Source: http://ks.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20180801_0001116.DKS.htm/qx
Timestamp: 2019-04-25 18:12:28+00:00

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In recent years, a variety of factors have generated a new market for something called wellness services. In simple form, the market theorized that a healthier workforce would produce lower health insurance costs for business owners and operators. And employees would benefit, in turn, because their share of health insurance costs would reduce.
In one form of a typical wellness program, the employer selects a wellness provider. This provider offers employees the chance to participate in on-site biometric screenings. These screenings provide each participating employee with individualized data about that employee's current health profile. The wellness provider also supplies participating employees with information and programs designed to improve-or, at least, maintain-their health.
In the case currently before the court, two wellness companies contracted so that one of them-defendant Wellness Corporate Solutions, LLC-would perform on-site biometric screenings for plaintiff Accountable Health Solutions, LLC. Accountable Health then would coordinate and operate wellness plans with employers and the employees.
Things got more complicated in 2015. Plaintiff Hooper Holmes, Inc. bought Accountable Health and the relationship with Wellness soured. A few months after Hooper Holmes acquired Accountable Health, they fell behind on the payments owed to Wellness for services it had rendered. Payment against the outstanding invoices continued to linger into 2016. And in May 2016, Wellness contracted to provide wellness services directly to one of plaintiffs' largest clients. When Accountable Health and Hooper Holmes learned about this contract, they objected to it and stopped paying down the debt they owed Wellness. They also filed this lawsuit.
In their Complaint, plaintiffs Accountable Health and Hooper Holmes asserted claims for breach of contract, breach of the implied covenant of fair dealing and good faith, tortious interference with contract, and tortious interference with prospective business expectancies or relationships. See Doc. 1. Generally, they alleged that Wellness was liable under those theories because it had entered into a contract directly with plaintiffs' former client. Accountable Health and Hooper Holmes also brought a declaratory judgment claim. This claim asked the court to declare that they did not have to pay the amounts they owed to defendant Wellness on the outstanding invoices. Id. at 10. Wellness answered and asserted a Counterclaim, alleging that Accountable Health and Hooper Holmes had breached the parties' contract by failing to pay the overdue invoices. Doc. 35. On Wellness's motions for summary judgment, the court granted summary judgment in Wellness's favor against Accountable Health and Hooper Holmes's claims for breach of an implied covenant, tortious interference with contract, tortious interference with prospective business expectancy, and the declaratory judgment. See Doc. 140. This left, for trial, the Complaint's breach of contract claim and the claim for breach of contract asserted in Wellness's Counterclaim.
The court conducted a bench trial in February 2018. Having reflected on the evidence and the arguments, the court now is ready to rule on the claims made by both parties. The court finds for plaintiffs Accountable Health and Hooper Holmes on their breach of contract claims and awards them $2.00 in nominal damages. And the court finds for Wellness on its breach of contract Counterclaim, awarding it $235, 156.58 plus $111, 069.52 in interest. The court does not award Wellness its attorneys' fees. The court explains the rationale for these holdings after making its findings of fact.
“In an action tried on the facts without a jury . . ., the court must find the facts specially and state its conclusions of law separately.” Fed.R.Civ.P. 52(a). While this rule “does not require inordinately detailed findings, ” the court must provide enough detail to “'indicate the factual basis for the ultimate conclusion.'” Colo. Flying Acad., Inc. v. United States, 724 F.2d 871, 878 (10th Cir. 1984) (quoting Kelley v. Everglades Drainage Dist., 319 U.S. 415, 422 (1943)); see also OCI Wyo., L.P. v. PacifiCorp, 479 F.3d 1199, 1204-05 (10th Cir. 2007) (holding that a district court failed its duty under Rule 52(a) by failing to set out the facts supporting its verdict). With this standard in mind, the court makes the following findings of fact.
The story that brings these disputes to court involves two parallel series of events. So the court cannot present the relevant facts in a strictly linear way. Instead, the court first addresses who the parties are and how they came to know one another. The court then discusses the facts attendant to Wellness's demands for payment. And last, the court recounts the facts that led Hooper Holmes and Accountable Health's customer to leave them for Wellness.
The parties first encountered one another in 2014 when plaintiff Accountable Health Solutions bought a company known as Principal Wellness. Accountable Health and Principal Wellness both had provided wellness services to employers. For instance, Accountable Health contracted with employers to provide their employees with health coaching, a website portal for employees to track their health status, and on-site biometric screenings, among other things. The on-site biometric screenings were performed at the employer's office, usually during the spring and summer months. These screenings provided employees with Lipid profiles, blood pressure readings, and data about their height, weight, glucose, and Body Mass. Index. Employees who could not attend on-site screenings received a primary care physician (“PCP”) form that their doctor could complete. The PCP form asked the doctor for the same information provided by on-site screeners.
Originally, Principal Wellness had performed the on-site screenings for its clients. But when Accountable Health bought it in 2014, Accountable Health delegated this work to defendant Wellness Corporate Solutions under the terms of a contract known as the Master Services Agreement (“MSA”). This MSA took effect on February 15, 2014, and ran for a term of 36 months. See Pls.' Ex. 25 (“the MSA”) ¶ 8. Generally, the MSA required Wellness to provide on-site screening services to Accountable Health's clients. In return, Accountable Health promised to pay Wellness for those services. Id. ¶¶ 1, 7. For instance, under the MSA, Wellness charged $39.50 per participant for each finger prick screening. Id. Ex. B § F. For each PCP form an employee completed under the MSA, Wellness charged $7.50. Id. And the MSA specified that Wellness would charge $50 to process at-home test kits and $15 if an employee ordered such a kit but never had it processed. Id. Other services governed by the MSA included cheek swab tests, reports about an employee's overall health, and venipuncture tests. Id. The MSA also contained provisions that governed the work needed to prepare the screening sites. Id.
When Wellness performed services under the MSA, it incurred the costs attendant to the screenings and later, it billed Accountable Health. These expenses included things like charges for the screeners' time, purchasing supplies they needed, and travel expenses. Once Accountable Health received Wellness's bill, the MSA gave it 14 days to dispute the bill and 45 days to pay it. Id. ¶ 7. If Accountable Health failed to pay any undisputed bill within 45 days, the MSA permitted Wellness to charge interest “on past due accounts” at a rate of 1.5% per month. Id. The duty to pay Wellness's statements did not depend on Accountable Health receiving payment from its clients. Id.
Five other provisions of the MSA matter to this dispute.
First, the MSA allows a party to recover attorneys' fees in certain situations.
Each Party agrees to indemnify, defend, and hold harmless the other Party . . . from and against any and all third party claims, demands, damages or any other financial demands (including, without limitation, attorneys' fees and expenses) arising from or related to the indemnifying Party's breach of this agreement.
[A]ll oral, written, electronic[, ] or documentary information disclosed prior to or after execution of this Agreement, either furnished or made available (a) by [Accountable Health] or its Agents . . . to [Wellness]; or (b) by [Wellness] or its Agents to [Accountable Health], in connection with the [business opportunity presented by the MSA], including, but not limited to, marketing philosophy, techniques, and objectives; advertising and promotional copy; competitive advantages and disadvantages; financial results; technological developments; loan evaluation programs; customer lists; account information, profiles, demographics and Non-Public Personal Information . . .; credit scoring criteria, formulas and programs; research and development efforts; any investor, financial, commercial, technical or scientific information . . . and any and all other business information . . . .
Id. ¶ 2. And last, both the MSA and NDA provide that Delaware law governs all disputes involving these contracts. MSA ¶ 13; NSA ¶ 11.
In May 2015, plaintiff Hooper Holmes, Inc.-a New York corporation with its principal place of business in Kansas-bought Accountable Health and it became a wholly owned subsidiary. Hooper Holmes already competing in the biometric screening business, was looking to expand into the wellness coaching market. Even though it already was providing on-site screenings, Hooper Holmes agreed to continue honoring the MSA and use Wellness as an on-site screener. The MSA thus became binding on it and Accountable Health-the plaintiffs here. Before turning to the events that led the parties' dispute to their current disagreements, the court pauses to explain the naming convention used by the rest of this Order. Parties on both sides of the caption have asserted claims against the other, so simply calling the parties “plaintiffs” and “defendant” isn't always helpful. So, the court has decided to refer to the parties by their short form names-plaintiff Hooper Holmes, Inc. is simply “Hooper Holmes” and defendant Wellness Corporate Solutions is simply “Wellness.” Because Accountable Health is a wholly owned subsidiary of Hooper Holmes, the court typically does not distinguish between Hooper Holmes and Accountable Health unless, in a particular context, that distinction matters to the analysis.
In May 2015, when Hooper Holmes bought Accountable Health, Accountable Health had accumulated an $8, 000 debt to Wellness. By July 2015, that debt had ballooned to more than $600, 000-and $300, 000 of that balance was overdue by July 31, 2015. Hooper Holmes's debt increased so dramatically in such a short period because most of the screenings services occurred in the spring and summer months. At the same time, Hooper Holmes was waiting for its clients to pay it for the screenings and so, they lacked the cash to pay Wellness as promised.
On July 31, 2015, Wellness emailed Hooper Holmes about the debt and Hooper Holmes offered to pay $64, 000. Wellness accepted this partial payment but also demanded full payment of the entire outstanding debt. Hooper Holmes acknowledged Wellness's request and replied that its CFO was aware of the issue and looking for solutions. In September-after hearing nothing from Hooper Holmes since August-Wellness asked again for full payment. Hooper Holmes repeatedly promised that full payment would come but, when prompted by Wellness, merely offered partial payments. In mid-October, with Hooper Holmes's debt amounting to some $575, 000-$114, 000 of which was overdue-Wellness's CEO Fiona Gathright personally emailed Arielle Band about the unpaid debt. Ms. Band was one of Hooper Holmes's Vice Presidents. Ms. Band responded that Steven Balthazor-Hooper Holmes's new CFO-would respond shortly to Wellness's inquiry and present a plan to pay the outstanding debt.
But after a few more weeks of silence, on October 31, 2015, Wellness's CFO, Jeffrey Taylor, directly contacted Mr. Balthazor about the outstanding debt. The next day, Mr. Balthazor responded with a plan to pay down the full debt. Mr. