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COMMERCE FUNDING CORP. v. COMPREHENSIVE HABILITATION SERV.

United States District Court, S.D. New York


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 operation of the clinics; and to comply with the contract's covenant of good faith and fair dealing." (Joint Pre-Trial Order, at 3 (internal quotations omitted).) St. Francis concludes that "the doctrine of prior material breach precludes CHS from collecting under Invoice Nos. 151, 152, 153, 154 and 155." (Joint Pre-Trial Order, at 3.)

  B. CHS's Current Motions

  CHS brings two motions in limine to exclude certain evidence that St. Francis intends to offer at trial. The Court takes up each motion in turn below.

  Discussion

  I. Motion In Limine Standard

  The purpose of a motion in limine is to allow the trial court to rule in advance of trial on the admissibility and relevance of certain forecasted evidence. See Luce v. United States, 469 U.S. 38, 41 n. 4 (1984) (noting that, although the Federal Rules of Evidence do not explicitly authorize in limine rulings, the practice has developed pursuant to the district court's inherent authority to manage the course of trials); Palmieri v. Defaria, 88 F.3d 136, 141 (2d Cir. 1996); Nat'l Union Fire Ins. Co. v. L.E. Myers Co. Group, 937 F. Supp. 276, 283 (S.D.N.Y. 1996). Evidence should be excluded on a motion in limine only when the evidence is clearly inadmissible on all potential grounds. See Baxter Diagnostics, Inc. v. Novatek Medical, Inc., No. 94 Civ. 5520, 1998 WL 665138, at * 3 (S.D.N.Y. Sept. 25, 1998) (denying a motion in limine to preclude presentation of evidence regarding a potential punitive damages claim because the motion was too sweeping in scope to be considered prior to trial). A court considering a motion in limine may reserve judgment until trial, so that the motion is placed in the appropriate factual context. See Nat'l Union Fire Ins. Co., 937 F. Supp. at 287.

  A motion in limine to preclude evidence calls on the court to make a preliminary determination on the admissibility of the evidence under Rule 104 of the Federal Rules of Evidence. Fed.R.Evid. 104(a) ("Preliminary questions concerning the qualification of a person to be a witness . . . or the admissibility of evidence shall be determined by the court. . . ."). The court's ruling regarding a motion in limine is "subject to change when the case unfolds." Luce, 469 U.S. at 41. This opinion and order thus determines preliminarily whether the evidence challenged by CHS may be presented to the trier of fact. Once this Court makes a determination that certain forecasted evidence is admissible, it will, as the trier of fact, consider the weight and sufficiency of the evidence presented at trial. See, e.g., In re Joint Eastern & Southern District Asbestos Litigation, 52 F.3d 1124, 1132 (2d Cir. 1995) (noting that once shaky, unreliable evidence is admitted, such evidence is best challenged with "`[v]igorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof.'" (quoting Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 596 (1993)).

  II. CHS's Motion To Exclude Documents that Predate the Memorandum of Understanding and Documents Related to St. Francis' Settlement with the Attorney General's Office

  CHS seeks to exclude several documents in its first motion in limine, dated July 30, 2004. The first set of documents are those that predate the Memorandum of Understanding. The second set are those related to St. Francis' Settlement with the Attorney General's Office. The Court takes up each of these sets of documents in turn. A. Documents that Predate the Memorandum of Understanding

  CHS seeks to exclude St. Francis' proposed exhibits A, B, D, E, G, H, I, J, L, M, N, O, P, Q, R, S, T, V, W, Y, and XX on relevance grounds.*fn1 These exhibits are a variety of documents with a common trait: they all predate the Memorandum of Understanding, which the parties signed in February 1999. St. Francis seeks to admit these documents because its position is that the Contract, which predates most of these documents, governs the invoices at issue. The proposed exhibits, St. Francis argues, tend to show that CHS did not perform its obligations under the Contract. St. Francis thus opposes CHS's motion, but indicates either expressly or impliedly in its opposition papers that it does not seek to admit exhibits A, B, D, or E.*fn2

