Nursing Home Consultants v. Quantum Health Services

• Decision Date: 20 May 1996
• Docket Number: LR-C-94-325.,Civil No. LR-C-94-22
• Citation: 926 F. Supp. 835
• Parties: NURSING HOME CONSULTANTS, INC., Plaintiff v. QUANTUM HEALTH SERVICES, INC.; Pennsylvania Health Care Marketing, Inc.; Armstrong Health Care, Inc.; Continental Health Care, Inc.; Global Healthcare, Inc.; and Wendell Davis, Defendants ARMSTRONG HEALTH CARE, INC., Counterclaimant v. NURSING HOME CONSULTANTS, INC., Counterclaim Defendant. Wendell DAVIS, Third-Party Plaintiff v. Samuel LAMEY, Third-Party Defendant. ARMSTRONG HEALTH CARE, INC., Fourth-Party Plaintiff v. Samuel LAMEY, Fourth-Party Defendant. QUANTUM HEALTH SERVICES, INC., Plaintiff v. Samuel LAMEY; Jerry Berry; National Claims Management; Nursing Home Consultants, Inc.; Creative Environment, Inc.; Physicians Business Systems, Inc.; and Jeral Howard, Defendants. Samuel LAMEY and Jerry Berry, Counterclaimants v. Wendell DAVIS; Bobby Hargis; Pennsylvania Health Care Marketing, Inc.; Armstrong Health Care, Inc.; Continental Health Care, Inc.; and Global Healthcare, Inc., Third-Party Counterclaim Defendants. Bobby HARGIS, Fourth-Party Counterclaimant v. Samuel LAMEY; Jerry Berry; Nursing Home Consultants, Inc.; Creative Environment, Inc.; Physician Business Systems, Inc.; and Jeral Howard, Fourth-Party Counterclaim Defendants. ARMSTRONG HEALTH CARE, INC., Fifth-Party Counterclaimant v. Samuel LAMEY and Jerry Berry, Fifth Party Counterclaim Defendants. ARMSTRONG HEALTH CARE, INC., Fifth-Party Plaintiff v. NURSING HOME CONSULTANTS, INC. and Jeral Howard, Fifth-Party Defendants.
• Court: U.S. District Court — Eastern District of Arkansas

926 F. Supp. 835

NURSING HOME CONSULTANTS, INC., Plaintiff v. QUANTUM HEALTH SERVICES, INC.; Pennsylvania Health Care Marketing, Inc.; Armstrong Health Care, Inc.; Continental Health Care, Inc.; Global Healthcare, Inc.; and Wendell Davis, Defendants ARMSTRONG HEALTH CARE, INC., Counterclaimant v. NURSING HOME CONSULTANTS, INC., Counterclaim Defendant.

Wendell DAVIS, Third-Party Plaintiff v. Samuel LAMEY, Third-Party Defendant.

ARMSTRONG HEALTH CARE, INC., Fourth-Party Plaintiff v. Samuel LAMEY, Fourth-Party Defendant.

QUANTUM HEALTH SERVICES, INC., Plaintiff v. Samuel LAMEY; Jerry Berry; National Claims Management; Nursing Home Consultants, Inc.; Creative Environment, Inc.; Physicians Business Systems, Inc.; and Jeral Howard, Defendants.

Samuel LAMEY and Jerry Berry, Counterclaimants v. Wendell DAVIS; Bobby Hargis; Pennsylvania Health Care Marketing, Inc.; Armstrong Health Care, Inc.; Continental Health Care, Inc.; and Global Healthcare, Inc., Third-Party Counterclaim Defendants.

Bobby HARGIS, Fourth-Party Counterclaimant v. Samuel LAMEY; Jerry Berry; Nursing Home Consultants, Inc.; Creative Environment, Inc.; Physician Business Systems, Inc.; and Jeral Howard, Fourth-Party Counterclaim Defendants.

