Spicer v. Maxus Healthcare Partners, LLC
| Decision Date | 01 October 2020 |
| Docket Number | No. 02-17-00449-CV,02-17-00449-CV |
| Parties | JOHN DEE SPICER, CHAPTER 7 TRUSTEE FOR THE BANKRUPTCY ESTATE OF MISTY CHANEY BRADY; JOHN DEE SPICER, CHAPTER 7 TRUSTEE FOR THE BANKRUPTCY ESTATE OF BP CHANEY; JOHN DEE SPICER, CHAPTER 7 TRUSTEE FOR THE BANKRUPTCY ESTATE OF TEXAS RHH, LLC; AND ZERA INC., Appellants v. MAXUS HEALTHCARE PARTNERS, LLC, Appellee |
| Court | Texas Court of Appeals |
On Appeal from the 17th District Court Tarrant County, Texas
Before Sudderth, C.J.; Kerr and Birdwell, JJ.
Opinion by Chief Justice Sudderth
This is an appeal from a multimillion-dollar judgment awarding Appellee Maxus Healthcare Partners, LLC damages for, among other things, Misty Chaney Brady's fraud, Texas RHH, LLC's breach of contract, and Appellant Zera Inc.'s breach of contract. In January 2012, Texas RHH, owned by Brady and doing business as Renew Home Healthcare, hired Richard Furtek to organize its financial records to market the company for sale. Furtek & Assocs., L.L.C. v. Maxus Healthcare Partners, LLC, No. 02-15-00309-CV, 2016 WL 1600850, at *1 (Tex. App.—Fort Worth Apr. 21, 2016, no pet.) (mem. op.) ( denial of special appearance). On December 31, 2012, Texas RHH and Maxus executed an asset purchase agreement (APA). Id. at *2. Maxus also signed leases with BP Chaney (owned by Brady) and a management agreement with Zera (owned by Brady and also doing business as Renew Home Healthcare).
Two years later, Maxus discovered that there had been an outstanding IRS tax lien of almost $3 million against Texas RHH prior to the APA's execution, id., which Brady paid off with some of the purchase price funds wired by Maxus before she executed the APA, and the IRS placed a lien on the Zera revenue to which Maxus was entitled under the management agreement. As the parties' relationship soured, Brady changed the controls on the Renew Home Health email system that Maxus had been using since the asset sale, and Maxus sued Brady, Texas RHH, Zera, and BP Chaney(collectively, Appellants), as well as Furtek,1 in various combinations for various claims, including breach of contract, fraud, harmful access of a computer, and promissory estoppel. Brady, BP Chaney, and Zera countersued, and Maxus prevailed on its claims against them and Texas RHH after a six-week jury trial.
In six issues, which primarily challenge the sufficiency of the evidence, Zera and John Dee Spicer—Chapter 7 Trustee for the bankruptcy estates of Brady, BP Chaney, and Texas RHH2—appeal the trial court's judgment. We affirm in part, reverse and render in part, and remand the case to the trial court for Maxus to make an election between its fraud and breach-of-contract awards and for the trial court to reconsider the $100,000 award under APA Section 2.16.
Before we may further introduce the actors, we must set the stage with background on the highly regulated home healthcare industry. To get paid for services rendered to Medicare patients, a home healthcare company in Texas must have a Medicare provider number from the Center for Medicare and Medicaid Services (CMS) and a state license from the Department of Aging and Disability Services (DADS). Medicare revenue is accounted for through a 60-day period, and ahome healthcare company's CMS cost reports, which must be filed annually, break down revenue to direct cost per discipline.
Texas RHH and Zera, which were operated as Renew Home Health so that Brady could use one set of marketing materials and a single employee benefit program, each owned a Medicare provider number. Renew Home Health patients in Granbury were treated under Zera's provider number, but Zera had no employees; the Granbury employees belonged to Texas RHH. According to Brady, Texas RHH and Zera had an unwritten management agreement for Texas RHH to use Zera's provider number and to enjoy the benefit of that provider number's revenues.
Texas RHH and Zera used several software systems—Kinnser, QuickBooks, and ZirMed—in their operations. Kinnser is used for clinical documentation, billing, and posting payments from Medicare, and Texas RHH and Zera each had a Kinnser account. Brady used the same QuickBooks program, an accounting software package used to track revenues and expenses and to run financial reports and payroll, for both Texas RHH and Zera. Although most of Renew Home Health's revenue came from Medicare, a small percentage came from private insurance, necessitating the use of ZirMed—a third-party clearinghouse for insurance claims. Texas RHH used a subaccount under Zera's ZirMed contract.
