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COMMERCE FUNDING CORP. v. COMPREHENSIVE HABILITATION SERV.

September 2, 2004.

COMMERCE FUNDING CORPORATION, Plaintiff,
v.
COMPREHENSIVE HABILITATION SERVICES, INC., ET AL., Defendants.



The opinion of the court was delivered by: PETER LEISURE, District Judge

OPINION AND ORDER

This action, originally brought by plaintiff Commerce Funding Corporation upon an alleged breach of a factoring agreement, has been trimmed down by settlements and arbitration, such that only cross-claims asserted by defendant Comprehensive Habilitation Services ("CHS") against defendants St. Francis Hospital ("St. Francis") and Staten Island University Hospital ("Staten Island") remain unresolved. CHS brings a breach of contract claim against St. Francis that will be tried without a jury, and a breach of contract claim against Staten Island that will be tried before a jury.

  With respect to St. Francis, CHS alleges that St. Francis owes it $215,270.10 plus interest for services it provided to St. Francis pursuant to a Memorandum of Understanding between the two parties dated February 19, 1999. St. Francis denies the allegations. The Court has scheduled a bench trial on CHS's claims against St. Francis to begin September 13, 2004. CHS now makes two motions in limine to exclude from evidence several documents that St. Francis intends to offer at trial. In its first motion in limine dated July 30, 2004, CHS seeks to exclude documents that predate the Memorandum of Understanding, and documents related to a settlement between St. Francis and the Attorney General's Office. In its second motion in limine dated August 3, 2004, CHS seeks to exclude a plea agreement reached in the case of People v. Comprehensive Clinical Center, Inc. St. Francis opposes CHS's motions. For the reasons set forth below, the Court grants in part and denies in part CHS's first motion in limine, and reserves judgment until trial on CHS's second motion in limine, so that the motion is placed in the appropriate factual context. Background

  The following background information is derived from the submissions of the parties in association with the current motions and does not constitute findings of fact.

  I. Factual Background

  During all relevant times, defendant St. Francis was a hospital in Poughkeepsie, New York, that provided a full range of health care services to the mentally retarded and the developmentally disabled. Cross-claimant CHS provided consultation and administrative services to health providers. On May 25, 1995, CHS and St. Francis reached an agreement (the "Contract"), by which CHS would provide services such as occupational therapy, physical therapy, and social work for St. Francis and be compensated at a rate of $50 per hour. (Contract (attached to CHS's July 30, 2004, Notice of Motion as Exhibit 1) ¶ 5 and Addendum.) The Contract includes several terms upon which the parties agreed, such as that CHS's services "shall only be provided upon obtaining all Federal, State, and local approvals including, without limitation, approvals of the New York State Department of Health and the New York State Department of Mental Hygiene." (Contract ¶ 5.) After the commencement of the Contract CHS provided services for St. Francis and issued invoices to St. Francis for payment.

  At some time after 1995, the Office of the Attorney General, Medicaid Fraud Control Unit ("Attorney General's Office") "conducted an audit of [clinics operated by St. Francis] and thereafter asserted, among other things, that: (a) the Clinics were neither authorized under, nor operated in accordance with, applicable New York State laws, rules and regulations; (b) [St. Francis] submitted improper claims for payment to Medicaid during the Service Period relating to the Clinics; and (c) [CHS's] relationship with [St. Francis] violated applicable New York State laws, rules and regulations." (February 6, 2002, Agreement and Settlement between St. Francis and Attorney General's Office ("February 2002 Settlement"), at 1.) In February 2002 St. Francis entered a settlement with the Attorney General's Office by which St. Francis expressly denied the allegations of the Attorney General's Office, but "in order to avoid the uncertainties, burdens and expenses of litigation," agreed to pay a $1 million settlement in the form of weekly withholdings by the State Department of Health of future Medicaid checks payable to St. Francis. (February 2002 Settlement, at 2-3.)

