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Summit Health, Inc. v. APS Healthcare Bethesda, Inc.

United States District Court, S.D. New York

January 24, 2014

SUMMIT HEALTH, INC., Plaintiff,
v.
APS HEALTHCARE BETHESDA, INC., Defendant

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[Copyrighted Material Omitted]

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For Summit Health, Inc., Plaintiff: Jeff Edward Butler, Clifford Chance U.S. LLP (200 Park), New York, NY.

For APS Healthcare Bethesda, Inc., Defendant: Gayle Elise Pollack, Morrison Cohen, LLP(909 Third Ave.), New York, NY; Howard S. Wolfson, Morrison Cohen Singer & Weinstein, LLP, New York, NY.

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OPINION AND ORDER

Edgardo Ramos, U.S.D.J.

Summit Health, Inc. (" Plaintiff" or " Summit" ) brought this breach of contract action against APS Healthcare Bethesda, Inc. (" Defendant" or " APS" ), alleging that APS failed to pay the full amount due under their service contract. Doc. 1. Summit

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alleges that APS has wrongfully withheld payment of almost two-and-a-quarter million dollars' worth of minimum fees. See Compl. ¶ ¶ 35-36. The underlying controversy revolves around the meaning of the phrase " Customer projection," which appears in one of the contract's minimum fee provisions. APS disputes Summit's reading of the contract and points out that, if awarded, the minimum fees alone would more than double the amount Summit earned for services actually performed. See Def.'s Mem. of Law in Supp. (Amend) at 31.[1]

Plaintiff moves for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. Doc. 38. In addition to opposing the summary judgment motion, Defendant has filed a motion for leave to file an amended answer and counterclaim, pursuant to Federal Rules of Civil Procedure 15 and 16. Doc. 42.

For the reasons discussed below, Plaintiff's motion for summary judgment is GRANTED IN PART and DENIED IN PART, and Defendant's motion for leave to file an amended answer and counterclaim is DENIED.

I. Factual Background

The following facts are undisputed except where otherwise noted.

Summit is a Michigan corporation that develops healthcare programs for businesses and health plans. Compl. ¶ 3. Its programs offer preventative care services, including health screenings, at employees' and plan members' worksites. Id. Its chief executive officer is Richard Pennington, and its chief operating officer is Douglas Finch. Decl. of Richard Penington (MSJ) ¶ 1; Decl. of Douglas C. Finch (MSJ) ¶ 1. Jason Moczul, the national account manager assigned to the program at issue in this case, was APS's primary contact at Summit with respect to operational matters. Decl. of Jason Moczul (MSJ) ¶ ¶ 1-2.

APS, an Iowa corporation with its principal place of business in White Plains, New York, administers state and local government health plans and provides healthcare services to government employees. Compl. ¶ 4; Answer ¶ 4. During the time period at issue in this case, its president and chief operating officer was Jerome Vaccaro, its chief financial officer was John McDonough, and the in-house attorney who served as the " point man" in negotiations with Summit was Paul Dominianni. Decl. of Jeff E. Butler (MSJ) Ex. 27, at 6:5-6, 71:18-72:14; id. Ex. 29, at 19:12-15. David Glazer, a senior vice president in White Plains who was responsible for operations in the eastern United States, oversaw a team of employees based in Tennessee. Id. Ex. 26, at 6:21-7:2, 12:7-12; id. Ex. 27, at 10:13-15, 11:3-5. That team included an executive director, Jim Shulman, who reported to Glazer; a director of operations, Bob Hines, who reported to Shulman; and a clinical supervisor, Troy Watson, who reported to Hines. Id. Ex. 26, at 11:20-12:12.

Summit and APS were parties to the Summit Health Services Agreement (the " Agreement" ), which was effective as of January 1, 2011. Pl.'s 56.1 Stmt. ¶ 3; Def.'s 56.1 Stmt. ¶ 3.[2] The Agreement was

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a subcontract. APS was also party to a general contract with the State of Tennessee, wherein APS agreed to provide health care services to state employees who had enrolled in the state's " ParTNers for Health" program. Pl.'s 56.1 Stmt. ¶ 12; Def.'s 56.1 Stmt. ¶ 12. This contract paid APS a fixed fee per screening performed, and it exposed APS to liquidated damages based on various performance metrics, including maintenance of a fully operational website. Decl. of Jeff E. Butler (MSJ) Ex. 1, at APS 14994, 15009-15012.

