ENCORE PREAKNESS, INC, f/k/a SELECT MEDICAL REHABILITATION SERVICES, INC. Plaintiff,
CHESTNUT HEALTH AND REHABILITATION GROUP, INC; CH-BLUE HILLS, LLC; CH-BRIGHAM, LLC; CH-COUNTRY GARDENS, LLC; CH-CRAWFORD, LLC; CH-CROSSINGS EAST, LLC; CH-CROSSINGS WEST, LLC; CH-DEN-MAR, LLC; CH-FRANKLIN, LLC; CH-HANOVER, LLC; CH-OAK HILL, LLC; CH-PARKWAY PAVILION, LLC; CH-QUINCY, LLC; CH-WALDEN, LLC; CH-WYOMISSING, LLC; KANE FINANCIAL SERVICES, LLC; AIRAMID; HEALTH SERVICES, LLC f/k/a AIRAMID HEALTH MANAGEMENT, LLC; AIRAMID HEALTH CONSULTING, LLC; and DEBRA HOWE, Defendants.
Submitted: September 25, 2017
Defendants' Motion to Dismiss, Granted in part, Denied in
Christopher J. Day, Esq. of DAY LAW GROUP, LLC, Wilmington,
Delaware; Attorneys for Encore Preakness, Inc.
S. Rappaport, Esq. and Brian A. Biggs, Esq. of DLA PIPER LLP,
Wilmington, Delaware, and Brooke Madonna, Esq. of SPECTOR
GADON & ROSEN, Philadelphia, Pennsylvania; Attorneys for
Defendants KANE FINANCIAL SERVICES, LLC; AIRAMID HEALTH
SERVICES, LLC f/k/a AIRAMID HEALTH MANAGEMENT, LLC AIRAMID
HEALTH CONSULTING, LLC; and DEBRA HOWE.
action involves a dispute over unpaid invoices for therapy
services the plaintiff performed at various nursing
facilities under a series of contracts with those facilities.
The plaintiff contends those invoices should have been paid
by the facilities or their unaffiliated management companies,
which separately contracted with facilities to perform
financial and operational services. In other words, two sets
of contracts define the parties' rights and obligations:
(1) therapy service contracts between the plaintiff and the
facilities; and (2) financial services contracts between the
facilities and the defendant management companies. No direct
contractual relationship existed between the plaintiff and
the defendant management companies.
after being sold to a third party, the facilities defaulted
on payments owed to the plaintiff. Although they allegedly
collected insurance payments for the plaintiffs services to
facilities, the defendant management companies also have not
remitted that payment to the plaintiff. The plaintiff
therefore has sued not just the facilities, but also the
defendant management companies for breach of contract, unjust
enrichment, and tortious interference with contract. The
management companies contend those claims should be
case explores fundamental contractual principles,
particularly privity, and the circumstances, if any, under
which a person not a party to a contract may pursue a claim
arising from that contract. In this case, the plaintiffs
claims against the defendant management companies for unjust
enrichment and breach of contract are barred by settled
principles of Delaware contract law. The plaintiff has,
though barely, alleged a reasonably conceivable claim that
the management companies tortiously interfered with the
plaintiffs contract with the facilities. My reasoning
following facts are drawn from the complaint and the
documents it incorporates, drawing all reasonable references
in favor of the plaintiff. Before March 2016, Chestnut Group
("the Facilities") operated long-term nursing care
facilities in Massachusetts, Connecticut, New Hampshire,
Rhode Island, and Pennsylvania through various Delaware
limited liability companies. Kane Financial Services, LLC,
Airamid Health Services, LLC, and Airamid Health Consulting,
LLC (collectively, the "Moving Defendants")
provided management and financial services to Facilities
under several Financial Consulting Agreements
("FCAs") that predated plaintiffs contracts with
in 2016, Facilities solicited Encore Preakness
("Plaintiff) to provide staffing services at
Facilities' care centers. On February 1, 2016, Plaintiff
and Facilities entered into Therapy Services Agreements
("TSAs") for fourteen of Facilities' care
centers. Under the TSAs, Plaintiff supplied Facilities'
care centers with speech, occupational, and physical therapy
services. At the end of February, Plaintiff billed Facilities
$670, 156.32. In March 2016, Facilities sold the fourteen
care centers to Northern Hills Senior Living Centers and
Wachusett Health Management.
the sale, Facilities failed to pay Plaintiff for the February
invoices. Plaintiff alleges Moving Defendants billed the
applicable third party payors, including Medicare and
Medicaid, for the February invoices and received payment from
those payors. Plaintiff further alleges Facilities and Moving
Defendants wrongfully have withheld payment to Plaintiff for
the February invoices, despite informal and formal demands
March 31, 2017, Plaintiff filed this action. In the
complaint, Plaintiff asserted claims against Facilities for
breach of contract, unjust enrichment, and conversion.
