “many” of the employees. Id. at 57.
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operation of the two contracts with CCR. Mem. Opp’n Mot. Summ. J. 6-7, ECF
No. 72. But those contracts were terminated by CCR as it had a right to do and
there is no evidence that Reliant’s violation of the no-hire provision caused the
termination of the CCR contracts.
Cornerstone relies on Eden Hannon & Co. v. Sumitomo Trust & Banking
Co., 914 F.2d 556, 564 (4th Cir. 1990), in which the court of appeals approved an
equitable constructive trust on the amount of profits earned by a party that
misappropriated a trade secret, reasoning that it would be “far easier” to determine
such profits than to determine the amount of the victim’s actual damages. Here,
however, it would be more difficult to prove the amount of profit attributable to the
managers hired by Reliant than any damages suffered by Cornerstone.
Alternatively, Cornerstone seeks the costs of “buying out” therapy
managers. Mem. Opp’n Mot. Summ. J. 7, ECF No. 72. As explained in a
declaration by Steven Garrett, the president of Cornerstone, “had Reliant sought to
take over the Abingdon Health & Rehab and Lee Health & Rehab contracts and
sought to buy out the contracts for these professionals, the amount per managerial
level employee would be $45,000 to $50,000.” Id. at Attach. 1, Garrett Decl. ¶ 12,
ECF No. 72-1. Garrett bases this figure “on industry standards and considering the
costs to recruit and train managers and therapists.” Id. In his testimony at the
preliminary injunction hearing, Garrett testified that Cornerstone had replaced a
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company called Genesis in supplying therapists to CCR’s Abingdon Health &
Rehab facility and when it did, it had to pay Genesis to “buy out” Genesis’
employees’ non-compete clauses, in order to keep them at the facility. Tr. 43, ECF
No. 39.
Reliant objects to this theory of recovery, including on the ground that
Garrett has not been timely disclosed as an expert witness and thus cannot testify
as to industry standards.

However, even assuming that as president of the

company Garrett could testify as a non-expert as to Cornerstone’s costs to recruit
and train managers, he does not connect Cornerstone’s loss, if any, to Reliant’s
violation of the no-hire provision. The fact is that Cornerstone had lost the CCR
contracts, not because of Reliant’s hiring away of the managers, but because CCR
cancelled the contracts pursuant to their terms. Cornerstone thus could not have
used the lost managers at the two skilled nursing facilities. It alleges that it could
have relocated “some” of the therapists on a “part-time basis” to other duties, Resp.
Interrogs. 4, ECF No. 64-1, but it does not show whether it in fact expended money
to recruit and train any new managers for those duties. It also alleges that it would
have “solicited” other contracts in order to employ the managers taken by Reliant,
but it is simply conjecture whether such new contracts could have been obtained
and whether they would have provided employment for the lost managers.

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For these reasons, I find that Cornerstone cannot prove any reasonably
certain pecuniary loss resulting from Reliant’s violation of the no-hire provision of
the NDA, and thus summary judgment is appropriate.
IV.
For the foregoing reasons, it is ORDERED that Defendants’ Motion for
Summary Judgment, ECF No. 63, is GRANTED. A separate final judgment will
be entered forthwith.6

ENTER: March 16, 2018
/s/ James P. Jones
United States District Judge

6

Cornerstone also argues that Reliant’s Motion for Summary Judgment violates
Local Rule 56(b) because the brief in support of it does not contain a separately captioned
section setting forth the material facts claimed to be undisputed, and for this reason the
motion ought to be denied. I find that Reliant’s brief substantially complies with the rule.
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