Under the Agreement, Summit agreed to provide staffing and supplies for health screening clinics at Tennessee worksites during the first six months of 2011. Pl.'s 56.1 Stmt. ¶ 4; Def.'s 56.1 Stmt. ¶ 4. Summit's contractual duties included registering participants, scheduling appointments, and setting up the clinics. Agreement at 11.[3] Participating state employees could sign up online or by phone in advance of each clinic. Id. Summit maintained an online appointment system that state employees could use for this purpose. Pl.'s 56.1 Stmt. ¶ 15; Def.'s 56.1 Stmt. ¶ 15. In addition, Summit was required to accept " walk-in appointments" to the extent it could accommodate them and subject to an agreed-upon policy. Agreement at 11.

The pricing terms were set forth in Exhibit B to the Agreement. Id. at 3, 17-20. The terms included a $37 fee for each screening Summit performed. Id. at 17. That price was the product of negotiations between the parties. See Decl. of Richard Penington (MSJ) ¶ 10. Exhibit B also included various fees, including a " standard minimum" for " health screening clinics" that was described as follows: " 40 screenings, or 90% of Customer projection, whichever is greater." Agreement at 17. This per-clinic minimum fee provision is the subject of the present dispute. The provision appeared in all drafts of Exhibit B that the parties exchanged. Pl.'s 56.1 Stmt. ¶ 8; Def.'s 56.1 Stmt. ¶ 8.

On December 21, 2010, Dominianni sent Finch an email in which he referenced the parties' earlier agreement to reduce the per-screening rate to $37 and informed Finch that all other provisions of Exhibit B were " acceptable to APS." Decl. of Douglas C. Finch (MSJ) Ex. 5. Summit began performing under the Agreement in January 2011, although the Agreement was not actually signed until March 15, 2011. Pl.'s 56.1 Stmt. ¶ ¶ 20, 23; Def.'s 56.1 Stmt. ¶ ¶ 20, 23.

At Summit's request, Watson and his team began providing Summit with clinic-by-clinic participation estimates (the " Watson estimates" ). See Decl. of Troy Watson (MSJ) ¶ ¶ 5, 10; id. Ex. C. Glazer testified at his deposition that he knew the Watson estimates were being provided but that he believed they would be used solely for staffing (and not for billing) purposes. Decl. of Jeff Butler (MSJ) Ex. 26, at 114:19-116:2, 117:2-117:6. Watson testified that he typically tried to provide an estimate at least two weeks prior to a given clinic. Id. Ex. 30, at 115:20-116:10. He expected that Summit would staff and supply the clinics based on those estimates. Id. Ex. 30, at 78:25-79:4, 169:7-9. Both he and Glazer provided deposition testimony indicating that Watson's figures represented good-faith estimates of expected clinic participation. Decl. of Jeff Butler (MSJ) Ex. 26, at 130:23-131:15,

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170:23-171:6; id. Ex. 30, at 76:9-15. However, Watson repeatedly indicated to Summit that the numbers he was providing were " guesses." See, e.g., Decl. of Troy Watson (MSJ) Ex. E-F.

The accuracy of the Watson estimates, as that issue pertained to the minimum fee provision, arose in a January 18, 2011 internal Summit email exchange between Finch and Moczul. Decl. of Howard S. Wolfson (MSJ) Ex. P, at SUM 10973-74. Penington was copied on the emails. Id. In the process of deciding that Summit would absorb the cost of providing additional privacy screens, Finch pointed out that " the clinic minimums are attractive (40 and 90%)." Id. Moczul responded as follows:

I will go ahead and order another 30 [privacy screens]. That will be awesome to get 90%. We may have to talk about a gameplan of ensuring that the APS crew we talk to each week is aware of this because I wouldn't want them to be surprised with that first invoice. Just to give you an idea, the average estimate over the first two weeks has been 320 and our average screen/clinic is more like 70.

