DAVIS & ASSOCIATES v. HEALTH MANAGEMENT SERVICES

The opinion of the court was delivered by: Lynch, District Judge.

OPINION AND ORDER

Plaintiff Davis & Associates, Inc. ("Davis") sues defendant Health Systems Management, Inc. ("HMS"), on a number of grounds arising from HMS's alleged breach of an agreement to jointly deliver and market revenue maximization services to governmental entities and health care providers. Defendant moves for summary judgment pursuant to Rule 56(b) of the Federal Rules of Civil Procedure, arguing that all claims alleged in the Complaint were the subject of a binding release agreement voluntarily executed by plaintiff in consideration for substantial sums of money. For the reasons stated below, defendant's motion is granted.

BACKGROUND

I. Facts

Except where noted, the following material facts are not in dispute, or are sufficiently supported by plaintiff's evidence that they must be accepted for purposes of defendant's motion. HMS is a New York corporation engaged in the principal business of furnishing proprietary information management systems and revenue maximization services to healthcare providers and governmental entities. (Bendes Aff. ¶ 5.) Davis is a District of Columbia corporation engaged in the principal business of furnishing proprietary information management systems to public, private and parochial schools and revenue maximization services to governmental entities. (Compl. ¶ 2.) Revenue maximization services generally include careful analysis of documents and billing records with an eye toward locating potential sources for third party funding.

In October, 1999, HMS and Davis concluded an agreement to jointly market and deliver revenue maximization services to existing and potential public, private, and parochial school clients. (Id. Ex. A) ("Schools Agreement.") In April, 2000, HMS and Davis concluded a second agreement, pursuant to which they agreed to jointly provide revenue maximization services to all existing and potential future clients. (Id. Ex. B) ("RevMax Agreement.")*fn1 Pursuant to the Agreements, HMS was to (a) advance "approved" precontract marketing expenses to Davis and (b) advance "approved" marketing and operating expenses for future projects, upon submission by Davis, and acceptance by HMS, of a detailed budget proposal. (Id. Exs. A & B.) HMS was not, however, obligated to make such advance payments in the event the total amount of Davis's unpaid balance reached $500,000. (Id. Exs. A § 3(e) & B § 3(e).)*fn2 Davis was to have primary responsibility for operational aspects of the venture, including selection, approval and supervision of existing and potential clients (id. Ex. B, Schedule A), and was to be given options to purchase a total of 20,000 shares of HMS stock (id. Exs. A § 4 & B § 4). Davis was further provided with a "right of first refusal," such that HMS agreed not to utilize the services of any subcontractor to provide revenue maximization services without first giving Davis the right to perform such services pursuant to the RevMax Agreement. (Id. § 7(a)).

There is no dispute that between October 1999, through May 31, 2000, HMS advanced funds to Davis in the amount of $1,625,439. (Bendes Aff. ¶ 10; Davis Aff. ¶ 9 & 10.) HMS argues that that amount was in excess of what it was contractually obligated to advance under the Agreements. (Bendes Aff. ¶ 10.) Although Davis disagrees (P.'s R. 56.1 Counter Statement ¶ 10), the contractual documents make clear that HMS was not obligated to make payments after Davis's unrepaid advances exceeded $500,000. (Id. Exs. A § 3(e) & B § 3(e).) HMS never received any revenue — and thus no return on its advance — from any client contracts entered into pursuant to the Agreements. (Bendes Aff. ¶ 15; P's R. 56.1 Counter Statement ¶ 12.) Nor did Davis ever return any of HMS's advance payments. (Id.)

The controversy underlying this case arose after HMS refused to approve budgets for operating and marketing expenses that Davis proposed for various revenue maximization projects. (Compl. ¶ 13.) The parties agree that these preliminary budgets were "not in line with the pro forma budgets which had been previously set forth by HMS," and that "as a result, Davis was notified that such budgets were not approved." (D.'s R. 56.1 Statement ¶ 9; P.'s R. 56.1 Counter Statement ¶ 9.) Davis never submitted revised budget proposals to HMS. (Id.) Nor did HMS propose any. (Id.)

In June 2000, Davis thrice requested additional funding and HMS agreed, but only on condition that Davis waive some of its rights otherwise retained under the Agreements. On June 1, HMS agreed to advance Davis $126,000, but only in exchange for Davis's waiver of its right to receive, pursuant to the agreements, options to purchase shares of HMS common stock. (D.'s R. 56.1 Statement ¶ 13; P.'s R. 56.1 Counter Statement ¶ 13.) On June 16, HMS advanced Davis another $150,000, again upon request by Davis, but this time without an attached condition. (Id. ¶ 15.) Finally, on June 30, HMS agreed to provide Davis with up to $1 million in additional funding, in exchange for Davis's release of HMS from all potential claims that Davis might otherwise have against Davis under the Agreements. (D.'s R. 56.1 Statement 16; P.'s R. 56.1 Counter Statement ¶ 14.) The release agreement also required that Davis repay in full "all funds made available by HMS . . . since October 5, 1999," and warranted that by July 31, 2000, Davis would either (1) restructure its relationship with HMS, (2) be acquired by HMS or a third party, or (3) terminate its business relationship with HMS (Bendes Aff. Ex. B) ("Release"). HMS immediately advanced Davis an additional $685,000 in exchange for Davis's execution of the Release ("June Funding"). (D.'s R. 56.1 Statement ¶ 16; P.'s R. 56.1 Counter Statement ¶ 14.) These June advances, plus the amounts previously advanced between October 1999, and May 31, 2000, brought Davis's total outstanding balance to $2,586,439.

On September 7, 2000, Davis brought this action for inter alia, breach of contract, fraud, interference with contractual relations, interference with prospective economic advantage and an accounting. On November 21, 2000, HMS moved for summary judgment on the ground that Davis has voluntarily released all claims. Davis does not dispute that it executed the Release, or that it received valuable consideration for its execution, but argues that the Release is void on the ground that it was executed under economic duress.

DISCUSSION

I. Legal Standard

Summary judgment may not be granted unless "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In determining whether summary judgment is appropriate, the court must resolve all ambiguities in the light most favorable to the nonmoving party and draw all reasonable inferences in the nonmoving party's favor. See Wernick v. Federal Reserve Bank of New York, 91 F.3d 379, 382 (2d Cir. 1996) (internal citations omitted). The litigant opposing summary judgment "may not rest upon mere conclusory allegations or denials, but must bring forward some affirmative indication that his version of relevant events is not fanciful." Podell v. Citicorp Diners Club, Inc., 112 F.3d 98, 101 (2d Cir. 1997) (internal quotation marks and citations omitted). "Summary judgment is improper when the court merely believes that the opposing party is unlikely to prevail on the merits after trial." American International Group, Inc. v. London ...