Title: Wright Therapy Equipment, LLC, et al. v. Blue Cross and Blue Shield of Alabama

State: alabama

Issuer: Alabama Supreme Court

Document:

REL: 4/11/08
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter.  Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-
0649), of any typographical or other errors, in order that corrections may be made before
the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
OCTOBER TERM, 2007-2008
____________________
1061074
____________________
Wright Therapy Equipment, LLC, et al.
v.
Blue Cross and Blue Shield of Alabama
Appeal from Shelby Circuit Court 
(CV-04-873)
SEE, Justice.
Wright Therapy Equipment, LLC ("Wright Therapy"), Sheri
NeSmith, Julie Akin, and Universal DME, LLC ("Universal DME"),
appeal the trial court's partial summary judgment and trial
judgment in favor of Blue Cross and Blue Shield of Alabama
1061074
2
("Blue Cross").  We hold that the trial court did not err in
entering a partial summary judgment in favor of Blue Cross.
However, because the trial court exceeded its discretion in
denying Akin, NeSmith, and Universal DME a continuance at
trial, we reverse the judgment entered following the trial and
remand the case for a new trial.
Facts and Procedural History
Akin and NeSmith were the owners of Wright Therapy, which
was engaged in the business of supplying physician-prescribed
durable medical equipment ("DME").  Wright Therapy billed Blue
Cross according to Blue Cross's DME fee schedule for DME and
other supplies Wright Therapy provided to patients insured by
Blue Cross.  After conducting audits of the major DME
businesses in its network, including Wright Therapy,  Blue
Cross determined that it had been overbilled for DME and that
it had paid many of the claims for DME in error.  In March
2004, Blue Cross notified Wright Therapy that it had
overbilled Blue Cross for DME in the amount of $759,401.62,
that Blue Cross had paid those bills in error, and that Blue
Cross, as permitted by the DME supplier agreement between Blue
Cross and Wright Therapy, would begin withholding further
1061074
3
payments to Wright Therapy until Blue Cross recouped the
amount of the payments that had been made in error.  
In April 2004, Blue Cross and Wright Therapy entered into
a written agreement by which Wright Therapy agreed to make
monthly payments of $40,000 to Blue Cross for a period of 10
months and to pay the remaining balance in one payment at the
end of those 10 months in order to reimburse Blue Cross for
the alleged overbilling.  In return, Blue Cross agreed not to
withhold future payments for services billed by Wright Therapy
to Blue Cross.  In May 2004, after Wright Therapy had remitted
the first of the agreed payments, Blue Cross announced changes
to the DME fee schedule for certain items of DME from which
Wright Therapy had previously derived a substantial portion of
its profits.  Faced with diminished cash flow under the new
reimbursement schedule, Wright Therapy made no further
payments to Blue Cross under the agreement and ceased
operations.  That same month, NeSmith, Akin, and two former
employees of Wright Therapy established Universal DME, LLC, in
Georgia, to conduct the same type of DME business that Wright
Therapy had conducted.  
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4
In July 2004, Blue Cross sued Wright Therapy alleging
breach of contract, money paid by mistake, unjust enrichment,
conversion, fraud, and conspiracy to commit fraud.  Over the
next two years, Blue Cross amended its complaint five times to
add Akin, NeSmith, and Universal DME as defendants and, among
other things, seeking to pierce the corporate veil and to
impose successor liability on Universal DME for the claims
against Wright Therapy.  During this time, the trial court
continued the trial five times at the joint request of the
parties or the sole request of Blue Cross to allow these
amendments and to allow additional discovery.  In March 2006,
Blue Cross and Wright Therapy each moved for a summary
judgment.  Blue Cross amended its complaint for the last time
in July 2006 and then renewed its previously filed motion for
a summary judgment.  The trial court held a hearing on that
motion on October 4, 2006, at which the court entered a
summary judgment against Wright Therapy on the breach-of-
contract claim in the amount of $630,196.38.  The summary
judgment disposed of the claims against Wright Therapy;
however, several claims remained pending against Akin,
NeSmith, and Universal DME.  At the conclusion of the hearing
1061074
5
on the summary-judgment motion, counsel for the remaining
defendants moved in open court to withdraw.  He simultaneously
requested a continuance of the November 6, 2006, trial date to
allow Akin, NeSmith, and Universal DME to retain new counsel.