  The "standard of relevance established by the Federal Rules of Evidence is not high." United States v. Southland Corp., 760 F.2d 1366, 1375 (2d Cir. 1985). Evidence "having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence" is relevant. Fed.R. Evid. 401. While the Rules of Evidence apply with equal force in jury and non-jury trials, courts often apply the relevance standard with little rigor during a bench trial. The Second Circuit has noted that "ordinarily it may be the more prudent course in a bench trial to admit into evidence doubtfully admissible records." Van Alen v. Dominick & Dominick, Inc., 560 F.2d 547, 552 (2d Cir. 1977) (Oakes, J.). While standards for admissible evidence are not "out the window entirely" in a bench trial, "all doubts at a bench trial should be resolved in favor of admissibility." Dreyful Ashby, Inc. v. S/S "Rouen", 1989 WL 151685, at *2 (S.D.N.Y. 1989) (Mukasey, J.). "`In non-jury cases the district court can commit reversible error by excluding evidence but it is almost impossible for it to do so by admitting evidence.'" In re Unisys Savings Plan Litigation, 173 F.3d 145, 172 (3d Cir. 1999) (quoting Wright and Miller, Federal Practice and Procedure, § 2885, at 454).

  Here, St. Francis' proposed exhibits that predate the Memorandum of Understanding are irrelevant, such that admitting them even at a bench trial would contravene Rule 401 and serve no purpose. The Memorandum of Understanding states, "The Contract is terminated, and the parties shall have no further obligations under the Contract, except as expressly outlined herein." (Memorandum of Understanding ¶ 1.) It then explicitly references "outstanding invoices," including Invoices 149 and 150. (Memorandum of Understanding ¶ 2.) It then states that "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." (Memorandum of Understanding ¶ 4.) Invoices 151-155 were issued for services rendered by CHS during and beyond this "transition period," from February through April 1999. The Memorandum of Understanding unambiguously applies to all the invoices at issue in this case. Thus, documents that predate the Memorandum of Understanding do not tend to make the existence of any fact at issue more or less probable.

  St. Francis offers no support for its position that the Contract governs Invoices 151-155. It simply states first that "those invoices are expressly not subject to the Memorandum of Understanding," (Joint Pre-Trial Order, at 3.), and second that "[those invoices] are not set forth on Exhibit B and are . . . neither covered nor controlled by the Memorandum of Understanding." (Memorandum of Law of St. Francis Opposing CHS's 7/30/04 Motion In Limine, at 2.) St. Francis then argues that "CHS, during the term of the parties' relationship, failed to comply with its contractual obligations," and seeks to admit the proposed exhibits as documentary evidence in support of this contention. (Joint Pre-Trial Order, at 3.) St. Francis' first statement is incorrect. The Memorandum of Understanding does not express that Invoices 151-155 are not governed by it. No clause of the Memorandum of Understanding "expressly" excludes invoices from its terms. St. Francis' second statement is partially correct. Invoices 151-155 are not set forth in Exhibit B attached to the Memorandum of Understanding. These invoices, however, were issued for services rendered after the parties signed the Memorandum of Understanding, during the transition period contemplated by paragraph four of the Memorandum of Understanding. The Memorandum of Understanding does not state that invoices not listed in Exhibit B, for future services performed, are not governed by this agreement. It in fact states the opposite, expressly terminating the Contract and providing for the payment of services during the transition period in paragraph four.

  As St. Francis argues only that the proposed exhibits are relevant because the Contract governs Invoices 151-155, and its assertion that the Contract governs the Invoices finds no factual support, the Court finds on the current record that St. Francis' proposed exhibits G, H, I, J, L, M, N, O, P, Q, R, S, T, V, W, Y, and XX are irrelevant. Although this Court will resolve relevance questions about evidence in favor of admissibility, the Court will not admit irrelevant documents simply because they are offered. Based on the current record these proposed exhibits will not be admitted at trial. The Court's ruling under Rule 104 is a preliminary one that is subject to change as the case unfolds.

  B. Documents Related to St. Francis' Settlement with the Attorney General

  CHS seeks to exclude St. Francis' proposed exhibit JJ, UU, and WW. These documents are an email related to St. Francis' Settlement with the Attorney General's Office, a letter related to the Settlement, and the Settlement itself. CHS contends that these documents are irrelevant. CHS's position is that the circumstances of the Settlement and the Settlement itself show that St. Francis' liability to the State cannot be attributed to CHS. Thus, CHS argues, under the terms of the Memorandum of Understanding, St. Francis had no contractual right to withhold payment owed to CHS and apply the payments to the Settlement. St. Francis responds that the terms of the Memorandum of Understanding permit it to apply monies owed to CHS to the Settlement with the Attorney General's Office.

