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The Moses H. Cone Memorial Hospital Operating Corp. v. Conifer Physician Services, Inc.

United States District Court, M.D. North Carolina

April 11, 2017

THE MOSES H. CONE MEMORIAL HOSPITAL OPERATING CORPORATION d/b/a CONE HEALTH, Plaintiff,
v.
CONIFER PHYSICIAN SERVICES, INC f/k/a SPRINGFIELD SERVICE CORPORATION, Defendant.

          MEMORANDUM OPINION AND ORDER

          JOE L. WEBSTER UNITED STATES MAGISTRATE JUDGE

         This matter is before the Court upon Plaintiff, The Moses H. Cone Memorial Hospital Operating Cooperation's ("Cone Health") motion for partial summary judgment (Docket Entry 100), and Defendant Conifer Physician Services, Inc.'s ("Conifer") motion for partial summary judgment. (Docket Entry 103.) Both matters have been fully briefed and are ripe for disposition. For the reasons stated herein, the Court will deny Conifer's motion for partial summary judgment and grant in part and deny in part Cone Health's motion for partial summary judgment.[1]

         I. BACKGROUND

         Cone Health filed its original complaint on August 8, 2013, alleging that Conifer breached the parties' Master Outsourcing Services Agreement and Supplement 1 ("Agreement") and that Cone Health was terminating the Agreement as a result of Conifer's breach. (See generally Compl., Docket Entry 1.) Cone Health alleged a claim for breach of contract (and the supplement) (Counts I and II), and also alleged five separate causes of action for declaratory judgment (Counts III through VII). (Id. ¶¶ 75-96.) Conifer filed a motion to dismiss Counts III through VII of the Complaint. (Docket Entry 10.) The Court thereafter granted Conifer's motion (Docket Entry 27), and the parties submitted a Joint Rule 26(f) Report which the Court adopted. (Docket Entries 28, 30.) After discovery commenced, Cone Health filed a consent motion to amend its Complaint, which was granted. (Docket Entries 39, 42.) After the Amended Complaint was filed (Docket Entry 45), Conifer answered and asserted a counterclaim against Cone Health. (Docket Entry 48.) Thereafter extensive discovery took place in this matter and both parties submitted motions for partial summary judgment. (Docket Entries 100, 103.) In its motion, Cone Health seeks partial summary judgment as to damages on Conifer's counterclaim. (Docket Entry 100.) Conifer's motion seeks partial summary judgment as to: (1) liability on its counterclaim, (2) all claims for relief in Cone Health's Amended Complaint except the claim for a performance adjustment; (3) and other relief the Court finds appropriate. (Docket Entry 103.)

         According to the Amended Complaint, Cone Health provides health care services through a network of hospitals and physicians in North Carolina. (Am. Compl. ¶ 5, Docket Entry 45.) Conifer provides revenue management, health information management, and billing services to health care providers like Cone Health.[2] (Id. ¶ 6.) On August 8, 2011, Cone Health and Conifer entered into a Master Agreement (the "Agreement") under which Cone Health outsourced certain claims management and accounts receivable functions to Conifer. (Id. ¶¶ 9-10; Master Agreement & Supplements, Ex. A, Docket Entry 45-1.) Thereafter, the parties executed "Supplement 1" to the Agreement, under which Conifer began providing billing and claims management services to physicians owned by, or affiliated with, Cone Health. (Suppl. 1, Ex. A at 32-33.) The term of the Agreement under Supplement 1 was five years from the commencement date of Supplement 1. (Id. at 32.)

         On May 10, 2013, Cone Health notified Conifer of several purported breaches of the Agreement and threatened to terminate it for cause as of July 12, 2013. (Am. Compl. ¶ 58; see also May 10 Letter, Ex. A, Docket Entry 51-1.) The alleged breaches include Conifer's failure to properly manage Cone Heath's accounts receivable ("A/R"), failure to implement a denial management team to process denied claims, failure to provide adequate customer service to patients, failure to provide daily reconciliation, and improper billing of Medicaid beneficiaries. (Id. ¶¶ 19-54.) Under the Agreement, Cone Health (with written notice) could terminate the Agreement for cause if Conifer failed to fix a material breach within sixty (60) days, or Cone Health could terminate if a material breach was incurable. (Id. ¶ 56; Master Agreement § 15.2(a).) The Agreement also provided for termination without cause at any time after the three-year anniversary of the Agreement, provided that Cone Health give six (6) months written notice. (Master Agreement § 15.2(c).) After receiving notice of Cone Health's intent to terminate the Agreement, Conifer responded by letter, addressing the issues in the notice from Cone Health. (Am. Compl. ¶ 59; see also May 30 Letter, Ex. B, Docket Entry 51-2.)