The trial court granted counsel's motion to withdraw but
denied the motion to continue the trial date, stating that
"Ms. NeSmith, Ms. Akin, Wright Therapy, Universal DME,
whoever, have adequate time to obtain other counsel."  When
Blue Cross urged the trial court to push the trial date up
even earlier, the trial court denied this request in
"fairness" to the defendants.  Despite contacting at least two
firms, Akin, NeSmith, and Universal DME were unable to obtain
counsel willing to represent them with less than one month to
prepare for a trial of a complex lawsuit that had been in
litigation for over two years.  On October 30, 2006, Akin,
NeSmith, and Universal DME again moved the trial court for a
one-month 
continuance 
and 
supported 
that 
motion 
with
affidavits from the attorneys they had contacted stating that
it would be a violation of the Alabama Rules of Professional
Conduct for the attorneys to agree to represent the defendants
without a continuance because they would not be able to
1061074
6
adequately prepare for a trial of this complexity in less than
one month's time.  Blue Cross opposed the continuance, and the
trial court denied the motion.  
Over the repeated objections of the defendants, the trial
court proceeded with a bench trial on November 6, 2006.  None
of the defendants was represented by counsel.  During the
bench trial, Akin and NeSmith informed the trial court that
they had counsel willing to represent them, but that counsel
were unable to attend the trial on that date.  They told the
trial court that they were uncertain as to how to proceed, how
to put on evidence, or how to question witnesses during the
trial.  The trial proceeded, and the trial court ultimately
ruled in favor of Blue Cross, finding Akin and NeSmith
personally 
liable 
for 
$182,900 
and 
$198,000, 
respectively, 
for
the improper transfer and depletion of the assets of Wright
Therapy.  It also found Universal DME liable as a successor
corporation for the full amount of the summary judgment on the
breach-of-contract claim previously entered against Wright
Therapy.  At the end of the trial, the trial court said to the
defendants: "You have the right to appeal.  In order to do
that, you have to buy a transcript and appeal to Montgomery on
1061074
7
the record. I would suggest –- no offense to either of you.
You have done a better job than most pro ses I have seen but
I would never suggest that anyone is competent to represent
themselves."  
In December 2006, Akin, NeSmith, and Universal DME, then
represented by counsel, moved to vacate the partial summary
judgment, the judgment entered at trial, and for a new trial.
At the hearing on this motion, the trial court noted that
mistakes had been made during the litigation process by
concluding, "I don't say this to disrespect counsel or prior
rulings but I am confident that this matter is heading to
Montgomery one way or the other and I will say that I'm not as
confident that it won't come back."  The trial court denied
the defendants' motions after holding a hearing.  Wright
Therapy, Akin, NeSmith, and Universal DME now appeal.
Issues
Wright Therapy, Akin, NeSmith, and Universal DME present
several issues on appeal.  First, they argue that the trial
court erred in entering a summary judgment in favor of Blue
Cross on the breach-of-contract claim because, they say, a
genuine issue of material fact exists as to whether Wright
1061074
Wright Therapy, Akin, NeSmith, and Universal DME also
1
argue that Universal DME, as a corporate entity, was never
legally at trial because it was unable to obtain counsel and
that all the defendants were denied due process because they
were denied a jury trial.  However, our reversal of the trial
court's 
order 
denying 
the 
continuance 
pretermits 
consideration
of the other alleged errors.
8
Therapy executed the April 2004 agreement under economic
duress and whether that agreement is otherwise unconscionable.
Second, they argue that the trial court exceeded its
discretion "by allowing Defendants' previous counsel to
withdraw 33 days prior to trial and refusing to grant a trial
continuance to allow the Defendants time to retain counsel to
represent them at trial."  Appellants' brief at 3.1
Standards of Review
"On appeal, this Court reviews a summary
judgment de novo.  Ex parte Essary, [Ms. 1060458,
Nov. 2, 2007] ___ So. 2d ___, ___ (Ala. 2007).  In
doing so, we apply the same standard of review as
did the trial court.  Ex parte Lumpkin, 702 So. 2d
462, 465 (Ala. 1997).  '"'Our review is subject to
the caveat that we must review the record in the
light most favorable to the nonmovant and must
resolve all reasonable doubts against the movant.'"'
