Altrutech, Inc. v. Hooper Holmes, Inc.

• Decision Date: 02 June 1998
• Docket Number: Civil Action No. 96-2091-GTV.
• Citation: 6 F.Supp.2d 1269
• Parties: ALTRUTECH, INC., Plaintiff, v. HOOPER HOLMES, INC. and American Service Bureau, Inc., Defendants/Third-party plaintiffs, v. Michael D. MILLIKEN, Michael H. Olson, and Insurance Medical Reporter, Inc., Third-party defendants.
• Court: U.S. District Court — District of Kansas

6 F.Supp.2d 1269

ALTRUTECH, INC., Plaintiff, v. HOOPER HOLMES, INC. and American Service Bureau, Inc., Defendants/Third-party plaintiffs, v. Michael D. MILLIKEN, Michael H. Olson, and Insurance Medical Reporter, Inc., Third-party defendants.

Civil Action No. 96-2091-GTV.

United States District Court, D. Kansas.

June 2, 1998.

COPYRIGHT MATERIAL OMITTED

Mark B. Flannagan, Mitchell, Kristl & Lieber, P.C., Kansas City, MO, Michael W. Thompson, Kansas City, MO, for Altrutech Inc., Michael D. Milliken, Michael H. Olson.

James P. O'Hara, Steven D. Ruse, Andrew M. DeMarea, Shughart, Thomson & Kilroy, Overland Park, KS, Robert A. Henderson, Shughart, Thomson & Kilroy, P.C., Kansas City MO, for Hooper Holmes, Inc.

James P. O'Hara, Steven D. Ruse, Andrew M. DeMarea, Shughart, Thomson & Kilroy, Overland Park, KS, for American Service Bureau, Inc.

Rachael K. Pirner, Eric B. Metz, Triplett, Woolf & Garretson, L.L.C., Wichita, KS, for Olsten Corporation.

MEMORANDUM AND ORDER

VAN BEEBER, Chief Judge.

In this diversity of citizenship case, plaintiff Altrutech, Inc. alleges that defendants breached a purchase agreement and a management agreement (Counts I-IV), acted in bad faith in breaching the agreements (Count V), engaged in unfair trade practices (Count VI), and tortiously interfered with plaintiff's relationships with employees, contractors, and clients (Count VII). Plaintiff seeks punitive damages on the tort claims. By stipulation, the parties dismissed Count I, and the court dismissed Counts V and VI in a January 26, 1998 memorandum and order. The case is before the court on the motions for partial summary judgment (Docs. 163 & 165) of defendants Hooper Holmes, Inc. ("Hooper Holmes") and American Service Bureau, Inc. ("ASB"). The first motion seeks summary judgment on Counts II, III, and IV. The second motion seeks summary judgment on Count VII and plaintiff's request for punitive damages. For the reasons set forth below, defendants' first motion (Doc. 163) is denied and defendants' second motion (Doc. 165) is granted.

I. Factual Background

On April 1, 1991, Altrutech entered into a purchase agreement with Lifetime Corporation in which Lifetime purchased assets Altrutech used in its paramedical business. Lifetime transferred its interest in the assets to ASB, its wholly-owned subsidiary. On May 1, 1991, the parties entered into a Special Contractor Agreement designed to memorialize the parties' relationship until the pending management agreement became effective. On July 1, 1991, Altrutech and ASB entered into a management agreement, under which Altrutech agreed to manage the paramedical business it had previously sold to ASB. The management agreement was for an initial period of four years, with an option to renew for two years in 1995, and with a further option to renew annually for an indefinite period.

The effect of the management agreement was to transfer ownership of the business to ASB, while Altrutech continued to handle the day-to-day operations of the business. The primary functions of the business were to provide physical examinations of applicants applying for life insurance and other services relating to the life insurance industry. The management agreement provided that Altrutech could be terminated only for cause or breach and that, in the event of a breach, it had the right to cure. Also, in the event of termination for cause, Altrutech was to receive thirty days notice before such termination took effect.