ARMSTRONG HEALTH CARE, INC., Fifth-Party Counterclaimant v. Samuel LAMEY and Jerry Berry, Fifth Party Counterclaim Defendants.

ARMSTRONG HEALTH CARE, INC., Fifth-Party Plaintiff v. NURSING HOME CONSULTANTS, INC. and Jeral Howard, Fifth-Party Defendants.

Civil Nos. LR-C-94-22, LR-C-94-325.

United States District Court, E.D. Arkansas, Western Division.

May 20, 1996.

COPYRIGHT MATERIAL OMITTED

W.H. Dillahunty, Dillahunty Law Firm, Little Rock, AR, and Peter G. Kumpe, Williams & Anderson, Little Rock, AR, for Nursing Home Consultants, Inc.

Jeffrey Hines Moore, Friday, Eldredge & Clark, Little Rock, AR, and David R. Johnson, William James Rogers, Thomson, Rhodes & Cowie, P.C., Pittsburgh, PA, for Quantum Health Services, Inc.

David R. Johnson, Thompson, Rhodes & Cowie, P.C., Pittsburgh, PA, for Wendell Davis, Armstrong Health Care, Inc., Global Healthcare, Inc., Continental Health Care, Inc., Pennsylvania Health Care Marketing, Inc., Bobby Hargis, and Health Care Network, Inc.

Peter G. Kumpe, Williams & Anderson, Little Rock, AR, for Samuel Lamey and Jerry Berry.

MEMORANDUM OPINION AND ORDER GRANTING SUMMARY JUDGMENT

EISELE, District Judge.

Before the Court is the Motion for Summary Judgment, filed, pursuant to Rule 56 of the Federal Rules of Civil Procedure, by Wendell Davis, Bobby Hargis, Quantum Health Services, Inc. (Quantum), Pennsylvania Health Care Management, Inc. (PHCMI), Armstrong Health Care, Inc. (Armstrong), Continental Health Care, Inc. (Continental), and Global Health Care, Inc. (Global) (collectively "the Movants"), in connection with the claims asserted by Nursing Home Consultants, Inc. (NHC) in the above-captioned action.¹ NHC has responded to this motion, opposing the relief sought. In support of their motion, the Movants have raised a number of legal arguments; however, after carefully considering the parties' submissions, the Court has become convinced that it need only consider one of those arguments, as the Court is of the opinion that the first of the Movants' arguments is dispositive of this matter.² As indicated during the on-the-record telephone conference held on May 10, 1996, the Court has concluded that the contract from which this litigation stems is illegal, and hence unenforceable, and that, under the facts of this case, no claim for damages can be predicated upon this contractual relationship, including NHC's claim for fraud, as presently alleged. After considering the arguments raised in NHC's most recent filing (which the Court agreed to accept after its May 10th telephone conference), and the Movants' response thereto (which was received by fax on May 16, 1996), the views expressed by the Court during the May 10th telephone conference are hereby reaffirmed, adopted in full, and incorporated by reference herein. Accordingly, the Movants' motion for summary judgment will be granted.³ The Court files this written opinion to explain in greater detail the reasons for its decision.

I.

This litigation arises out of a failed business relationship between Quantum, a closely-held Pennsylvania corporation,⁴ and NHC, an Arkansas corporation.⁵ Many of the parties' factual allegations — most notably those concerning the corporate structure and separateness of the individual and corporate movants — are hotly disputed. However, the basic facts from which this litigation stems are largely uncontested, and the Court need only rely upon the following brief synopsis of these background facts in resolving the present motion. Indeed, the Court believes that, arguably, it could resolve this dispute on the basis of the factual allegations made by NHC in support of its complaint.⁶ However, since the Movants have chosen to submit certain evidence beyond the pleadings in support of their motion, the Court will, from time to time, make reference to and rely upon that evidence, as well as that submitted by NHC.

At all times relevant to this dispute, Quantum was (and apparently still is) in the business of supplying certain medical equipment and supplies to nursing home patients,⁷ for whom the cost of said equipment was subsidized by Medicare Part B.⁸ Restatement of Claims, Exh. A, ¶ 13. NHC was (and apparently still is) in the business of marketing medical supplies and equipment on behalf of other companies to nursing home residents. Restatement of Claims, Exh. A, ¶ 8. In other words, NHC acted as an intermediary between nursing home residents, who were covered by Medicare, and certain medical suppliers, whose products were paid for (at least in part) by the residents' Medicare coverage.⁹

On January 25, 1993, Quantum and NHC entered into a contract (the Marketing Agreement), see Restatement of Claims, Exh. A, exh. A, whereby Quantum enlisted the services of NHC to broaden its sales base in a certain geographic area of the United States.¹⁰ Under the Marketing Agreement, NHC's function was to identify Medicare recipients who needed the medical supplies that Quantum provided, and to put those recipients in contact with Quantum. Quantum would then sell its products directly to the nursing home (on behalf of the residents), and it was understood by everyone concerned that NHC had no direct involvement in the actual sales of medical supplies to nursing home residents. Restatement of Claims, Exh. A, ¶ 22. Paragraph II.C of the Marketing Agreement was very clear on this point, and Attachment C to that agreement (which detailed the sales procedures to be followed) further stated that all orders for medical supplies were to be made directly with Quantum, and that, with the exception of providing the appropriate documents, NHC was prohibited from providing any assistance to a nursing home resident in connection with his placing of an order. NHC's annual compensation under the Marketing Agreement, which was to be determined on a per-item basis (as detailed in Attachment A to the agreement), was based upon the number of units Quantum sold to those nursing home residents identified by NHC. Restatement of Claims, Exh. A, ¶ 22. In other words, the more residents NHC referred to Quantum, the more money NHC made under the Marketing Agreement. Paragraph IV.A. of the Marketing Agreement was once again very clear on this point. Under paragraph VIII, the term of the Marketing Agreement was for one year, which term would automatically renew for an additional one-year period unless either party provided timely notice of its intent to cancel the agreement. Additionally, paragraph VIII gave both parties the right to terminate the agreement on five days notice if, among other things, the other party failed to comply with "order taking procedure and service guidelines" outlined in the Marketing Agreement.

On December 17, 1993, Jeral Howard, the president of NHC, wrote to Wendell Davis, the president of Quantum, and informed him that effective December 31, 1993, NHC was terminating the Marketing Agreement. Restatement of Claims, Exh. A, exh. B. NHC based its action upon Quantum's alleged failure to follow the Marketing Agreement's "order taking procedure and service guidelines," and it is this alleged breach that serves as the basis for this lawsuit. Basically, NHC alleges that Quantum, through a rather complicated billing scheme (known in Medicare circles as the prohibited practice of "carrier shopping"), allowed a number of the sales solicited by NHC for Quantum's benefit to be filled by other companies that were allegedly owned and/or controlled by Mr. Davis (namely PHCMI, Armstrong, Continental, and Global), and that as a result Quantum artificially deflated its accounts receivable (by lowering the number of sales reflected therein). Hence, because NHC's compensation was a function of the number of items sold by Quantum (as reflected in Quantum's accounts receivable), NHC claims that Quantum caused it to receive compensation under the Marketing Agreement that was less than it was entitled to, a sum NHC states is $250, 000.00.¹¹ Restatement of Claims, Exh. A, ¶¶ 26-33, 35. NHC further claims that since Mr. Davis, Quantum, PHCMI, Armstrong, Continental and Global are, in its view, all "alter egos," each should be held liable for Quantum's breach.¹² Restatement of Claims, Exh. A, ¶ 33.

II.

The Court turns now to the merits of the summary judgment motion which is before it. The standards governing the Court's consideration of such a motion are well-established. Under Rule 56 of the Federal Rules of Civil Procedure, summary judgment is appropriate only when "`the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.'" Anderson v....