Id. Ex. P at SUM 10973. At his deposition, Moczul testified that he did not recall having any follow-up discussions about the issues raised in these emails, nor did he recall informing Watson that the estimates would be used for billing purposes. Id. Ex. D, at 33:7-12, 211:19-212:3. Penington and Finch similarly could not recall subsequent discussions concerning Moczul's email. Decl. of Howard S. Wolfson (Amend) Ex. M, at 207:5-208:23; id. Ex. T, at 296:10-17. Moczul prepared an initial invoice for January 2011 in February of that year, but he informed Penington and Finch that he would hold off on sending it until the Agreement was signed. Decl. of Howard S. Wolfson (MSJ) Ex. R, S.

The parties dispute whether--and to what extent--Summit actually relied on the Watson estimates in preparing for clinics. The record contains emails from Moczul that suggest that, at a minimum, Summit relied on the online appointment system in making last-minute staffing adjustments for some of the clinics. See id . Ex. L. Moczul concedes that, when inputting participation estimates into Summit's proprietary " APEX" computer system, it was " common practice" for Summit to use numbers lower than those provided by their customers. Decl. of Jason Moczul (MSJ) ¶ ¶ 19-21.

In early 2011, still prior to the execution of the Agreement, there were a number of performance issues with the online appointment system, including a glitch that allowed a limited number of participants to see other participants' appointments. Decl. of Richard Penington (MSJ) ¶ ¶ 13-14. To remedy the privacy issue, the system had to be shut down for over two weeks in March. Id. ¶ 14. On March 8, Vaccaro alerted Penington to additional complaints about Summit's performance. Id. ¶ 15. These complaints included issues with the level of staffing being provided, allegations that staff members were inadequately trained, and reports of equipment malfunctions. Id.

Also around that time, Summit realized that screening results, which included confidential patient information, were being provided to APS without a Business Associate Agreement (" BAA" ) in place, exposing Summit to potential HIPPA liability. Id. ¶ 16; Decl. of Douglas C. Finch (MSJ) ¶ ¶ 6, 31-32. Rather than executing a stand-alone BAA, the parties had included the document as Exhibit C to the Agreement, which at that point still remained unsigned. Decl. of Douglas C. Finch

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(MSJ) ¶ 31; see Agreement at 21-30. Summit therefore suspended the electronic data feed that was transmitting the results to APS. Decl. of Douglas C. Finch (MSJ) ¶ 32; Decl. of Richard Penington (MSJ) ¶ 16. APS asked Summit to sign a standalone BAA at that point, but Finch informed APS on March 10 that Summit would only sign the BAA " in conjunction with a signed contract." Decl. of Douglas C. Finch (MSJ) ¶ 33; id. Ex. 11. This appears to have accelerated any remaining negotiations, and the Agreement was signed five days later. Finch and McDonough were the signatories for their respective companies. Agreement at 8.

Finch and Glazer met in White Plains on March 17, 2011, two days after the Agreement was signed. Decl. of Douglas C. Finch (MSJ) ¶ 40. It was during this conversation that the minimum fee issue came to the fore, with Finch informing Glazer that the Watson estimates resulted in large minimum fees for January and February. Id. ¶ 41; Decl. of Jeff E. Butler (MSJ) Ex. 26, at 113:6-116:2. Glazer emailed Finch on March 18, copying Shulman and Hines. Decl. of Douglas C. Finch (MSJ) Ex. 16. In the email, Glazer noted that the Tennessee staff had not been aware of the minimum fee provision because the Agreement " had never been completed in during [sic] those early months." Id. He then referenced the staffing issues at the clinics, along with weather-related reductions in expected turnout, before writing:

Given all of these circumstances, we would expect that as a partner in this contract you would be billing us in January for the screenings with a minimum of 40 as a standard. We would not expect you to invoke the section of the contract that talks about 90% of projections.
I have instructed the local TN team to review their projections immediately and revise the way they calculate these and to inform you today on new estimates for each site so that you can have an accurate estimate of how you should staff these screenings.

Id.

Hines sent Finch a follow-up email later that day, copying Glazer and Shulman (the " Hines email" ). The Hines email read:

We just reviewed David Glazer's email regarding the methodology for determining screener staffing. It appears that you have been basing your staffing on the number of folks that are signing up (and the number of slots) on your registration sheet. You sent a staffing sheet to [Watson] this month for his review and approval. We would suggest that you continue that method of review (relying on sign-ups on the registration sheets) along with the monthly review with [Watson].
[Glazer] is correct in his assessment that we all shot high back in December. We realized during January that the sites were not being fully utilized. We adjusted as did you, considering the amount of staff you have been sending to each site since mid January. Once the screenings were well under way, it was clear that neither one of us was using December " estimates" .
Although it is sometimes difficult to predict how many folks may be necessary (an example being this morning's back-ups), we believe that using the sign-up sheets as a guide is the best way to determine how many screeners you need. It looks like you have been doing that all along anyway. If you are still using any of the estimates, you should, effective immediately, stop and continue

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to utilize the sign up sheets (along with [Watson]'s review) as your guide.