  On February 19, 1999, apparently after the Attorney General's Office had commenced its investigation into the parties' performance under the Contract, and before St. Francis reached a settlement with the Attorney General's Office, CHS and St. Francis agreed to a Memorandum of Understanding. (Memorandum of Understanding (attached as Exhibit 2 to CHS's August 3, 2004, Notice of Motion).) In the Memorandum of Understanding the parties agreed to, among other things, the following terms:
(1) The Contract is terminated, and the parties shall have no further obligations under the Contract, except as expressly outlined herein.
(2) Payment and Holdback. . . . [St. Francis] shall pay certain invoices received by it from CHS for services rendered in connection with the Contract on the following schedule: $510,115 on or before February 26, 1999. Invoices 149 and 150 will be withheld as a holdback, and all other outstanding invoices will be paid in accordance with [St. Francis'] 90-day cycle.
. . . .
(4) Continuity of Services. CHS agrees . . . that CHS will continue to provide and coordinate continuity of therapy services until (i) sufficient CHS therapists agree to become employed by [St. Francis] or (ii) [St. Francis] shall engage replacement services by other therapists no later than March 30, 1999. During this transition period CHS shall bill [St. Francis] in the ordinary course of business at the current rates.
. . . .
(10) Holdback of Monies — Attorney General — Department of Health Investigation. CHS, and [St. Francis] acknowledge that there is an ongoing inquiry concerning the parties' performance under the Contract, and related issues. . . . In the event there is an immediate repayment required [by the Attorney General's Office], any outstanding invoices would be used as part of such a repayment plan.
(Memorandum of Understanding ¶¶ 1, 2, 10 and attached Exhibit.)

  After the parties agreed upon this Memorandum of Understanding, CHS continued to provide services and submit invoices to St. Francis. St. Francis received the services provided by CHS, but stopped making payments on the invoices.

  II. Procedural Background

  A. CHS's Cross-Claim

  CHS brings the current cross-claim against St. Francis for breach of contract. CHS claims that St. Francis owes payment on seven invoices CHS issued for payment for services it rendered: Invoice Nos. 149, 150, 151, 152, 153, 154 and 155. Invoices 149 and 150 were issued for services rendered in January and February 1999, and are referenced in the Memorandum of Understanding. Invoices 151-155 were issued for services rendered in February, March, April, and May 1999, and are not explicitly referenced in the Memorandum of Understanding. The parties agree that the claim to be resolved at the bench trial is a simple breach of contract claim for failure to pay these invoices. (See Affidavit of John W. Clarke in support of CHS's Motion In Limine To Exclude Various St. Francis Trial Exhibits ("Clarke Aff.") ¶ 2 ("In short, this is a garden variety collection case in which a debtor profited from the services of contractor and then defaulted on its contractual obligation of payment."); Memorandum of Law of St. Francis Opposing CHS's 8/3/04 Motion In Limine, at 1 ("This lawsuit is fundamentally a non-payment action.").)

  CHS's position is that the Memorandum of Understanding governs all of the invoices, Nos. 149-155, and that payment is due on these invoices under the terms of the Memorandum of Understanding. With respect to Invoices 149 and 150 which are subject to "holdback" in the Memorandum of Understanding, CHS argues that monies owed by St. Francis to CHS for these invoices should not be applied to the settlement with the Attorney General because the "settlement was entered into without consultation with or agreement by CHS. Nothing in the [Settlement] alleges that CHS engaged in any impropriety or had responsibility for the alleged violations. In short, there is no link to any acts of CHS in connection with its performance of the Agreement with [St. Francis], and [St. Francis'] settlement with [the Attorney General's Office]." (Joint Pre-Trial Order, at 5.) CHS thus argues that payment for Invoices 149 and 150 is due. With respect to Invoices 151-155, CHS argues that paragraph four of the Memorandum of Understanding, titled "Continuity of Services," governs these invoices. CHS thus argues that payment for Invoices 151-155, issued for services rendered after the parties signed the Memorandum of Understanding, is due.

  St. Francis denies CHS's allegations of breach of contract. St. Francis' position is that the Memorandum of Understanding governs Invoices 149 and 150, and the Contract governs Invoices 151-155. With respect to Invoices 149 and 150, St. Francis argues that the Memorandum of Understanding provides that St. Francis may hold back payment on these invoices and apply it to its Settlement with the Attorney General's Office. As the Settlement amount exceeds the amount of Invoices 149 and 150, St. Francis contends that under the terms of the Memorandum of Understanding it owes nothing to CHS for Invoices 149 and 150. With respect to Invoices 151-155, St. Francis argues that "those invoices are expressly not subject to the Memorandum of Understanding and, accordingly, are governed by the terms of the parties' original [Contract]." (Joint Pre-Trial Order, at 3.) St. Francis argues that CHS failed to perform its obligations under the Contract "to ensure compliance with all rules and regulations pertaining to the operation of the [St. Francis] Clinics; to market, implement and provide administrative services at Hospital operated Clinics; to obtain all Federal, State and local approvals of the New York State Department of Health and the New York State Department of Mental Hygiene relating to the ...


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