United States District Court, S.D. New York
MEMORANDUM OPINION AND ORDER
GREGORY H. WOODS, United States District Judge.
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.
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
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.”
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.
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.
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.
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.
¶ 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).
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) ...