Id. Ex. 17.

As the program progressed, Summit continued to request participation estimates from Watson and his team, indicating that additional clinics could not be added to APEX without that data. See Decl. of Howard S. Wolfson (MSJ) Ex. PP. Watson thus began providing uniform estimates of either 75 or, if the clinic was being held in a large city, 100. Decl. of Troy Watson (MSJ) ¶ 21; see Decl. of Jeff Butler (MSJ) Ex. 21, at APS 9186.

Summit sent APS its first invoice, covering the screenings performed in January, on March 30, 2011. Pl.'s 56.1 Stmt. ¶ 24; Def.'s 56.1 Stmt. ¶ 24. In the cover email accompanying that invoice, Finch described some " accommodations" that Summit made in light of APS's concerns. Decl. of Douglas C. Finch (MSJ) Ex. 24. The " accommodations" included an " Alternative Minimum Calculation" whereby minimum fees were calculated based on an estimate of actual screening capacity rather than on the Watson estimates. Id. The February invoice was similarly discounted based on the " Alternative Minimum Calculation." Id. ¶ 48; see Decl. of John McDonough (MSJ) Ex. F. As will be discussed below, the parties disagree as to whether the so-called " accommodations" represented an offer to compromise or whether they constituted a waiver of the fees Summit otherwise would have charged.

APS ultimately received six invoices, one for each month of the program. Decl. of Douglas C. Finch (MSJ) Ex. 18-23. Beginning with a May 18, 2011 payment for the January screenings, APS made a payment with respect to each invoice. Pl.'s 56.1 Stmt. ¶ 28; Def.'s 56.1 Stmt. ¶ 28. These payments totaled $1,959,392.78 and consisted of a $37 payment for each screening actually performed, along with various fees and expenses due under Exhibit B of the Agreement. Pl.'s 56.1 Stmt. ¶ 30; Def.'s 56.1 Stmt. ¶ 30. The only amounts withheld were those attributable to the disputed standard minimum fees. See Decl. of Douglas C. Finch (MSJ) Ex. 25-30. In the cover letter accompanying the payment for January, McDonough wrote that the online appointments were " the proper measurement of a true 'Customer projection' as intended under Exhibit B." Id. Ex. 25. No payments were withheld based on purported failures by Summit to perform under the Agreement, and, pursuant to its contract with the State of Tennessee, APS received the full amount due for the screenings actually performed. Pl.'s 56.1 Stmt. ¶ ¶ 33-34; Def.'s 56.1 Stmt. ¶ ¶ 33-34.

Plaintiff filed the instant action for breach of contract on December 30, 2011. Doc. 1. The Complaint alleges that APS owes Plaintiff $2,248,520.88 in damages attributable to the unpaid balance of the invoices. Compl. ¶ ¶ 35-36. Defendant filed an Answer on March 1, 2012. Doc. 7. The Answer asserts eight affirmative defenses: (1) failure to state a cause of action; (2) lack of a meeting of the minds; (3) limitation of liability pursuant to section 7 of the Agreement; (4) duress; (5) breach of contract by Plaintiff; (6) breach of the implied covenant of good faith and fair dealing; (7) waiver and/or estoppel; [4] and (8) failure to mitigate the alleged damages. Answer ¶ ¶ 38-45. The Court entered a Civil Case Discovery Plan and Scheduling Order on April 18, 2012, setting

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a deadline of June 1, 2012 for filings of any amended pleadings. Doc. 12. The Order was amended twice to extend the discovery cutoff, but the pleading deadline was not extended. Docs. 23, 31. Plaintiff moved for summary judgment on March 15, 2013. Doc. 38. That same day, Defendant moved for leave to file an amended answer and counterclaim. Doc. 42. The proposed amended pleading adds factual allegations to certain of the affirmative defenses and introduces a counterclaim for rescission of the Agreement on the ...


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