Eye Associates, P.C. v. IncomRx Systems Ltd. Partnership

• Decision Date: 15 August 1990
• Docket Number: D,No. 1007,1007
• Citation: 912 F.2d 23
• Parties: EYE ASSOCIATES, P.C., Plaintiff-Appellant, v. INCOMRX SYSTEMS LIMITED PARTNERSHIP, Defendant-Appellee. ocket 89-9164.
• Court: U.S. Court of Appeals — Second Circuit

Page 23

912 F.2d 23

EYE ASSOCIATES, P.C., Plaintiff-Appellant, v. INCOMRX SYSTEMS LIMITED PARTNERSHIP, Defendant-Appellee.

No. 1007, Docket 89-9164.

United States Court of Appeals, Second Circuit.

Argued March 13, 1990.

Decided Aug. 15, 1990.

Augustus R. Southworth, III, Waterbury, Conn. (Gager, Henry & Narkis, Waterbury, Conn., of counsel), for plaintiff-appellant.

Robert C. Gerrard, Boston, Mass. (Davis, Malm & D'Agostine, Boston, Mass., of counsel), for defendant-appellee.

Before KEARSE, CARDAMONE and MAHONEY, Circuit Judges.

CARDAMONE, Circuit Judge:

We review on this appeal for the first time the Connecticut Business Opportunity Investment Act, Conn.Gen.Stat. Sec. 36-503 et seq. (Act). A business opportunity often is nothing more than an occasion for an investor to experience disappointment. When the Connecticut legislature passed the Act it sought to protect its citizens from "business opportunities" such as "chain letter" types of franchises and "worm farm companies" that sell opportunities by convincing investors that--with a modest investment--they can make $200-$300 a week with little or no work. Joint Standing Committee Hearings of Connecticut Legislature, General Law, Part 4, 913-1227, at 1-2 (1979).

Here the district court concluded that no business opportunity was offered for sale and dismissed the disappointed buyer's complaint brought under the Act. But like drift-net fishing the Connecticut legislature intended its cast to be wide and deep so that it might cover all business opportunities, not just those of unscrupulous operators promising the miracle of millions for an hour's work.

The appeal brings before us an opinion and order from the United States District Court for the District of Connecticut (Dorsey, J.) filed on October 17, 1989. The order granted IncomRx Systems Limited Partnership (IncomRx) summary judgment dismissing a complaint brought under the Act by Eye Associates, P.C. (Eye Associates). Because in our view there are genuine issues of material fact as to whether IncomRx sold Eye Associates a business opportunity as defined in the Act, we reverse the order appealed from and remand the case for trial.

FACTS

Eye Associates is a professional corporation organized and existing under the laws of Connecticut providing ophthalmic care services. IncomRx is a Delaware limited partnership with its principal place of business in Massachusetts that supplies, leases and sells computerized billing and office systems to medical practices. Among these services is a "recovery" service whereby IncomRx analyzes a medical provider's records to ascertain what bills are outstanding and who is the appropriate payor. IncomRx also provides a "practice automation" service which involves leasing computer hardware and software to the medical provider.

In January 1987 Eye Associates entered into a Recovery Services Agreement with IncomRx under which Eye Associates obtained the recovery service in exchange for its agreement to pay IncomRx one-half of all sums collected through the recovery program. On May 18, 1987 the parties entered into two additional contracts: a Leasing and Service Agreement whereby IncomRx supplied its practice automation service, and a letter agreement providing interim billing services before the Leasing Agreement took effect. The parties entered into a fourth agreement on May 19 (Marketing Agreement or Agreement) granting Eye Associates "exclusive rights to market IncomRx systems and services in Connecticut" for $1 million plus 50 percent of recovery service collections up to a ceiling of $1 million. Under Paragraph 5.4 of the Marketing Agreement, IncomRx agreed to provide Eye Associates, on request, with marketing, training and sales materials, although Eye Associates acknowledged that sales and marketing were its responsibility. On June 2 IncomRx supplied Eye Associates with a Multiphase Plan that outlined, among other subjects, a marketing and support program to assist Eye Associates in marketing IncomRx's systems.

In July 1987 Eye Associates refused to make payment under the agreements and filed suit in Connecticut state court, which on IncomRx's petition was later removed to the District Court of Connecticut on February 24, 1988. In its amended complaint dated August 1, 1988 Eye Associates alleged that IncomRx sold them a business opportunity within the meaning of the Act and violated, inter alia, the registration, disclosure, bond security, appointment of attorney and fee requirements of the Act. See Conn.Gen.Stat. Secs. 36-505 to 36-510. IncomRx moved for dismissal pursuant to Fed.R.Civ.P. 12(b)(6) or, in the alternative, for summary judgment under Rule 56. It asserted that under the Act the rights Eye Associates received under the Marketing Agreement did not present a "business opportunity," IncomRx was not a "seller," and IncomRx did not seek to "enable Eye Associates to start a new business."

The district court granted IncomRx's motion for summary judgment, specifically declining to find that IncomRx was a seller under the Act because "[t]he Marketing Agreement appears to have arisen from a mutually beneficial business arrangement, rather than from solicitation by either party." Eye Associates, P.C. v. IncomRx Systems, No. H-88-126 (PCD), slip op. at 5 (D.Conn. Oct. 17, 1989). Moreover, since it found no contract provision requiring IncomRx to supply Eye Associates with a sales or marketing program, the district court also did not equate the rights under the Marketing Agreement with a business opportunity under the Act. Id. at 5-7. Eye Associates appeals from the order dismissing its complaint.

DISCUSSION

The Business Opportunity Investment Act was "enacted with the purpose of preventing the misrepresentations and fraudulent practices involved in business opportunity investment sales and the financial losses and hardships to investors which result therefrom." Woolf, The Connecticut Business Opportunity Investment Act, 54 Conn.B.J. 415, 415 (1980). Its requirements include registration of business opportunities with the Connecticut Banking Commissioner (Commissioner) prior to sale, disclosure of information to prospective purchasers to enable them to make a rational In order to establish a violation, a purchaser-investor must show that he was sold a business opportunity. The Act defines a seller as "a person who is engaged in the business of selling or offering for sale business opportunities." Id. Sec. 36-504(4). The definition of business opportunity is, in pertinent part,

                purchase decision, and under certain circumstances the posting of a bond.    Id. at 416.  Enforcement may be made by the Commissioner, Conn.Gen.Stat. Sec. 36-515, or by private purchaser-investors injured by violations of the Act, id. Sec. 36-517(b)
                

the sale or lease, or offer for sale or lease of any products, equipment, supplies or services which are sold or offered for sale to the purchaser-investor for the purpose of enabling the purchaser-investor to start a business, and in which the seller represents ... that [it] will provide a sales program or marketing program to the purchaser-investor....

Id. Sec. 36-504(6) (emphasis supplied).

In granting summary judgment, the district court concluded that IncomRx was not a seller of a business opportunity as a matter of law, and in examining the papers before it found no genuine issues of material fact presented. Fed.R.Civ.P. 56(c). We review a grant of summary judgment de novo. See, e.g., H.L. Hayden Co. v. Siemens Medical Sys., Inc., 879 F.2d 1005, 1011 (2d Cir.1989). The district court is charged upon a motion for summary judgment with determining whether there is sufficient evidence to sustain a verdict for the nonmoving party; it should not weigh the evidence and resolve factual issues raised. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-52, 106 S.Ct. 2505, 2510-12, 91 L.Ed.2d 202 (1986). Although the nonmovant may not defeat the motion by offering a mere "scintilla of evidence," id. at 252, 106 S.Ct. at 2512, "disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment," id. at 248, 106 S.Ct. at 2510.

In order for Eye Associates to establish IncomRx's violation of the Act it must persuade the trier of fact that IncomRx is a seller of marketing rights, which it sold to Eye Associates to enable Eye Associates to start a business, and that IncomRx represented that it would supply Eye Associates with a sales or marketing plan.

I Whether IncomRx is a Seller

As noted earlier, the term seller is broadly defined as a person engaged in the business of selling. The terms " '[s]ale' or 'sell' include[ ] every contract of sale of, contract to sell, or disposition of a business opportunity or interest in a business opportunity for value." Conn.Gen.Stat. Sec. 36-504(5)(A). Under the plain language of the statute, IncomRx "engaged in the business of selling" when it entered into the Marketing Agreement with Eye Associates disposing of all its marketing rights in Connecticut. Determining that IncomRx was not a seller because it thought the Agreement arose from a mutually beneficial business arrangement, the district court incorrectly read in a requirement that IncomRx must have solicited Eye Associates in order for it to have sold a business opportunity. Quite the contrary, the Act clearly states that sales include every "contract to sell ... a business opportunity for value." No requirement of solicitation is included.

IncomRx argues that it is not "engaged in the business of selling or offering for sale business opportunities" so as to be a seller within the meaning of the statute, see id. Sec. 36-504(4), because it sold at most only one business opportunity. However, the Act does not clearly state that companies selling a single business opportunity are exempt from its coverage. On remand, therefore, the district court will have to determine whether the...