         Cone Health concluded that Conifer did not have the ability to cure its breaches, nor had Conifer remedied the issues raised in the May 10 letter. (Id. ¶ 60.) Cone Health agreed to suspend its termination notice until August 12, 2013, to allow the parties to discuss termination transition resolutions. (Id. ¶ 63.) Cone Health then filed this action on August 8, 2013, alleging that Conifer breached the Agreement.

         Conifer filed an Answer and also asserted a counterclaim in this action alleging that Cone Health's termination was improper, and thus, a breach of the Agreement. (Counterclaim ¶ 3, Docket Entry 48 at 7.) Conifer alleges that it was (1) never in material breach of the Agreement and (2) that it cured, or offered to cure any purported breach before Cone Health terminated the Agreement. (Id.) Conifer seeks compensatory damages in excess of $20 million dollars. (J</.¶46.)

         Some background undisputed facts are as follows:[3] Cone health was initially struggling with revenue cycle performance prior to the execution of the Agreement. (Kenneth Boggs Dep., Ex. 5 47:5-48:5, Docket Entry 105-4 at 7.) Revenue cycle functions include scheduling, registration, billing for medical services, collecting payment, account adjustments, and collections follow-up. (Ex. 2, Docket Entry 105-1 at 33.) Cone Health's in-house struggles with billing and collection services were primarily the result of staffing issues. (Boggs Dep., Ex. 5 47:8-12.) In 2010, Cone Health decided to change its electronic healthcare records system from the "GE/IDX" platform to the "EPIC" platform. (Mark R. Gorham Dep., Ex. 6 44:19-25, Docket Entry 105-4 at 16.) EPIC was set to go "live" on February 1, 2012. (Id. 73:12-19.) As part of Cone Health's efforts to improve revenue cycle functions, it also entered into the Agreement with Conifer. Conifer begin services on the GE/IDX system and later moved to the EPIC system. (See Suppl. 1, § VI.) Conifer's services included A/R follow-up, payment posting, and customer service. (Ex. 8, Docket Entry 105-4 at 65-66.) Cone health was still responsible for some revenue cycle functions. (Id.)

         What transpired (and why it transpired) after Conifer begin performing under the Agreement is the root of considerable disagreement, but it is clear that by early 2013, Cone Health was unsatisfied with Conifers' performance and intended to terminate its agreement with Conifer. Cone Health hired another revenue cycle management company in March 2013, Alleviant, and on April 18, 2013, a Cone Health executive, Jeffrey F.Jones, contacted Conifer's executive, John O'Donnell, regarding terminating the Agreement. (Jeffrey Jones Dep., Ex. 76 271:1-272:20:, Docket Entry 121-15 at 13-14.) Mr. O'Donnell wanted something in writing and on May 10, 2013, Mr. Jones sent a letter to Conifer regarding Cone Health's grounds for termination. (May 10 Letter at 2-3.) Thereafter, Conifer provided a response to the issues raised in the letter whereby Conifer denied that Cone Health could terminate the Agreement with cause. (May 30 Letter at 2-7.) Cone Health wrote a follow-up letter on June 14, 2013 expressing further disagreement. (June 14 Letter, Ex. C, Docket Entry 51-3.) Cone Health then filed the pending action against Conifer in August 2013.

         II. DISCUSSION

         Both parties have moved for partial summary judgment in this matter. (Docket Entries 100, 103.) Summary judgment is appropriate when there exists no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Zahodnick v. Int'l Bus. Machs. Corp., 135 F.3d 911, 913 (4th Cir. 1997). The party seeking summary judgment bears the initial burden of coming forward and demonstrating the absence of a genuine issue of material fact. Temkin v. Frederick County Comm'rs, 945 F.2d 716, 718 (4th Cir. 1991) (citing Celotex v. Catrett, 477 U.S. 317, 322 (1986)). Once the moving party has met its burden, the non-moving party must then affirmatively demonstrate that there is a genuine issue of material fact which requires trial. Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). There is no issue for trial unless there is sufficient evidence favoring the non-moving party for a fact finder to return a verdict for that party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986); Sylvia Dev. Corp. v. Calvert County, Md, 48 F.3d 810, 817 (4th Cir. 1995). Thus, the moving party can bear his burden either by presenting affirmative evidence or by demonstrating that the non-moving party's evidence is insufficient to establish his claim. Celotex, 477 U.S. at 331 (Brennan, dissenting). When making the summary judgment determination, the Court must view the evidence, and all justifiable inferences from the evidence, in the light most favorable to the non-moving party. Zahodnick, 135 F.3d at 913; Halperin v. Abacus Tech. Corp., 128 F.3d 191, 196 (4th Cir. 1997). However, the party opposing summary judgment may not rest on mere allegations or denials, and the court need not consider "unsupported assertions" or "self-serving opinions without objective corroboration." Evans v. Techs. Applications & Serv. Co., 80 F.3d 954, 962 (4th Cir. 1996); Anderson, 477 U.S. at 248-49. "When faced with cross-motions for summary judgment, the court must review each motion separately on its own merits 'to determine whether either of the parties deserves judgment as a matter of law."' Rossignol v. Voorbaar, 316 F.3d 516, 523 (4th Cir. 2003) (citation omitted).

