Grove City Veterinary Serv., LLC v. Charter Practices Int'l, LLC

Decision Date05 February 2016
Docket NumberNo. 3:13-cv-02276-AC,3:13-cv-02276-AC
PartiesGROVE CITY VETERINARY SERVICE, LLC, HEATHER M. FEES, DVM, HEATHER FEES, DVM, LLC, THOMAS L. BALTZELL, POLARIS VETERINARY SERVICE, LLC, Plaintiff, v. CHARTER PRACTICES INTERNATIONAL, LLC, Defendant
CourtU.S. District Court — District of Oregon

FINDINGS & RECOMMENDATION

Judge ACOSTA, Magistrate Judge:

Plaintiffs Grove City Veterinary Service, LLC, Heather M. Fees, DVM ("Fees"), Heather Fees, DVM, LLC, Thomas L. Baltzell, DVM ("Baltzell"), and Polaris Veterinary Service, LLC (collectively "Plaintiffs") filed this lawsuit against Defendant Charter Practices International, LLC ("CPI") on December 20, 2013. Plaintiffs complaint alleges eight claims including: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) hostile work environment under Title VII and Oregon law; (4) retaliation under Title VII and Oregon law; (5) negligent retention and supervision; and (6) intentional infliction of emotional distress ("IIED"). CPI answered Plaintiffs' Second Amended Complaint and alleged counterclaims for attorney fees. (Dkt. No. 70.) CPI now moves for summary judgment on each of Plaintiffs' claims and asks for an award of attorney fees.

Factual Background

Fees and Baltzell are veterinarians who operate pet hospitals in and around Columbus, Ohio. Fees is the sole member of Plaintiffs Grove City Veterinary Service, LLC ("Grove City") and Heather Fees, DVM, LLC. Together, Fees and Baltzell are joint members of Plaintiff Polaris Veterinary Service, LLC ("Polaris"). (Patel Decl. Exs. F, J, K.) Grove City, Polaris, and Heather Fees, DVM, LLC (collectively, the "LLC Plaintiffs") own and operate veterinary hospital franchises pursuant to a Charter Practice Agreement with CPI. (Id.) Defendant CPI owns and operates veterinary hospitals ("practice hospitals") under the trade name "Banfield Pet Hospitals" ("Banfield"). CPI also licenses the use of Banfield's name and business model to licensees to open non-CPI owned hospitals ("charter hospitals") in an arrangement that resembles a commercial franchise. (Id.)

I. The History of the Business Relationship Between Plaintiffs and CPI

Fees has operated CPI charter hospitals since 2000. Baltzell joined her at Polaris in 2005. In 2008 and 2011, Fees and Baltzell entered into "charter practice agreements" with CPI which articulated the terms of the business relationship between the parties (the "Old Charter Agreements"). (Patel Decl. Ex. B.) Although the Old Charter Agreements were not set to expireuntil 2018, CPI offered in late 2012 to terminate the Old Charter Agreements and enter into new contracts which eliminated a new benefits program for charter practice owners which was included in the Old Charter Agreements. (Patel Decl. Exs. C, E, G; Ex. H at 6-7.) Before the parties executed the proposed new charter agreement, they executed "release agreements" (the "Releases") which terminated the Old Charter Agreements and released CPI "from any claims, debts, liabilities, demands, obligations, actions, and causes of action, known or unknown, vested or contingent . . . that Doctor or Company may now have or may ever had relating to the [Old Charter Agreement], the Related Agreements, or the Hospital[s]." (Declaration of Caroline Harris Crowne in Support of Defendant's Motion for Summary Judgment ("CHC Decl.") Exs. 2-4.) Thereafter, CPI and the Plaintiffs signed the new charter agreements (the "New Charter Agreement" or "Charter Agreement"1), which became effective January 1, 2013. (CHC Decl. Ex. 1 at 1.)

The sixty-four page Charter Agreement sets out the terms of the parties' relationship including strict rules about how Plaintiffs can advertise and use CPI's trademarks, what computer system Plaintiffs must use, how many hours per week the Plaintiff's hospitals must be operational, and more. (CHC Decl. Ex. 1.) Section 7.1 of the Charter Agreement dictates how Plaintiffs are required to run the hospitals on a day-to-day basis. (Id. at 24.) Among those mandates is the requirement Plaintiffs adhere to the "distinctive business method," which CPI refers to as "the System." (Id. at 9.) Further, under the Charter Agreement, Plaintiffs are required to comply with the "integrated hospital management system for medical treatment protocols, scheduling, billing, and client and administrative records, known as PetWare." (Id. at 9.) Section 7.1 of the CharterAgreement provides, in relevant part:

