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GeBBS Healthcare Solutions, Inc. v. Orion Healthcorp, Inc.

United States District Court, S.D. New York

April 4, 2017

GEBBS HEALTHCARE SOLUTIONS, INC., Plaintiff,
v.
ORION HEALTHCORP, INC. Defendant.

          MEMORANDUM OPINION AND ORDER

          GREGORY H. WOODS, United States District Judge.

         The parties in this case each provide services such as billing, revenue cycle management, and collections to healthcare providers. Their dispute arises from an agreement executed in 2006, under which Plaintiff GeBBS Healthcare Solutions, Inc. (“GeBBS”) was to provide certain outsourcing services to RMI Physician Services Corporation. In 2008, RMI became a wholly owned subsidiary of Defendant Orion Healthcorp, Inc. (“Orion”). GeBBS alleges in its complaint that Orion breached the agreement by failing to pay for services that GeBBS had rendered. Orion, in turn, asserts counterclaims against GeBBS for breach of the agreement and for fraud. GeBBS has moved to dismiss Orion's counterclaims pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons described below, GeBBS's motion to dismiss is GRANTED IN PART and DENIED IN PART.

         I. BACKGROUND[1]

         A. Facts Alleged

         Orion provides billing, collections, and management services to physicians and medical practices both directly and through a network of subsidiaries. ECF No. 32, Am. Answer & Countercls. (“Countercls.”), ¶ 6. GeBBS also provides medical billing and collection services. Countercls. ¶ 8. Among other things, GeBBS provides support to U.S.-based medical billing companies through a foreign labor force. Id.

         On approximately June 22, 2006, an affiliate of GeBBS entered into a Master Services Agreement (the “MSA”) with a medical billing company by the name of RMI Physician Services Corporation (“RMI”). Countercl. ¶ 9. Pursuant to the MSA, GeBBS was to provide “business process outsourcing services” to RMI. Countercls. ¶ 10. “In effect, the MSA contemplated that GeBBS would act like a subcontractor and use its foreign labor force to complete work for RMI's customers.” Id.

         In 2008, RMI became a wholly owned subsidiary of Orion. Countercls. ¶ 11. On October 11, 2011, the parties signed an addendum to the MSA that, among other things, designated GeBBS as the exclusive provider of outsourcing services for Orion and its subsidiaries (“Addendum 1”). Countercls. ¶ 12. The parties signed a second addendum to the MSA on July 8, 2012 (“Addendum 2”). Countercls. ¶ 13. Addendum 2 provided that GeBBS would continue to be Orion's exclusive outsourcing provider; it also reduced the amount of GeBBS's fees and provided that, if GeBBS failed to meet certain performance benchmarks, the parties would “discuss an additional rate adjustment.” Id.

         In its counterclaims, Orion alleges that the quality of GeBBS's work began to decline after Addendum 2 was signed. Countercls. ¶ 14. “In or around the summer of 2013, ” Orion “started carefully scrutinizing GeBBS'[s] monthly invoices and reducing the amount of its payments to account for unauthorized charges and poor performance.” Countercls. ¶ 15. Orion alleges that GeBBS “accepted the reduced payments and did not declare Orion in default under the MSA” at that time. Countercls. ¶ 16.

         In an attempt to “resolve their differences, ” the parties signed a third addendum to the MSA (“Addendum 3”), which took effect on April 1, 2014. Countercls. ¶ 17. It is Addendum 3 that is primarily at issue in this action. Addendum 3 provided that, in exchange for providing services to Orion, GeBBS would receive a fixed percentage of the money that Orion was paid by its customers. Countercls. ¶ 17.

         Pursuant to Paragraph 3 of Addendum 3, GeBBS was required to '

provide and complete the Services (i) in full conformity with this Addendum 3 and any applicable [Orion] contract for which it is working on and undertaken; and (ii) using competent and qualified personnel in a professional and workmanlike manner, in accordance with the highest prevailing industry standards and practices for the performance of similar services.

         Countercls. ¶ 20 (alteration in original). Addendum 3 also provided three ways in which GeBBS could terminate the MSA. Countercls. ¶ 24. First, Paragraph 5(a) provided that GeBBS could terminate the MSA “for convenience upon no less than 365 days prior written notice.” Countercls. ¶ 25. Second, Paragraph 5(b) permitted GeBBS to terminate the MSA in the event of a “material breach” by Orion, after providing Orion with at least 90 days to cure the defect. Countercls. ¶ 26. If GeBBS elected to do so, Paragraph 5(b) provided that GeBBS would “continue its work on the existing Client accounts” until Orion was able to find a replacement for GeBBS. Id. Third, Paragraph 5(c) provided:

If [Orion] defaults in the payment when due of any undisputed amounts under this Addendum 3 and does not cure the default within ten (10) days after receiving written notice of the default, then GeBBS may, by giving written notice to [Orion], terminate this Addendum 3, and cease providing Services, as of a date specified in the notice of termination.

Countercls. ¶ 27 (alterations in original).

         In this action, Orion brings three counterclaims. In Count 1, Orion alleges that GeBBS breached its obligations under Paragraph 3 of Addendum 3 “in numerous respects, including by failing to (a) devote sufficient personnel and resources to its performance of the Services; (b) process new charges in a timely manner; (c) ...


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