         Conifer's Motion for Partial Summary Judgment

         Conifer seeks partial summary judgment as to: (1) liability on its counterclaim, (2) all claims for relief in Cone Health's Amended Complaint (except the claim for a performance adjustment); (3) and other relief the Court finds appropriate. (Docket Entry 103.) Cone Health argues that Conifer's motion should be denied because "there is a question of fact for the jury as to whether [Conifer] has cured, could cure, or was even trying to cure its material breach at the time of termination." (PL's Resp. Br. at 24, Docket Entry 118.)

         The parties do not dispute that the any alleged breach of the Agreement is governed by North Carolina law. To establish liability for a breach of contract claim under North Carolina law, there must be (1) an existing valid contract and (2) breach of the terms of that contract. Poor v. Hill, 138 N.C.App. 19, 26, 530 S.E.2d 838, 843 (2000). Neither party here is in dispute as to whether a valid contract existed. However, the crux of this case surrounds the ultimate determination of whether Conifer or Cone Health breached the Agreement. Under North Carolina law, when one party materially breaches a bilateral contract, the non-breaching party is excused from further performance. McClure Lumber Co. v. Helmsman Constr., Inc., 160 N.C.App. 190, 198, 585 S.E.2d 234, 239 (2003); Lake Mary Ltd. P'ship v. Johnston, 145 N.C.App. 525, 537, 551 S.E.2d 546, 555 (2001); Coleman v. Shirlen, 53 N.C.App. 573, 577-78, 281 S.E.2d 431, 434 (1981). "Whether a breach is material or immaterial is ordinarily a question of fact." McClure Lumber, 160 N.C.App. at 198, 585 S.E.2d at 239 (citation omitted). "Interpreting a contract requires the court to examine the language of the contract itself for indications of the parties' intent at the moment of execution." State v. Philip Morris USA Inc., 363 N.C. 623, 631-32, 685 S.E.2d 85, 90-91 (2009) (citation omitted). Thus, "[i]f the plain language of a contract is clear, the intention of the parties is inferred from the words of the contract." Walton v. City of Raleigh, 342 N.C. 879, 881, 467 S.E.2d 410, 411 (1996).

         Liability

         As a threshold issue, the Court must first determine the scope of this suit. Here, Cone Health alleges that Conifer has breached § 11.2 of the Agreement which sets forth the performance of services that Conifer has obligated itself to. (See Master Agreement § 11.2.) Cone Health further asserts that it rightfully terminated under § 15.2(a), and that Conifer's alleged breach should not be narrowed to the six specific violations set forth in the letters dated May 10, 2013 and June 14, 2013, as the basis of Cone Health's termination was for Conifers' failure to effectively manage the A/R, "its fundamental responsibility under the [Agreement]." (Pl.'s Resp. Br. at 25.) Under the Agreement, Cone Health (with written notice) could terminate the Agreement for cause if Conifer failed to fix a material breach within sixty (60) days, or if a material breach was incurable. (Master Agreement § 15.2(a).) By letter dated May 10, 2013, Cone Health informed Conifer of its intent to terminate the Agreement for its breach of its warranties of performance set forth in § 11.2. (May 10 Letter at 2.) Cone Health further stated "[t]he specific conduct that constitutes [Conifer's] breach includes, without limitation:" (1) Conifer's management of A/R days trending was well below industry standards; (2) Conifer failed to assign a dedicated denial management team; (3) Conifer has failed to provide daily reconciliations; (4) Conifer failed to get approval and give prior notice of write-offs; and (5) Conifer improperly engaged in balance-billing. (Id.) In closing, Cone Health further stated that "[termination of the Agreement will be effective on July 12, 2013 unless [Conifer] has fully cured all breaches to Cone Health's satisfaction before that date." (Id. at 3.)

         North Carolina law generally enforces valid notice and cure clauses in a contract. Dishner Developers, Inc. v. Brown, 145 N.C.App. 375, 378, 549 S.E.2d 904, 906, affd, 354 N.C. 569, 557 S.E.2d 528 (2001); see also Jordan's Constr., Inc. v. Forest Springs, LLC, 738 S.E.2d 454, 2013 WL 601112, at *2 ( N.C. Ct. App. Feb. 19, 2013) ("There is no evidence in the record indicating that defendant provided plaintiff with written notice of plaintiffs breach of the contract and the right to cure as required by the Agreement.")- While the Court recognizes the language of Cone Health's May 10 letter, including its "without limitation" verbiage, a fair reading of § 15.2(a) would require Cone Health to provide Conifer notice of all of the performance deficiencies that required curing, or that could not be cured. Here, Conifer could only be held liable for what it was properly put on notice of and failed to cure, or put on notice of breaches that were incurable. LCA Dev., LLC v. WMS Mgmt. Grp., LLC, 789 S.E.2d 569, 2016 WL 3406519, at *2 ( N.C. Ct. App. June 21, 2016) (unpublished table decision) ("[T]he default could not be a material breach until after [defendant] was given notice and an opportunity to cure-were it otherwise, the cure provision in the contract would be meaningless."). Thus, the scope of this civil action is limited to breaches of the Agreement which Conifer was put on notice[4] to cure, or breaches which Cone Health gave written notice that were incurable.

         Having considered the evidence presented with regard to issues raised in Cone Health's letters, the Court concludes that there is a genuine issue of material fact as to whether Conifer cured the violations set forth in Cone Health's notice letter, or whether there were breaches that could not be cured. North Carolina Court law looks at the Restatement (Second) of Contracts for guidance on cure issues. Weaver's Asphalt <&Maint. Co. v. Williams, 710 S.E.2d 709, 2011 WL 705150, at *4 ( N.C. Ct. App. Mar. 1, 2011) (unpublished table decision) (quoting Rest. 2d § 237 cmt. B (1981)); see also Reeder v. Carter, 226 N.C.App. 270, 276, 740 S.E.2d 913, 918 (2013) (quoting Rest. 2d § 369 (1981)). Cases from other jurisdictions applying Restatement (Second) of Contracts § 237 have found that a party in breach does not cure unless it begins to substantial perform its contractual obligations. See e.g., Anacapa Tech., Inc. v. ADC Telecommunications, Inc., 241 F.Supp.2d 1016, 1019-20 (D. Minn. 2002) ("While case law on the question [of what is means to cure] is sparse, it is clear that to cure a material breach means to engage in subsequent conduct that substantially performs or performs without a material failure."); see also Volvo Trucks N. Am. v. State Dep't of Transp., 323 Wis.2d 294, 314, 779 N.W.2d 423, 433 (2010) ("A reasonable interpretation of the statutory word 'cured' means the breaching party is to stop the offending conduct and to substantially perform the contract.

         No other interpretation of the word 'cured' is more reasonable."); Fleetwood Folding Trailers, Inc. v. Coleman Co., 38 Kan.App.2d 30, 43, 161 P.3d 786, 798 (2007) (considering "substantial performance" described in Anacapd). "Cure does not require perfect performance. Anacapa, 241 F.Supp.2d at 1020. Here, under § 15.2(a)(i) of the Agreement, Cone Health could properly terminate the contract if Conifer failed to cure to a level of substantial performance. Also, Cone Health could terminate the Agreement pursuant to §15.2(a)(ii) if it gave written notice of breaches that could not be cured.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After reviewing the evidence presented, it is unclear whether Conifer substantially performed, thereby curing the purported breach of the warranties of performance. Substantial performance of the issues raised in Cone Health&#39;s correspondence are collectively germane to this breach of contract action, and the determination of such performance is a question of fact for the jury. For example, one of the issues raised in the May 10 letter included Conifer&#39;s failure to designate "a dedicated denial management team to review and resolve Cone [Health&#39;s] denials." (May 10 Letter at 2.) The specific contractual provision referenced is paragraph V.8 of the Supplement, which indicates that the "[d]enial claims will be reviewed by specific teams dedicated to the resolution of certain types of denials." (Suppl. 1 &para; V.8, Docket Entry 45-1 at 32.) This clause is ambiguous as to whether special denial teams were required to deal with the denial claims, or if Conifers current team structure met the terms of the agreement. Conifer argues that though it did not have to implement special teams, [5] it offered, in its May 30 response letter, to make the necessary adjustments to Cone Health's satisfaction. (May 30 Letter at 4.) In a deposition, Cone Health's Vice President of Revenue Cycle, Michael Simms admitted that he did not personally respond, and that he could not recall, nor give an answer to whether anyone from his staff told Conifer to implement a dedicated denial staff. (Simms Dep., Ex. 15 135:5-136:25, Docket Entry 105-7 at 32.) The June 14 letter by Cone Health did further discuss the denial team management issue, and concluded by "demanding] that [Conifer] immediately designate and implement a dedicated denials team that is completely separate from . . . the existing 55-member collections team." (June 14 Letter at 3.) Yet, in a further response dated August 8, 2013, Conifer again indicated that it was "ready, willing, and able to make this change immediately upon receiving instruction to do so from Cone [Health]." (August 8 Letter, Ex. 31, Docket Entry 105-9 at 22.) These facts all ...


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