In 2012, a new home healthcare company would have had to have waited three years to obtain a Medicare provider number, so the quickest way to enter the market—despite a federal regulation that prohibited a Medicare provider number'schange of ownership within 36 months of its most recent change in ownership (the 36-month rule)—was to buy an existing company that owned a Medicare provider number. See 42 C.F.R. § 424.550 (). Because of the two Medicare provider numbers owned by Texas RHH and Zera—even though Zera's provider number could not be transferred until January 19, 2014, due to the 36-month rule—Maxus became interested in buying Renew Home Health's assets as a shortcut into the home healthcare market.
Angie King,3 Maxus's president, and Stevan Hammond, Maxus's owner, testified about the parties' agreements and relationships before and after the APA, and Steven Anderson, Maxus's former vice president of operations, testified about his involvement in Maxus's due diligence process and his later work for Brady.
Angie had been vice president of business development for Foundation Management Services (FMS), a company that acquired home healthcare companies, until she was laid off in January 2012. In her eight years with FMS, Angie had led acquisition and transition teams in addition to working with start-up home healthcare companies and conducting training on regulations. Angie and Hammond formed Maxus to acquire home healthcare companies.
Although Hammond had no prior experience in home healthcare, over the course of thirty years, he had transformed himself from a homeless high school dropout into a businessman in direct consumer marketing and real estate and had earned two bachelor's degrees. Although Hammond said that he had "actually struck more bad business deals than good" ones, he had put his life savings into the Texas RHH acquisition.4
Hammond said that Angie, whom he married in November 2015, had been "running the show" on the Texas RHH acquisition. According to Angie, because she had "a lot of experience" and because Anderson (who had run FMS's consulting division before he was laid off) was "fairly experienced in home healthcare," Maxus had not hired a CPA to review Texas RHH's books and records during due diligence. Maxus had closed on at least one company prior to the Texas RHH transaction,5 so Angie felt that they could do the transaction without outside help by building warranties and representations into the APA.
Anderson left Maxus in December 2013 when he and Angie disagreed over her decision to demote him and cut his pay. He worked for Brady during the lawsuit's pendency.
Brady, who had a bachelor's degree in nursing, formed Texas RHH in 2006 after buying a Medicare provider number, and she bought Zera in 2011. Brady started with no patients, but by December 31, 2012, Texas RHH had approximately 600 patients, and Zera had 100 patients; Renew Home Health had a payor mix of approximately 92% Medicare; and Texas RHH had about 150 employees. Brady was responsible for Texas RHH's accounting—including paying bills and processing payroll since the company's founding—but did not pay Texas RHH's payroll taxes from 2006 to 2011.
In 2009, Lawrence Brown, the founder of Brown P.C., a tax litigation firm, made a voluntary disclosure for Brady to the IRS about Texas RHH's failure to pay payroll taxes, and he referred her to a CPA. Brady had known since at least 2009 that employers have a legal obligation to withhold taxes from employee paychecks and then to remit those taxes to the IRS,6 and she knew that a business owner who failed to pay that withholding could be held personally liable for it. See 26 U.S.C. § 6672. Since 2009, the IRS had been imposing a continuous 15% levy on Texas RHH's Medicare revenue, garnishing over $1.3 million between November 2009 andNovember 2012. An IRS levy attaches to a Medicare provider number until the taxes are paid in full.
In the meantime, instead of paying her payroll taxes, Brady used Renew Home Health's revenue to grow the business and to cover personal expenses, including Dallas Cowboys season tickets. In 2011, she bought Zera's stock, netting the second Medicare provider number,7 and through BP Chaney, she bought the office building that Texas RHH used for its Fort Worth headquarters and an office building for Zera to use in Granbury.8
In 2011, Cory Mertz, a broker working for a home healthcare merger-and-acquisition firm, contacted Brady about selling Texas RHH. Brady then began organizing her businesses' financial information, entering bank statements from 2009 onward for 15 bank accounts so that her accountants would "have as accurate a baseline as possible to start[] keeping [her] books." Because Brady was unable to produce any of the financial statements—profit-and-loss statements, balance sheets, and income statements—that provided material information for potential buyers, Mertz introduced her to Furtek.
Brady told Furtek that her QuickBooks "were a mess."9 At trial, she acknowledged that her QuickBooks had "probably thousands" of missing check numbers because if she printed a check wrong, she shredded it instead of listing the check—a company record—as "void."10 She...
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