Vna Plus, Inc. v. Apria Healthcare Group, Inc.

• Decision Date: 23 November 1998
• Docket Number: Civil Action No. 98-2138-EEO.
• Citation: 29 F.Supp.2d 1253
• Parties: VNA PLUS, INC. Plaintiff, v. APRIA HEALTHCARE GROUP, INC., and Apria Healthcare, Inc. Defendants.
• Court: U.S. District Court — District of Kansas

29 F.Supp.2d 1253

VNA PLUS, INC. Plaintiff, v. APRIA HEALTHCARE GROUP, INC., and Apria Healthcare, Inc. Defendants.

Civil Action No. 98-2138-EEO.

United States District Court, D. Kansas.

November 23, 1998.

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Lawrence A. Rouse, William D. Beil, Rouse, Hendricks, German, May & Shank, Kansas City, MO, for plaintiff.

Todd Ruskamp, Joseph G. Matye, Shook, Hardy & Bacon L.L.P., Kansas City, MO, Ellen S. Robbins, Sidley & Austin, Chicago, IL, Robert Fabrikant, Richard T. Peters, Matthew E. Sloan, Sidley & Austin, Los Angeles, CA, for defendants.

MEMORANDUM AND ORDER

O'CONNOR, District Judge.

This matter is before the court on defendants' motion for judgment on the pleadings (Doc. # 6). After careful consideration of the parties' briefs, the court is prepared to rule. As an initial matter, the court has determined that oral argument would not be of material assistance in resolving the instant motion. Accordingly, defendants' request for oral argument is denied. For the reasons set forth below, defendants' motion for judgment on the pleadings will be granted in part and denied in part.

Factual Background

The following is a brief summary of the factual allegations in plaintiff's amended complaint. Plaintiff VNA Plus, Inc. ("VNA Plus") is in the business of providing home health care products and related services to patients served by VNA Plus in such patients' homes. Until July 1995, Homedco, Inc. ("Homedco") engaged in a similar business. In July 1995, defendants Apria Healthcare Group, Inc., and Apria Healthcare, Inc., were formed as a result of a merger of Homedco and Abbey Healthcare Group.

On January 1, 1995, VNA Plus and Apria¹ executed a Billing and Collection Contract whereby Apria agreed to bill Medicare, Medicaid, and third-party payors on behalf of VNA Plus in accordance with all applicable laws and regulations. On January 1, 1995, VNA Plus and Apria also executed a Discount Purchase and Sale Agreement ("Discount Agreement") whereby Apria agreed to sell to VNA Plus home health care products and related services listed on a certain price list. The Discount Agreement subsequently was modified to provide that Apria would not receive fees under the Discount Agreement for any products or services for which Apria failed to request or receive reimbursement from Medicare, Medicaid, or a third-party payor because of Apria's failure to comply with the applicable rules or regulations.

VNA Plus has brought the instant action asserting that Apria fraudulently submitted claims for reimbursement on behalf of VNA Plus to Medicare, Medicaid, and other third-party payor insurance companies, and that Apria manipulated and falsified charges for products sold or rented in connection with the Discount Agreement. VNA Plus alleges violations of RICO, breach of contract, breach of fiduciary duty, fraud, negligence, tortious interference with contract, conversion, and that it is entitled to an accounting. Apria has moved for judgment on the pleadings with respect to all of VNA Plus' claims, except for the breach of contract, tortious interference with contract, and conversion claims.

Standards For Motions For Judgment On The Pleadings

Defendants' motion for judgment on the pleadings is governed by the same standards as a motion to dismiss for failure to state a claim upon which relief can be granted. See Mock v. T.G. & Y. Stores Co., 971 F.2d 522, 528 (10th Cir.1992). A court judges the sufficiency of the complaint by accepting as true the well-pleaded factual allegations and drawing all reasonable inferences in favor of plaintiff. See Shaw v. Valdez, 819 F.2d 965, 968 (10th Cir.1987). "[T]he court need accept as true only the plaintiff's well-pleaded factual contentions, not his conclusory allegations." Hall v. Bellmon, 935 F.2d 1106, 1110 (10th Cir.1991). The issue in resolving a motion to dismiss for failure to state a claim is not whether the plaintiff will ultimately prevail, but whether he or she is entitled to offer evidence to support the claims. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974).