7.1 Compliance with System
You must operate the Hospital in accordance with the System, except that, You may deviate from the System in the specific instances (if any) in which You, or the licensed veterinarians operating the Hospital, reasonably determine, in Your or their professional judgment, that the System would not satisfy the statutory, regulatory, or professional ethical obligations. In such instances, You or they may deviate from the System only to the extent You or they reasonably deem necessary to satisfy the applicable statutory, regulatory, or professional ethical obligations. Otherwise, You must comply with the System as expressed in PetWare, the Operating Manual, and otherwise in writing by CPI, and You must meet or exceed CPI's minimum quality standards. You acknowledge that such standards may be higher than the standards for veterinary practices generally prevailing in the community in which the Hospital is located. PetWare and the Operating Manual contain, among other things, medical protocols, specifications, standards, operating procedures, accounting and bookkeeping methods, computer and information technology policies and procedures, marketing ideas, equipment requirements, inventory requirements and control techniques, plans and specifications, fixture and decor requirements, public relations requirements and other rules and guidelines that CPI may prescribe from time to time. If You wish to deviate from the System as expressed in the Operating Manual or otherwise in writing by CPI, and such deviation is not related or ancillary to medical protocols or the practice of veterinary medicine, You must apply for a formal variance and receive CPI's prior written consent.

(Id. at 24.)

The Charter Agreement also defines CPI's duty to train Plaintiffs' employees. (Id. at 18-20.) For example, CPI agrees to provide initial mandatory training course, training at periodic conferences and symposia, as well as periodic supplemental training to charter hospital employees. (Id. at 18.) Section 4 also provides:

4.5 Training Requested by You
Upon not less than 30 days' prior written notice to CPI, You may request additional training at CPI's training center or at other agreed upon locations. The duration and cost of training is negotiable depending upon Your needs and is subject to available training space and staff.

(Id. at 19.)

Like other parts of the Charter Agreement, the financial arrangement between Plaintiffs and CPI resembled a franchise agreement. In return for their right to use CPI's trademarks and "System," Plaintiffs paid CPI an "initial fee" of $65,000. (Id. at 14.) Plaintiffs were then required to pay a royalty fee and service fee for each month of operation. (Id. at 14-15.) The Charter Agreement provided Plaintiffs did not need to pay a royalty for the first fiscal year of operation. (Id.) However, in the second fiscal year, they were required to pay 2.5% of their net monthly revenue, and the royalty increased to 4%, 5.5%, and 6% in the third, fourth, and fifth fiscal years respectively. (Id.) For each year after the fifth fiscal year, the royalty fee remained 6%. (Id.) The Plaintiffs were not required to pay a service fee for the first ninety days of operation, but thereafter were required to pay 9% of their net monthly revenue. (Id.)

CPI agreed under the Charter Agreement to perform all accounting and payroll duties. (Id. at 16-17.) CPI set up a "hospital depository account" into which Plaintiffs deposited their gross earnings. (Id.) At the end of each month, Plaintiffs were required to send an accounting of all receipts and disbursements to CPI, who would perform an accounting, withhold their service fee and royalty fee, remit necessary taxes, disburse payroll according to Plaintiffs' desires, and return any remaining profits to the hospital depository account. (Id. at 16-17.)

Although the Charter Agreement required Plaintiffs to submit their employees to background checks, Fees and Baltzell were free to make hiring and firing decisions, and were free to determine the scope of their own role in operating the hospitals. (Id. at 27.) In the early years of her practice, Fees worked as one of the primary veterinarians in her practices, but eventually hired others to perform veterinary services while she oversaw the "leadership and management" aspects of thehospitals. (CHC Decl. Ex. 5 at 32-33.) Regardless of her role in operating the LLC Plaintiffs, Fees repeatedly affirmed, both in written agreements and in deposition testimony, that she was not a CPI employee but was employed by the LLC Plaintiffs. (CHC Decl Ex. 13, 14, 15, 18; Ex. 12 at 3.) Baltzell also signed several documents titled "ACKNOWLEDGMENT BY CHARTER PRACTICE EMPLOYEE" stating he was not a CPI employee. (CHC Decl. Exs. 16, 17, 19, 20.)

II. Provision of Support Services and Retaliation

To ensure continuity of service between CPI-owned practice hospitals and the charter hospitals, CPI developed the concept of "One Banfield." (Patel Decl. Ex. R at 5.) Under "One Banfield," which CPI promoted in power-point presentations at the annual conferences, CPI promised charter hospitals the "same expectations," "same opportunities," and "same resources" as CPI-owned practice hospitals. (Id. at 11; Ex. A at 15-16.) To facilitate the One Banfield concept and continuity of service between hospitals, CPI provided its hospitals with administrative support in the form of a field director, medical director, marketing team, wellness plan, retention team, and finance team. (Patel...

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