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COMMERCE FUNDING CORP. v. COMPREHENSIVE HABILITATION SERV.

May 2, 2005.

COMMERCE FUNDING CORPORATION, Plaintiff,
v.
COMPREHENSIVE HABILITATION SERVICES, INC., BETTER MEDICAL SERVICES, P.C., SISTERS OF CHARITY MEDICAL CENTER, STATEN ISLAND UNIVERSITY HOSPITAL, INC., ST. FRANCIS HOSPITAL and SISTERS OF CHARITY HOSPITAL, 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 ("CFC") upon an alleged breach of a factoring agreement, has been trimmed down by settlements, arbitration, and a bench trial, such that only the cross-claim asserted by defendant Comprehensive Habilitation Services, Inc. ("CHS") against defendant Staten Island University Hospital, Inc. ("Staten Island") remains unresolved. CHS brings a breach of contract claim against Staten Island that is to be tried before a jury on May 9, 2005.

  CHS alleges that Staten Island owes it $512,441, plus interest running from March 23, 1999, for services it provided to Staten Island pursuant to a contract between the two parties, dated July 1, 1994, and a Memorandum of Understanding between the two parties, dated September 11, 1998. Staten Island denies the allegations and asserts a cross-claim for indemnification in the event it is found liable to CFC. CHS now makes two motions in limine, filed simultaneously on March 18, 2005, to exclude from evidence several documents that Staten Island intends to offer at trial. In its first motion in limine, CHS seeks to exclude three documents: (1) a Superior Court Information containing a plea agreement between Comprehensive Clinical Center, Inc. ("CCC") and the New York State Attorney General, entered April 9, 2001 ("Ex. AAAA"), and all testimony and documents relating thereto; (2) a document from the U.S. Department of Health and Human Services Office of Inspector General's website stating that CCC was excluded from a program with the Department ("Ex. YYY"), and all testimony and documents relating thereto; and, (3) a document from the New York State Department of Health website purporting to evidence the exclusion of Peter A. Magaro, Chief Executive Officer ("CEO") of both CCC and CHS, from the Medicaid program ("Ex. ZZZ"), and all testimony and documents relating thereto. Staten Island withdrew its offer of exhibits YYY and ZZZ; however, CHS maintains its objection to all testimony and documents relating to those exhibits. In its second motion in limine, CHS seeks to preclude some fifty-eight documents as irrelevant, based on improper hearsay, and lack of authenticity. Staten Island opposes CHS's motions. For the sake of judicial economy, the two motions are consolidated and disposed of in this Opinion and Order. For the reasons set forth below, the Court grants in part and denies in part CHS's first motion in limine, and grants in part and reserves judgment in part regarding CHS's second motion in limine.

  Background

  The following background information is derived from the submissions of the parties in association with the current motions and the Joint Pre-Trial Order, So Ordered on June 15, 2004, and does not constitute findings of fact.

  I. Factual Background

  During all relevant times, defendant Staten Island was a non-profit hospital in Staten Island, New York, that provided a full range of health care services. Cross-claimant CHS provided consultation and administrative services to health providers, specializing in services for the mentally retarded and developmentally disabled ("MRDD" services). On July 1, 1994, CHS and Staten Island reached an agreement (the "Contract"), by which Staten Island formed Comprehensive Habilitation Center ("CHC") to coordinate MRDD and child welfare services ("HeadStart") in New York City, Westchester and Long Island. (Contract (attached to CHS's Notice of First Motion In Limine ("CHS's First Notice") Ex. 1) at introductory paragraphs.) CHC was to operate as a part-time clinic, restricted to a set number of hours of operation, organized under Article 28 of New York State's Public Health law. (Id. ¶ 2.1.) CHS, through its CEO, Magaro, was to aid in marketing, managing, and operating CHC and be compensated at a rate of $45 per billable patient contact to be paid within ten days of invoicing. (Id. ¶ 3.1.) 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." (Id. ¶ 2.1.) The Contract was only to be operable from July 1, 1994 to June 30, 1999, or five years, with an automatic renewal for an additional three years unless terminated as provided in the Contract. (Id. ¶ 5.3.) After the commencement of the Contract, CHS provided services for Staten Island and CHC and issued invoices to Staten Island for payment.

