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St. Barnabas Hospital v. Amisys

March 9, 2007

ST. BARNABAS HOSPITAL AND ST. BARNABAS COMMUNITY HEALTH PLAN, INC., PLAINTIFFS,
v.
AMISYS, LLC, DEFENDANT THIRD-PARTY PLAINTIFF,
v.
MCKESSON INFORMATION SOLUTIONS, INC., MCKESSON CORPORATION, AND MCKESSON CAPITAL CORPORATION, THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: Kimba M. Wood, U.S.D.J.

OPINION AND ORDER

This three-way lawsuit concerns who must pay for $207,445.15 in computer services performed in 2001 and 2002 by Defendant and Third-Party Plaintiff Amisys, LLC, on behalf of Plaintiffs St. Barnabas Hospital and St. Barnabas Community Health Plan, Inc. (collectively, "the Hospital").

The Hospital seeks declaratory judgments that it never had a contract with Amisys, and that it owes Amisys nothing. The Hospital argues that Amisys should look for payment to Third-Party Defendants McKesson Information Solutions, Inc., McKesson Corporation, and McKesson Capital Corporation (collectively, "McKesson"), of whom the Hospital was a client and Amisys, a subcontractor. McKesson counters that the Hospital agreed to pay Amisys directly. Amisys simply wants to be paid, either by the Hospital or by McKesson.

All three parties now move for summary judgment. For the reasons discussed below, the Hospital's motion for summary judgment is granted in part and denied in part, Amisys's motion for partial summary judgment is denied, and McKesson's motion for summary judgment is denied.

BACKGROUND

The Hospital signed a contract for software products and services with HBO & Company on November 7, 1997 (the "1997 Contract").*fn1 In 1998, the contract was amended so that HBO would provide the Hospital with a medical-billing software product called "Amisys 3000" (the "1998 Amendment"). McKesson then succeeded to HBO's contractual rights and obligations.

In 2001, McKesson sold its Amisys business unit to a company called Platinum Equities, LLC, which in turn transferred the unit to a new entity, Amisys, LLC. McKesson asked the Hospital to consent to McKesson's assigning its rights and duties under the 1998 Amendment to Amisys. The Hospital refused. On June 1, 2001, McKesson and Amisys, unbeknownst to the Hospital, signed a subcontract (the "Subcontract"), whereby Amisys would render maintenance and other professional services on the Hospital's Amisys 3000 software as McKesson's subcontractor. The Subcontract gave Amisys the right to collect fees directly from customers.

Meanwhile, the Hospital and McKesson began to dispute McKesson's performance and billing practices; the dispute led to a lawsuit in 2002. The two sides settled the suit by an agreement dated September 30, 2002 (the "Settlement Agreement"). Under the Agreement, the Hospital paid McKesson $3,146,455.10. (Caldwell Aff., Ex. C, ¶¶ 2, 5.2.) In return, McKesson released the Hospital "from and against any and all outstanding payment obligations for products or services provided to St. Barnabas by McKesson prior to July 31, 2002 and any invoices submitted to St. Barnabas by McKesson and dated or issued prior to July 31, 2002." (Id. ¶ 6.) The Settlement Agreement contained the following merger clause:

This Settlement Agreement contains all of the terms and conditions agreed upon by the Parties regarding the subject matter of this Settlement Agreement. Any prior agreements, offers, promises, negotiations, or representations, either oral or written, relating to the subject matter of this Settlement Agreement, not expressly set forth in this Settlement Agreement are of no force or effect. (Id. ¶ 12.)

During settlement negotiations, Hospital attorney Peter Mancino wrote an email stating, "With regard to the outstanding accounts receivable with Amisys, we will work that out directly with Amisys." (Bernstein Decl., Ex. 4.) The parties disagree about the content and meaning of the other communications that took place before and after this email.