In August 1993, Lifetime, including its subsidiary ASB, was purchased by Olsten Corporation. In October 1995, Olsten sold ASB to defendant Hooper Holmes, Inc.¹ By letter dated January 19, 1996, Hooper Holmes terminated Altrutech as manager for alleged undisclosed breaches of confidentiality. The letter informed Altrutech that Hooper Holmes planned to resume possession of the business assets Altrutech was using in its management business. On January 26, 1996, Hooper Holmes accelerated the termination to become effective January 29, 1996. Altrutech asserted that the notice of termination was defective, and refused to surrender various business assets to Hooper Holmes. Altrutech continued to provide paramedical services while using the assets that Hooper Holmes had purchased under the purchase agreement.

When Hooper Holmes terminated the management agreement in January 1996, it merged the entity known as ASB with a second paramedical service company known as Portamedic. In order to avoid possible confusion caused by this merger, defendants claim that it was necessary to perform a "sales blitz" to inform local insurance agents about the change of ownership of ASB and about Altrutech's recent termination as manager. This sales blitz was directed at 240-260 offices of insurance agents regardless of whether they previously worked with Altrutech. Altrutech contends that this sales blitz, in conjunction with Hooper Holmes' breach of the management contract, was designed to drive Altrutech out of business. Regardless of defendants' intent in conducting the sales blitz, the record indicates that no intentional interference with plaintiff's business relationships occurred until January 22, 1996 — three days after Hooper Holmes terminated the management agreement.

II. Summary Judgment Standards

A moving party is entitled to summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). One of the principal purposes of summary judgment is to isolate and dispose of factually unsupportable claims or defenses, and Rule 56 should be interpreted in a way that accomplishes this purpose. See Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The court's proper inquiry is whether there is a need for a trial; in other words, whether "there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. This burden may be discharged by "showing" that there is an absence of evidence to support the nonmoving party's case. Celotex, 477 U.S. at 325, 106 S.Ct. 2548. Once the moving party has properly supported its motion for summary judgment, the burden shifts to the nonmoving party, who "may not rest on mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 256, 106 S.Ct. 2505. Thus, the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. See id.

III. Discussion

Defendants have submitted two motions for partial summary judgment. The first seeks summary judgment on plaintiff's breach of contract claims (Counts II, III, and IV). The second seeks summary judgment on plaintiff's claim of tortious interference with business contracts (Count VII) and plaintiff's request for punitive damages.

A. Breach of Contract Claims (Count II, III, and IV)

Defendants claims that summary judgment should be granted on plaintiff's remaining breach of contract claims for three reasons. First, defendants claim that Altrutech has already elected its remedy for any damages by retaining control of the business that it formerly managed. Second, defendants assert that Altrutech's damages are limited by a liquidated damages clause found in the purchase agreement. Third, defendants contend that the management agreement was terminable at will because it was a perpetual contract with an indefinite duration.

1. Choice of Law

The management agreement and the purchase agreement contain choice of law provisions indicating that the agreements are to be construed pursuant to Illinois law. In a diversity of citizenship action such as this, the court must apply the choice-of-law rules of the state in which it sits, Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941), including the rules on whether a "contractual choice-of-law provision is enforceable." Equifax Servs., Inc. v. Hitz, 905 F.2d 1355, 1360 (10th Cir.1990). Federal courts in Kansas routinely enforce the parties' contractual choice-of-law provisions under Kansas choice-of-law rules. Id. Under Kansas law, the enforceability of a contractual choice-of-law provision turns on whether the forum selected bears a reasonable relation to the contract at issue. See Atchison Casting Corp. v. Dofasco, Inc., 889 F.Supp. 1445, 1455 (D.Kan.1995).

It is undisputed that Illinois was the primary place of business and state of incorporation of ASB, a contracting party. Furthermore, it is undisputed that the agreements were largely negotiated and drafted in Illinois. Accordingly, the court is satisfied that Illinois bears a reasonable relation to both the management agreement and the purchase agreement and that Illinois contract law governs.

2. Did Altrutech elect a remedy by retaining control of the business it once managed?

"An election of remedies is the adoption of one or two or more co-existing remedies, with the effect of precluding a resort to the others. However, the preclusion of other remedies occurs only if the remedies elected are inconsistent." In re Witte, 841 F.2d 804, 807 n. 4 (7th Cir.1988) (citation omitted). The Seventh Circuit has held that under Illinois law, "[r]emedies for breach of contract are intended to make the injured party whole by compensating [it] so that (it) will be in the same position [it] would have been in if the contract had been fully performed." Id. at 807. If plaintiff was not made whole through...