  At some time after 1994, the Office of the Attorney General's Medicaid Fraud Control Unit ("AG") conducted an audit of Staten Island's Medicaid billing for part-time clinics operated from January 1, 1994 through August 31, 1998. Following that investigation, the AG asserted that Staten Island submitted improper claims for payment to Medicaid during the above dates, was therefore overpaid by Medicaid, and that Staten Island failed to supervise the clinics adequately to ensure compliance with Medicaid regulations. (September 21, 1999 Agreement and Settlement between Staten Island and the AG ("Staten Island Settlement") (attached to CHS's Reply Memorandum of Law in Support of CHS's Second Motion In Limine ("CHS's Second Reply") Ex. 9) at 1-2.) In September 1999, Staten Island entered a settlement with the AG to remit over $40,000,000 to the State. Staten Island stated that "the making of this Agreement is not intended, and shall not be construed as an admission that [Staten Island] violated any law." (Staten Island Settlement at 2.)

  On September 11, 1998, after the AG had commenced its investigation of Staten Island and before Staten Island reached a settlement with the AG, CHS and Staten Island agreed to a Memorandum of Understanding ("MOU"). (MOU (attached to CHS's First Notice Ex. 2).) In the MOU, the parties agreed to dismiss with prejudice a pending lawsuit, initiated by Staten Island against CHS, Staten Island University Hospital v. Comprehensive Habilitation Services, Inc. & Peter Magaro, Index No. 12554-98, in New York Supreme Court, Richmond County. (MOU at 1.) However, the MOU expressly stated that,
[t]his dismissal is without prejudice to any claims that [Staten Island] has or may have, now or in the future, against CHS or Magaro, if any agency or department of the State of New York or the federal government asserts that [Staten Island] owes money arising from, or relating to, services provided by or through CHS pursuant to the Contract, and is without prejudice to CHS's and Magaro's defenses, affirmative defenses and set-offs regarding any such claims.
(Id. § 2 ("Section Two").) Further, the parties agreed that "[t]he Contract is terminated as of the date of this MOU, all of the obligations in the contract are released." (Id. § 8.) The MOU states that "[a]ny payments due or to become due to CHS pursuant to the Contract, other than payments referred to herein, are released." (Id. § 9.) The MOU provides a specific plan for payment of certain invoices arising under the Contract and during the transitional time from September 11, 1998 to September 27, 1998. (Id.) If disputes arise as to the payment of CHS invoices, the "parties may resort to an action for payment." (Id. §§ 9(D)-(F).)

  After the parties agreed upon this Memorandum of Understanding, CHS continued to provide services and submit invoices to Staten Island. Staten Island received the services provided by CHS, but failed to make the agreed upon payments.

  II. Procedural Background

  A. CHS's Cross-Claim

  CHS brings the current cross-claim against Staten Island for breach of contract. CHS claims that Staten Island owes payment on invoices totaling $512,441 arising from unpaid invoices CHS issued for services it rendered to Staten Island under the Contract and the MOU. CHS's position is that the MOU governs all of Staten Island's unpaid debt and that payment is due under the terms of the MOU. CHS argues that Section Two of the MOU is not implicated because Staten Island is not asserting a "claim" against CHS, and that the AG did not find fault with CHS's operation of the clinics but rather, with Staten Island's billing methods which were in place prior to its relationship with CHS.

  Staten Island denies CHS's allegations of breach of contract. Staten Island's position is that Section Two of the MOU "allows [Staten Island] to avoid repayment of the moneys allegedly owed CHS" due to Staten Island's Settlement Agreement with the AG requiring it to pay over $40,000,000 to the State. Also, Staten Island asserts a fraud-like theory of defense for the first time in its Opposition to these motions, stating that,
CHS and its high-level officials — including [Magaro] — formed a common scheme or plan with other CHS-affiliated entities to defraud the Medicaid Program through the provision of improper services and the rendition of improper advice at various hospital facilities, including [Staten Island], thereby leading to the allegations of wrongdoing made by the State against [Staten Island].
(Staten ...

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