  The Court finds on the current record that the Settlement and related documents are relevant. Paragraph 10 of the Memorandum of Understanding provides that the parties "acknowledge that there is an ongoing inquiry concerning the parties' performance under the Contract. . . . To the extent that a long term payment plan is offered [by the Attorney General's Office as a settlement], the parties hereto shall cooperate in good faith to quantify the liability and reach a suitable repayment agreement. In the event there is an immediate repayment required, any outstanding invoices would be used as part of such a repayment plan." (Memorandum of Understanding ¶ 10.) The Memorandum of Understanding thus expressly references a potential settlement with the Attorney General's Office, and contemplates that the parties' contractual obligations may be affected by the terms of the Settlement. The Settlement Agreement (Exh. WW) and related emails and letters (Exhs. JJ, UU) are relevant to show whether and how the parties' obligations under the Memorandum of Understanding were impacted by St. Francis' Settlement with the Attorney General's Office.

  Based on the current record the Court denies CHS's motion to exclude proposed exhibits JJ, UU, and WW, as these documents are relevant. The Court's ruling under Rule 104 is a preliminary one that is subject to change as the case unfolds.

  III. CHS's Motion To Exclude the Superior Court Information in the Case of People v. Comprehensive Clinical Center, Inc.

  CHS moves to exclude St. Francis' proposed exhibit VV, a Superior Court Information containing a plea agreement between Comprehensive Clinical Center, Inc. ("CCC") and the Attorney General of the State of New York ("Attorney General"), dated April 9, 2001, relating to the action People v. Comprehensive Clinical Center, Inc.*fn3 CHS argues that the plea agreement is irrelevant, that its prejudice substantially outweighs its probity, and that it is not properly admitted as character evidence.

  According to CHS, CCC is a corporation that operated clinics providing psychological and other services. Its president and sole shareholder was Dr. Peter Magaro. Magaro also is the president and chief executive officer of CHS, and he signed the Memorandum of Understanding with St. Francis on behalf of CHS. The Attorney General criminally prosecuted Magaro's company, CCC, as part of an investigation similar to that of St. Francis which resulted in the Settlement discussed above. The prosecution of CCC resulted in a plea agreement by which CCC as a company pleaded to grand larceny for Medicaid fraud. The plea agreement includes the following: "The plea of guilty to the Superior Court Information will cover Peter A. Magaro, his immediate family and the corporations which he controls, either de facto or de jure, including [CHS]." (CHS's Notice of Motion, Exh. C ¶ 3.) St. Francis intends to offer the plea agreement as proposed exhibit VV at trial. St. Francis' takes the position that the guilty plea of CCC, a company owned by Magaro, tends to show that CHS, another company run by Magaro, was responsible for the Medicaid violations for which St. Francis settled with the Attorney General's Office. St. Francis argues that the plea agreement shows that CHS did not meet the contractual obligations it owed to St. Francis, namely, its obligations "to ensure compliance with all rules and regulations pertaining to the operation of [St. Francis] Clinics," and to obtain "all Federal, State and local approvals of the New York State Department of Health an the New York State Department of Mental Hygiene" relating to the operation of the clinics. (Contract ¶¶ 5, 6.)

  The Court finds on the current record that granting or denying CHS's motion to exclude proposed exhibit VV would be premature, and reserves judgment until trial so that the motion is placed in the appropriate factual context. The plea agreement's relevance depends upon an inference that appears tenuous on the current record, namely, that the prosecution of CCC tends to show that CHS did not perform its contractual obligations with St. Francis. The Court has little information at this time to rule on the propriety of this inference and evidence offered upon it. The scope of the plea agreement, which purports to "cover" CHS, is unclear. Magaro's role in CCC, and more importantly in CHS and in fulfilling CHS's contractual obligations to St. Francis, is unclear. The sparse record currently includes too little information for the Court to rule on the admissibility of the plea agreement. The relevance and/or prejudice of the plea agreement will be better determined at trial, once the parties have developed the factual background of the case and once St. Francis has endeavored to lay a foundation for the plea agreement. The Court therefore reserves judgment on proposed exhibit VV.

  Conclusion

  For the reasons set forth above, 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. The Court finds on the current record that St. Francis' proposed exhibits G, H, I, J, L, M, N, O, P, Q, R, S, T, V, W, Y, and XX are irrelevant. The Court finds that St. Francis' proposed exhibits JJ, UU, and WW are relevant. The Court reserves judgment on St. Francis' proposed exhibit VV until trial. Each of these preliminary rulings, made under Rule 104 of the Federal Rules of Evidence, is subject to change as the case unfolds.

  SO ORDERED.


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