Amisys submitted to the Hospital invoices totaling $207,445.15 for work performed between June 1, 2001 and July 31, 2002. (Caldwell Aff., Ex. D, at 2.) The Hospital refused to pay the invoices, claiming that because Amisys was McKesson's subcontractor, the services rendered by Amisys were included in the Settlement Agreement's release of the Hospital's outstanding payment obligations. The Hospital then filed this action for declaratory judgment that it owes Amisys nothing. Amisys responded with a Counterclaim against the Hospital and a Third-Party Complaint against McKesson.

STANDARD FOR SUMMARY JUDGMENT

To prevail on a motion for summary judgment, the moving party must prove that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law. Williams v. Utica Coll. of Syracuse Univ., 453 F.3d 112, 116 (2d Cir. 2006). An issue of material fact is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party, in whose favor all factual inferences must be drawn. McClellan v. Smith, 439 F.3d 137, 144 (2d Cir. 2006).

DISCUSSION

Because of the overlap of the three separate motions for summary judgment discussed in this Opinion, I will analyze common aspects of this dispute before applying that analysis to the merits of each party's motion.

I. The Subcontract Between McKesson and Amisys

The first common question to be resolved is whether the June 1, 2001 agreement between McKesson and Amisys made Amisys a subcontractor or an assignee of McKesson's. The distinction matters because the client of a general contractor (such as the Hospital here) is in privity of contract with the general contractor's assignee but not with his subcontractor; an assignee may thus bring a breach of contract claim against the client, but a subcontractor may not. USA Bridge Constr. of N.Y. v. Nat'l R.R. Passenger Corp. (Amtrak), No. 98-CV-7713 (JG), 1999 WL 718078, at *3 (E.D.N.Y. Aug. 30, 1999); Raven Elevator Corp. v. City of New York, 739 N.Y.S.2d 28, 29 (App. Div. 2002). A subcontractor's sole remedy lies against the general contractor. Sybelle Carpet & Linoleum, Inc. v. E. End Collaborative, Inc., 562 N.Y.S.2d 205, 206 (App. Div. 1990). One exception to this rule is that the subcontractor may sue the client directly if the client "acted in such a way as to incur obligations to the subcontractor outside the contractual structure." U.S. E. Telecommc'ns, Inc. v. U.S. W. Commc'ns Servs., Inc., 38 F.3d 1289, 1297 (2d Cir. 1994).

Although McKesson and Amisys had the option to fashion their agreement as an outright assignment rather than a subcontract (the Hospital's refusal to consent notwithstanding), they failed to exercise that option. To prohibit nonconsensual assignment, a contract must contain "clear, definite and appropriate language" declaring any assignment void. Allhusen v. Caristo Constr. Corp., 103 N.E.2d 891, 893 (N.Y. 1952). A contract that lacks such language is assignable, Pravin Banker Assocs., Ltd. v. Banco Popular del Peru, 109 F.3d 850, 856 (2d Cir. 1997), so long as the nonassigning party receives notice, Tri City Roofers, Inc. v. Ne. Indus. Park, 461 N.E.2d 298, 299 (N.Y. 1984). Although the 1997 Contract between the Hospital and HBO, to which McKesson succeeded, authorizes each side to assign the contract under certain specified conditions (Caldwell Aff., Ex. A, ¶ 15.3), the enumeration of those conditions does not suggest assignment is prohibited under all other circumstances. Similarly, the fact that the 1998 Amendment permits assignment by HBO in certain situations (id., Ex. B, ¶ 10) does not mean that assignment is prohibited in all others. Neither document contains "clear, definite, and appropriate" language purporting to make it unassignable.

But while the Subcontract between McKesson and Amisys could have been drafted as an assignment, it does not meet the legal standard for one. Under New York law, "[n]o special form or language is necessary to effect an assignment as long as the language shows the intention of the owner of a right to transfer it." Suraleb, Inc. v. Int'l Trade Club, Inc., 788 N.Y.S.2d 403, 404 (App. Div. 2004) (internal quotation marks omitted). More specifically, "any act or words are sufficient which show an intention of transferring the chose in action to the assignee, when the assignor is divested of all control and right to cause of action and the ...


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