Ex parte CSX Transp.[, Inc.], 938 So. 2d [959] at
962 [(Ala. 2006)] (quoting Payton v. Monsanto Co.,
801 So. 2d 829, 833 (Ala. 2001), quoting in turn Ex
parte Alfa Mut. Gen. Ins. Co., 742 So. 2d 182, 184
(Ala. 1999)); Hanners v. Balfour Guthrie, Inc., 564
So. 2d 412, 413 (Ala. 1990).  Finally, this Court
does not afford any presumption of correctness to
the trial court's ruling on questions of law or its
conclusion as to the appropriate legal standard to
1061074
9
be applied.  Ex parte CSX Transp., 938 So. 2d at 962
(citing Ex parte Graham, 702 So. 2d 1215, 1221 (Ala.
1997))."
DiBiasi v. Joe Wheeler Elec. Membership Corp., [Ms. 1060848,
January 11, 2008] ___ So. 2d ___, ___ (Ala. 2008).
We review a trial court's denial of a motion for a
continuance by asking whether in denying the motion the trial
court exceeded its discretion. See Cheminova America Corp. v.
Corker, 779 So. 2d 1175, 1183 (Ala. 2000); Copeland v. Samford
Univ., 686 So. 2d 190 (Ala. 1996).  
"A court exceeds its discretion when its ruling is
based on an erroneous conclusion of law or when it
has 
acted 
arbitrarily 
without 
employing
conscientious judgment, has exceeded the bounds of
reason in view of all circumstances, or has so far
ignored recognized principles of law or practice as
to cause substantial injustice. Hale v. Larry Latham
Auctioneers, Inc.,  607 So. 2d 154, 155 (Ala. 1992);
Dowdy v. Gilbert Eng'g Co., 372 So. 2d 11, 13 (Ala.
1979)."
Edwards v. Allied Home Mortgage Capital Corp., 962 So. 2d 194,
213 (Ala. 2007).  "In reviewing ... the denial of a motion for
a new trial, we consider the evidence in a light most
favorable to the prevailing party, resolving all factual
disputes in its favor. Alabama Power Co. v. Aldridge, 854 So.
2d 554 (Ala. 2002); Alabama Great Southern R.R. v. Johnson,
1061074
10
874 So. 2d 517 (Ala. 2003)." Systrends, Inc. v. Group 8760,
LLC, 959 So. 2d 1052, 1057 (Ala. 2006).
Analysis
A. Partial Summary Judgment on Breach-of-Contract Claim
Wright Therapy argues that the trial court erred in
entering a summary judgment in favor of Blue Cross on Blue
Cross's breach-of-contract claim because, it says, a genuine
issue of material fact exists as to whether it was
fraudulently induced into executing the April 2004 agreement;
whether the 2004 agreement was a contract of adhesion, which
it was forced to enter into because of economic duress; and
whether the 2004 agreement is otherwise unconscionable.
Specifically, Wright Therapy argues that had it 
"been adequately represented at the summary judgment
hearing, genuine issues of material fact relating to
Blue Cross's fraud in relation to the execution of
the letter agreement would have been evident.
Furthermore, genuine issues of material fact existed
as to the enforceability of the letter agreement in
light of the fact that the letter agreement
constituted an unconscionable adhesion contract
formed under circumstances of economic duress."
  
Appellants' brief at 48-49.  Blue Cross argues in response
that Wright Therapy's fraud-in-the-inducement argument fails
because it can show no misrepresentation, noting that Wright
1061074
11
Therapy "knew when [it] entered the Repayment Agreement that
Blue Cross had the right to change the fee schedule, at any
time, under the DME Agreement."  Blue Cross's brief at 63.
Blue Cross also argues that Wright Therapy's arguments of
economic duress and unconscionability fail because Blue Cross
did not commit a "wrongful act" and because Wright Therapy had
reasonable alternatives to signing the agreement.  We agree on
both counts.
