ATC Healthcare Servs., Inc. v. RCM Techs., Inc., 15 C 08020

CourtUnited States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)
Writing for the CourtHonorable Edmond E. Chang, United States District Judge
Citation192 F.Supp.3d 943
Parties ATC HEALTHCARE SERVICES, INC., Plaintiff, v. RCM TECHNOLOGIES, INC. and The Board of Education of the City of Chicago, Defendants.
Docket NumberNo. 15 C 08020,15 C 08020
Decision Date28 June 2016

192 F.Supp.3d 943

RCM TECHNOLOGIES, INC. and The Board of Education of the City of Chicago, Defendants.

No. 15 C 08020

United States District Court, N.D. Illinois, Eastern Division.

Signed June 28, 2016

192 F.Supp.3d 947

Brian W. Coffman, Querrey & Harrow, Ltd., Lance D. Northcutt, Northcutt Firm PC, Chicago, IL, for Plaintiff.

Cynthia Barnes Harris, Charles Thomas Little, Sunil Kumar, Board of Education of the City of Chicago, Department of Law, Daniel Keenan Ryan, Adam L. Saper, Richard B. Polony, Hinshaw & Culbertson, Chicago, IL, for Defendants.


Honorable Edmond E. Chang, United States District Judge

Defendants RCM Technologies, Inc. and the Board of Education of the City of Chicago each move to dismiss ATC Healthcare Services, Inc.'s Complaint.1 R. 19; R. 23.2 For the reasons discussed below, both motions are granted, and the case is dismissed, although the dismissal is, for now, without prejudice to give ATC the opportunity to amend its Complaint.

I. Background

For purposes of this motion, the Court accepts as true the factual allegations in the Complaint and draws all reasonable inferences in ATC's favor. McGowan v. Hulick , 612 F.3d 636, 637 (7th Cir.2010). ATC Healthcare Services, Inc. is a Georgia-based staffing corporation that provides health care staffing needs to clients throughout the United States. R. 1, Compl. ¶ 1. In November 2006, ATC agreed to provide outsourced healthcare services to Chicago Public Schools (CPS), and more specifically, to provide nurses to work with disabled and special needs students attending CPS. Id. ¶¶ 8, 19-20. ATC's initial contract with CPS ran for two years, from November 1, 2006 to March 31, 2008. Id. ¶ 8. The terms of the contract gave the parties the option to extend the contract for an additional two years, which the parties

192 F.Supp.3d 948

exercised. Id. ¶¶ 8-9. After that renewal period ended, the parties signed a new contract in March 2010. Id. ¶ 9; R. 1, Exh. 1, 2010 Contract. This contract also gave the parties the option to extend the contract for an additional two years, but this time it allowed the parties to do so twice. Compl. ¶ 9; 2010 Contract at 8 (Section 5.2). All renewals were subject to the same terms and conditions as the original contract. Compl. ¶ 9; 2010 Contract at 8 (Section 5.2(a)). The parties chose to exercise both renewal options in the 2010 contract, agreeing to extend the contract in 2012 and again in 2014. Compl. ¶ 9. The final renewal period, which the parties agreed to in the 2014 extension, was to run from July 1, 2014 to June 30, 2016. Id. ¶ 10; R. 1, Exh. 2, 2014 Extension at 2.

The terms of the 2010 contract (and the later extensions) gave CPS significant discretion. Although the rates for ATC's services (that is, for the nurses it provided) were guaranteed under the terms of the contract, the contract did not guarantee ATC any actual service assignments. Compl. ¶ 10; 2010 Contract at 4 (Recitals "C"). CPS possessed "absolute discretion" in assigning students to ATC and in modifying those assignments. 2010 Contract at 5 (Section 2.2). For its part, ATC had to accept CPS's assignments, unless it had a legitimate business reason for rejecting them, and ATC could not terminate an assignment without CPS's written approval. Id. ; Compl. ¶ 12. The contract also gave CPS the ability to unilaterally regulate the services provided by the nurses assigned to CPS, Compl. ¶ 11, as well as the right to terminate the contract at any time so long as it gave ATC notice, 2010 Contract at 17 (Section 10.3). Under the contract, CPS also had several options in the "Event[ ] of [a] Default" by ATC, a defined term in the contract. 2010 Contract at 15 (Section 10.1). After giving ATC notice, CPS could (among other things) "[t]ake over and complete" the agreed-to services either "directly or through others," "[t]erminate th[e] Agreement[ ] in whole or in part," seek an "appropriate equitable remedy," seek "[m]oney damages," or withhold ATC's compensation. Id. at 15-16 (Section 10.2). In the absence of a default, however, neither party could assign the contract or any obligations imposed under it "without the prior written consent of the other party." Id. at 23 (Section 19).

All of the nurses hired by ATC and assigned to CPS were employees of ATC. Compl. ¶ 23. Each nurse was required to sign an employment agreement with ATC and was paid directly by ATC, not CPS. Id. While at CPS, the nurses provided vital services to disabled and special needs students, including providing "gastronomy tube feeding, tracheostomy care, ventilator care, medication through a nebulizer or other routes, assistance with range of motion and movement, the administration of medication, as well as urinary and bowel care." Id. ¶ 20. The nurses who worked with CPS students were highly trained, and several were fluent in other languages (including sign language), which allowed them to work directly with ESL students and other special needs students. Id. ¶¶ 21-22.

As employees of ATC, the nurses were subject to the terms and conditions of their ATC Healthcare Employment Agreements. Compl. ¶ 24. Those Employment Agreements provided that the nurses were employees-at-will, and that they were employees of ATC, not of the patient, CPS, or any CPS-affiliates. Id. ¶ 25. The Employment Agreements also contained a provision prohibiting ATC employees from "[s]olicit[ing] or [a]ccept[ing] work from the Client":

[ATC Employee] shall not directly, or indirectly, seek or accept employment or engage as an independent contractor by CPS or any affiliates. The waiting period
192 F.Supp.3d 949
for employment to CPS is 1 year following resignation from ATC.

Id. ¶ 26. Most ATC nurses assigned to CPS were long-term employees of ATC, with more than two years of successive employment with ATC. Id. ¶ 27. The nurses' Employment Agreements, however, were usually only for the school year, and had to be renewed each year. Id.

In November 2014, while ATC's contract with CPS was still in effect (remember, the 2014 extension agreement extended the contract through June 30, 2016), CPS decided to solicit new bids for its outsourced healthcare staffing needs, and issued a request for proposals. Compl. ¶ 31. ATC submitted a bid, as did about 10 other firms, including RCM Technologies. Id. ¶ 33. In RCM's bid, it highlighted "continuity" of care for CPS students as one of its primary goals, and proposed a scheme in which RCM would "take over" or "inherit" the existing nurses working at CPS, all of whom were employed by ATC or other agencies. Id. ¶¶ 34-36; R. 1, Exh. 4, RCM's Proposal to CPS at 21. RCM explained that "inheriting existing nurses is something [it] come[s] across on an annual basis," and that "[h]istorically, nurses approached by RCM have switched with considerable ease." Compl. ¶ 36; RCM's Proposal to CPS at 21. RCM further stated that it would use a "rigorous interview, screening and evaluation process" when selecting nurses for CPS, and that should RCM not be able to hire all the existing nurses assigned to CPS, RCM had over 100 nurses ready to staff the schools. Compl. ¶ 38; RCM's Proposal to CPS at 22.

According to ATC, shortly after the bids were submitted, CPS privately assured RCM that RCM would win the bid, and indeed CPS and RCM started colluding to execute RCM's scheme to take over the nurses assigned to CPS. Compl. ¶ 44. Publicly, however, CPS continued to postpone its final vote on the proposals. Id. In the meantime, unaware that CPS was colluding with RCM, ATC continued to recruit, train, and staff nurses in accordance with its still-effective 2014 contract extension. Id. ¶¶ 42, 45, 48. CPS also continued to use ATC's nurses and to participate in ATC's training programs, despite knowing (says ATC) that it intended to help RCM "dispossess" ATC of its staff and profits. Id. ¶¶ 43, 45, 48.

ATC alleges that around this same time, CPS officials took deliberate steps to make it seem as though CPS intended to continue working with ATC through the remainder of the 2014 contract extension period. Compl. ¶ 48. For example, in early June 2015 (still before any vote had occurred on the proposals), ATC submitted copies of its 2015-2016 employment agreements with its nurses to CPS for approval. Id. ¶ 49. CPS replied, "Thanks ... This looks great," a response which gave ATC the impression that CPS intended to use ATC's services for the 2015-2016 schoolyear. Id. CPS also asked ATC to provide a final list of all ATC nurse assignments, as well as a list of which nurses were assigned to which schools. Id. ¶ 50. ATC complied with CPS's request, providing CPS with the name, address, contact information, and school assignment(s) for each nurse, as well as a list of each nurse's student assignments. Id. ¶ 51.

On June 16, 2015, ATC received a call from CPS informing it—for the first time—that CPS would not be renewing ATC's contract after the 2015-2016 schoolyear. Compl. ¶ 52. The next day, ATC received a letter stating the same thing. Id. When ATC called CPS to ask why its proposal was not accepted, and in particular, why CPS decided to change the students' caregivers when ATC had a strong track record of success, CPS officials refused...

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