Plaintiff also asserted claims against Moving Defendants for
unjust enrichment, breach of contract, tortious interference,
conversion, and piercing the corporate veil. Facilities made
no response to the complaint and Plaintiff has moved for
default judgment against them. Moving Defendants moved to
dismiss the claims against them for failure to state a claim.
In its opposition to the motion to dismiss, Plaintiff
withdrew its claims for conversion and veil piercing.
THE PARTIES' CONTENTIONS
alleges Moving Defendants unjustly were enriched by
withholding Plaintiffs payment for the February invoices.
Plaintiff argues it is not a party to the FCAs and therefore
is not barred from seeking relief through unjust enrichment
based on Moving Defendant's performance under the FCAs.
Moving Defendants argue Plaintiff is barred from seeking
relief through unjust enrichment because the FCAs and TSAs
govern the parties' relationships and, although Plaintiff
is not a party to the FCAs, it cannot maintain an unjust
enrichment claim regarding services Moving Defendants
allegedly were required by contract to perform.
also claims it is a third party beneficiary to the FCAs
because the FCAs provided that Moving Defendants would
forward payment to Facilities' vendors from third party
payors, like Medicaid and Medicare. Plaintiff thus argues it
was an intended beneficiary of the FCAs and is entitled to
seek relief for breach of those contracts. Moving Defendants
counter that Plaintiff is, at most, an incidental beneficiary
and therefore may not maintain an action for breach of
Plaintiff claims Moving Defendants tortiously interfered with
Plaintiffs contract with Facilities by withholding payment
for the February invoices without justification. Moving
Defendants counter that they were justified in performing
their contracts with Facilities. Moving Defendants deny
paying themselves at the expense of Facilities' vendors,
motion to dismiss, the Court must determine whether the
"plaintiff may recover under any reasonably conceivable
set of circumstances susceptible of
proof." "If [the plaintiff] may recover, the
motion must be denied." A court may grant the motion if
"it appears to a reasonable certainty that under no
state of facts which could be proved to support the claim
asserted would plaintiff be entitled to
relief." When applying this standard, the Court
will accept as true all non- conclusory, well-pleaded
allegations. In addition, "a trial court must draw
all reasonable factual inferences in favor of the party
opposing the motion."
Unjust enrichment is not available because the TSAs and FCAs
govern the parties' relationships.
Defendants argue Plaintiff cannot bring an unjust enrichment
claim when a contract governs the parties' relationship.
To plead a claim for unjust enrichment, Plaintiff must
allege: "(1) an enrichment, (2) an impoverishment, (3) a
relationship between the enrichment and impoverishment, (4)
the absence of justification, and (5) the absence of a remedy
provided by law." The Court of Chancery has held "[a]
claim for unjust enrichment is not available if there is a
contract that governs the relationship between the parties
that gives rise to the unjust enrichment
claim." Although there are three parties here,
instead of two, a contract governs each relationship between
the parties and the allegedly enriched Facilities.
concedes it has a contractual relationship with Facilities
through the TSAs, but argues no contract governs its
relationship with Moving Defendants. This lack of privity
between Plaintiff and Moving Defendants, however, does not
mean Plaintiff is free to pursue its unjust enrichment claim.
Plaintiffs complaint alleges the TSAs govern their
relationship and incorporates the TSAs by
reference. In addition, the relationship between
Facilities and Moving Defendants is governed by the
FCAs. The Court of Chancery has held:
It is a well-settled principle of Delaware law that a party
cannot recover under a theory of unjust enrichment if a
contract governs the relationship between the contesting
parties that gives rise to the unjust enrichment claim. As an
extension of that principle, . . . unjust enrichment cannot
be used to circumvent basic contract principles [recognizing]
that a person not a party to [a] contract cannot be held
liable to it. Delaware courts consistently have held that
where a contract exists no person can be sued for breach of
contract who has not contracted either in person or by an
agent, and . . . that the doctrine of unjust enrichment
cannot be used to circumvent this principle merely by
substituting one person or debtor for another.
basic contractual principles, the Moving Defendants are not
susceptible to a breach of contract claim except one brought
by Facilities or third party beneficiaries to the contract.
In addition, having entered into a binding contract with
Facilities, Plaintiff cannot also pursue a claim for unjust
enrichment relating to the subject matter of the contract.
Plaintiff cannot, then, use clever labeling in pleadings to
subvert these principles by asserting an unjust enrichment
claim against the Moving Defendants. It is Facilities, and
not the Moving Defendants, with whom Plaintiff contracted,
and it therefore is Facilities to whom Plaintiff must look
for payment. "[T]he inability of a party to a contract
to fulfill an obligation thereunder cannot serve as a basis
to conclude that other entities, who are not party to the
contract, are liable for that obligation."
unjust enrichment only is available to the impoverished party
if the enriched party is the defendant. As the Court of