First, 
Wright 
Therapy 
alleges 
that 
Blue 
Cross
fraudulently induced Wright Therapy to enter into the April
2004 repayment agreement to resolve Blue Cross's claim that
Wright Therapy had overbilled it on DME.  Specifically, Wright
Therapy claims that "Blue Cross forced Wright Therapy to enter
into a repayment agreement when Blue Cross knew that it was
about to reduce its payments to all DME providers which would
make it impossible for Wright Therapy to comply with the
repayment agreement." Appellants' brief at 56.  Wright Therapy
cites this Court's decision in Anderson v. Ashby, 873 So. 2d
168, 182 (Ala. 2003), for the proposition that "[f]raud in the
inducement consists of one party's misrepresenting a material
fact concerning the subject matter of the underlying
1061074
12
transaction 
and 
the 
other 
party's 
relying 
on 
the
misrepresentation to his, her, or its detriment in executing
a document or taking a course of action."  However, as Blue
Cross notes in its brief to this Court, Akin, when deposed as
a principal of Wright Therapy, testified that although Blue
Cross never represented that it would pay for DME at the rate
it had previously paid, she was "hoping that Blue Cross would
revert back to the way that they used to reimburse for
specific items under DME."  
This Court has stated that "fraudulent-inducement
claim[s] 
[are] 
governed 
by 
the 
'reasonable-reliance' 
standard.
Under that standard, a person cannot blindly rely on an
agent's oral representations to the exclusion of written
disclosures in a contract."  Harold Allen's Mobile Home
Factory Outlet, Inc. v. Early, 776 So. 2d 777, 783-84 (Ala.
2000) (citations omitted).  Wright Therapy does not allege
that Blue Cross did not have the right to change the fee
schedule for DME.  Wright Therapy admits that Blue Cross's May
2004 DME fee-schedule changes were applicable to all Blue
Cross's DME providers. Appellants' brief at 55.  Moreover,
aside from mere hope that Blue Cross would continue to pay for
1061074
13
DME at rates that made Wright Therapy an economically viable
business, Wright Therapy has offered no reasonable basis for
its reliance on the notion that Blue Cross might continue
compensating for DME at previous rates while simultaneously
demanding that DME providers reimburse Blue Cross for
overpayments made 
at 
those 
earlier rates. 
Appellants' 
brief 
at
56.  In the absence of a misrepresentation of material fact or
reasonable reliance thereon, Wright Therapy failed to present
substantial evidence to support its claim of fraudulent
inducement sufficient to overcome Blue Cross's summary-
judgment motion.
Wright Therapy also alleges that summary judgment was
improper because, it says, there is a genuine issue of
material fact as to whether it executed the 2004 repayment
agreement under economic duress.  In International Paper Co.
v. Whilden, 469 So. 2d 560, 562 (Ala. 1985), this Court
stated:
"[A] 
contract 
may 
be 
executed 
under 
such
circumstances of business necessity or compulsion as
to render the contract involuntary and entitle the
coerced party to excuse his performance, especially
where undue advantage or threat to do an unlawful
injury is shown. 25 Am. Jur. 2d Duress and Undue
Influence § 6 (1966)."
1061074
14
This Court went on to state that in order to demonstrate a
prima facie case of economic duress, a party must show "(1)
wrongful acts or threats; (2) financial distress caused by the
wrongful acts or threats; (3) the absence of any reasonable
alternative to the terms presented by the wrongdoer."
International Paper Co., 469 So. 2d at 562.  Wright Therapy
appears to argue that Blue Cross "wrongfully" withheld further
remittances for services billed, thus leaving Wright Therapy
in financial distress with no reasonable alternative but to
assent to the terms presented by Blue Cross in the 2004
agreement.  
Wright Therapy's economic-duress argument fails for
several reasons.  First, Wright Therapy never alleges that
Blue Cross lacked the authority under the terms of Blue
Cross's DME agreement with its DME providers to withhold
remittances in order to recover allegedly overbilled amounts.
See Blue Cross's brief at 17.  That withholding, therefore,
cannot be deemed a wrongful act or threat by Blue Cross, and
Wright Therapy has failed to provide substantial evidence to
support the first element of a prima facie case of economic
duress.  Further, Wright Therapy's bare allegation that it was
1061074
15
forced to accept the terms of the 2004 agreement is
substantially undermined by the deposition testimony of
NeSmith, in which she admits that Wright Therapy rejected
earlier terms offered by Blue Cross during negotiations
between the parties before signing the 2004 agreement:
"Q.
Do you remember receiving this proposal?
"A.
Yes.
"Q.
And did you accept or reject this proposal?
"A.
Reject."
In light of this testimony, it appears that the 2004 repayment
agreement was the result of a good-faith negotiation between
the parties in compromise of a disputed debt, rather than an
agreement entered into by Wright Therapy under economic duress
as Wright Therapy claims.  The fact that Blue Cross may have
had greater bargaining power than did Wright Therapy or that
Wright Therapy may have executed the agreement out of
financial necessity does not alone amount to economic duress.
See International Paper Co., 469 So. 2d at  563 ("'It is said
that economic duress must be based on conduct of the opposite
party and not merely on the necessities of the purported
victim.  The entering into a contract with reluctance or even
1061074
16
dissatisfaction with its terms because of economic necessity
does not, of itself, constitute economic duress invalidating
the contract.  Unless unlawful or unconscionable pressure is
applied by the other party to induce the entering into a
contract, there is not economic compulsion amounting to
duress. Chouinard v. Chouinard, 568 F.2d 430 (5th Cir.
1978).'").  Wright Therapy has not presented substantial
evidence to support any of the elements of economic duress.
Finally, in regard to the partial summary judgment in
favor of Blue Cross on the breach-of-contract claim, Wright
Therapy alleges that there is a genuine issue of material fact
as to whether the 2004 repayment agreement is unconscionable.
Again, however, Wright Therapy fails 
to establish by
substantial evidence the elements of this claim.  
Wright Therapy argues that "the repayment agreement is
unenforceable 
because 
it 
is 
unconscionable." 
Appellants' 
brief
at 63.
"In Layne v. Garner[, 612 So. 2d 404 (Ala. 1992)],
this Court set out four factors it considered
important in determining whether a contract was
unconscionable:
 
"'In addition to finding that one
party 
was 
unsophisticated 
and/or
uneducated, a court should ask (1) whether
1061074
17
there was an absence of meaningful choice
on one party's part, (2) whether the
contractual 
terms 
are 
unreasonably
favorable to one party, (3) whether there
was unequal bargaining power among the
parties, 
and 
(4) 
whether 
there 
were
oppressive, one-sided, or patently unfair
terms in the contract.'
"612 So. 2d at 408."
Blue Cross Blue Shield of Alabama v. Rigas, 923 So. 2d 1077,
1086 (Ala. 2005).  Wright Therapy appears to argue that the
2004 agreement is unconscionable because, it argues, it lacked
a "'"meaningful choice about whether and how to enter into the
transaction."'" Blue Cross Blue Shield, 923 So. 2d at 1087
(quoting Ex parte Thicklin, 824 So. 2d 723, 731 (Ala. 2002),
quoting in turn other authority).  This argument is belied,
however, by the fact that Wright Therapy negotiated the terms
of the 2004 agreement.  Moreover, Wright Therapy fails to
state or argue that it is unsophisticated or uneducated or
that the terms of the 2004 agreement were unreasonably
favorable to Blue Cross.  Wright Therapy does argue that Blue
Cross had unequal bargaining power; however, the record
indicates that Blue Cross's bargaining power was not so
unequal and oppressive that Wright Therapy was unable to
reject Blue Cross's first offer of settlement.  Although
1061074
18
Wright Therapy argues that the 2004 agreement was oppressive
in light of its diminished cash flow after Blue Cross amended
its DME fee schedule, we note that the parties reached an
agreement that allowed Wright Therapy to pay back the disputed
debt over a period of 10 months with no interest on those
amounts.  In light of these facts and of this Court's holding
in Blue Cross Blue Shield v. Rigas, we conclude that Wright
Therapy has failed to produce substantial evidence indicating
that the 2004 agreement was unconscionable.