Requirements For Pleading Fraud

Rule 9(b) of the Federal Rules of Civil Procedure requires that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." The purpose of Rule 9(b) is to enable a defending party to prepare an effective response to charges of fraud and to protect the defending party from unfounded charges of wrongdoing which might injure its reputation and goodwill. See N.L. Indus., Inc. v. Gulf & Western Indus., Inc., 650 F.Supp. 1115, 1129-30 (D.Kan.1986). Rule 9(b) is to be read in harmony with the simplified notice pleading provisions of Rule 8. See Cayman Exploration Corp. v. United Gas Pipe Line, 873 F.2d 1357, 1362 (10th Cir. 1989). Thus, to plead a fraud claim, plaintiff must describe the circumstances of the fraud, i.e., the time, place, and content of the false representation; the identity of the person making the representation; and the harm caused by plaintiff's reliance on the false representation. See Smith v. MCI Telecomm. Corp., 678 F.Supp. 823, 825 (D.Kan. 1987). Stated differently, Rule 9(b) requires plaintiff to set forth the "who, what, where, and when" of the alleged fraud. Nal II, Ltd. v. Tonkin, 705 F.Supp. 522, 525-26 (D.Kan. 1989).

Analysis

Plaintiff first argues that Apria's motion is premature because the pleadings are not "closed" as required by rule 12(c). At the time Apria filed the instant motion, Apria had filed its answer and counterclaim but VNA Plus had not filed a reply to Apria's counterclaim. On June 18, 1998, VNA Plus filed its reply to Apria's counterclaim and the pleadings accordingly were "closed" as of that date. On June 19, 1998, VNA Plus filed its opposition memorandum to Apria's motion. Although VNA Plus technically is correct that Apria's motion was premature, the court nevertheless will construe Apria's motion as being reasserted on June 18, 1998, after VNA Plus filed its reply. VNA Plus has not alleged, and the court cannot find, any potential prejudice by having the court decide Apria's motion at this time. See McMahan v. Cornelius, 756 F.Supp. 1156, 1160 (S.D.Ind.1991) (ruling on defendants' motion "as if it had been renewed after the pleadings were closed, that is, after the filing of plaintiffs' reply").

VNA Plus also argues that Apria's motion is improper because Apria has not requested judgment on the pleadings with respect to all of the counts of VNA Plus' complaint. By analogy to the provisions of rule 56, we find that a motion for partial judgment on the pleadings is appropriate. See 5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure, at 537 (citing Chi-Mil Corp. v. W.T. Grant Co., 70 F.R.D. 352 (E.D.Wis.1976)).

I. RICO Claim (Count I).

In count I, VNA Plus alleges that Apria violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"). To state a civil RICO claim, a plaintiff must allege "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Cayman Exploration Corp. v. United Gas Pipe Line Co., 873 F.2d 1357, 1362 (10th Cir.1989) (quoting Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985)).

We start by analyzing what constitutes a RICO "enterprise." The RICO statute provides that the term enterprise "includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). Even a commercial contract can serve as the basis of a RICO enterprise. See River City Mkts., Inc. v. Fleming Foods West, Inc., 960 F.2d 1458, 1462 (9th Cir.1992) ("Virtually every business contract can be called an `association in fact.'"); Loma Linda Univ. Med. Ctr., Inc. v. Farmers Group, Inc., No. Civ-S-94-0681 WBS/JFM, 1995 WL 363441, at *2 (E.D.Cal. May 15, 1995) (noting that "contractual relationships can establish a RICO enterprise").

VNA Plus alleges that the RICO enterprise was the "Apria/VNA Plus business" and that the enterprise "had the common or shared purpose to provide home health care products and related services to patients in such patients' homes for profit." Am. Compl. ¶ 18. Apria argues that the enterprise alleged in the complaint is merely a description of VNA Plus' normal business activities and therefore the alleged enterprise is limited to VNA Plus' individual business. Apria relies on the fact that VNA Plus has not alleged that the parties entered into a joint venture agreement, partnership agreement or otherwise agreed to share profits or losses, or that the purported enterprise conducted any business separate and distinct from the normal business operations of VNA Plus. It is well established that no formal legal entity is required to create a RICO enterprise — an informal association between two contracting businesses will suffice. See River City Mkts., 960 F.2d at 1461; Atlas Pile Driving Co. v. DiCon Financial Co., 886 F.2d 986, 995 (8th Cir.1989). Thus, the court will accept plaintiff's allegation that the enterprise was the "Apria/VNA Plus business" with the common purpose as stated above. See Am. Compl. ¶ 18. Although this "enterprise" had a very similar, if not identical, purpose as the purpose of VNA Plus' individual business, the court will nevertheless evaluate the sufficiency of plaintiff's allegations based on the combined business of Apria and VNA Plus.²

A. Apria's Participation In The Enterprise.

The RICO statute is aimed at those who "conduct or participate, directly or indirectly, in the conduct of an enterprise's affairs." 18 U.S.C. § 1962(c). Apria contends that VNA Plus has not alleged facts demonstrating that Apria conducted or participated in the affairs of the RICO enterprise. Apria argues that providing services for the...