Because Wright Therapy has failed to demonstrate any
genuine issue of material fact as to its claims of fraudulent
inducement, economic duress, or unconscionability, we affirm
the trial court's partial summary judgment in favor of Blue
Cross on the breach-of-contract claim.
B. Denial of Motion for a Continuance to Retain New Counsel
Akin, NeSmith, and Universal DME argue that the trial
court exceeded its discretion in denying their motion for a
continuance to allow them to retain new counsel after it had
granted their prior counsel's motion to withdraw only 33 days
before trial.  
"A decision to deny a motion for continuance is
within the sound discretion of the trial court.
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19
Kitchens v. Maye, 623 So. 2d 1082 (Ala. 1993);
Thomas v. Kellett, 489 So. 2d 554, 555 (Ala. 1986)
('It is well settled that the trial court's denial
of a motion for continuance will not be overturned
absent palpable or gross abuse of the trial court's
discretion.')."
Ex parte Medical Assurance Co., 862 So. 2d 645, 649 (Ala.
2003).  However, this Court has held:
"The right to appear through privately retained
counsel in a civil matter is embedded in Article I,
§ 10, Ala. Constitution, 1901: 'That no person shall
be barred from prosecuting or defending before any
tribunal in this state, by himself or counsel, any
civil cause to which he is a party.' It is clear
that this 'constitutional right to be represented by
counsel ... cannot be unduly impinged.' Loreno v.
Ross, 222 Ala. 567, 570, 133 So. 251, 253 (1931). A
party to a civil action who is not in default is
entitled to be represented by counsel during trial.
Whaley v. State, 263 Ala. 191, 82 So. 2d 187 (1955).
The constitutional right to counsel is a substantial
right and, therefore, a denial of that right
affirmatively implies injury. State Realty Co. v.
Ligon, 218 Ala. 541, 119 So. 672 (1929)."
 
Ex parte McCain, 804 So. 2d 186, 189 (Ala. 2001).  The
question before this Court, then, is whether under the facts
of this case the trial court exceeded its discretion by
denying the defendants' motion for a continuance so as to
deprive them of their right to be represented by counsel.  The
trial court in this case granted continuances to allow Blue
Cross to amend its complaint five times over the course of two
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20
years of litigation.  Then, only 33 days before trial was
scheduled to begin, the trial court granted the motion of
Akin, NeSmith and Universal DME's counsel to withdraw but
denied the motion, made at that same time, to continue the
trial.  The record in this case is unusually voluminous, and
the issues are relatively complex and fact intensive, dealing
with issues of piercing the corporate veil and successor
liability.  Akin, NeSmith, and Universal DME renewed their
motion to continue one week before the trial and supported
their motion with affidavits from three attorneys who stated
that they could not ethically undertake representation of
these defendants at trial with so little time to prepare.
Over the repeated objections of Akin and NeSmith at trial that
they could not adequately defend themselves pro se, the trial
court denied their requests for a continuance.  
We hold that under the facts of this case the trial court
exceeded its discretion by denying the motion for a
continuance.  Therefore, the order of the trial court denying
Akin, NeSmith, and Universal DME's motion for a new trial is
reversed, and this case is remanded for a new trial on all
claims except the breach-of-contract claim.
1061074
21
Conclusion
Because Wright Therapy has failed to produce substantial
evidence to support its claims of fraud in the inducement,
economic duress, or unconscionability in regard to the 2004
agreement, we affirm the trial court's partial summary
judgment in favor of Blue Cross on its breach-of-contract
claim against Wright Therapy.  However, because the trial
court's denial of a continuance unduly impinged Akin, NeSmith,
and Universal DME's right to be represented by counsel at
trial, we reverse the trial court's judgment as to its denial
of their motions for a continuance and for a new trial, and we
remand the case for further proceedings.
AFFIRMED IN PART; REVERSED IN PART; AND REMANDED.
Cobb, C.J., and Lyons, Woodall, Stuart, Smith, Bolin,
Parker, and Murdock, JJ., concur.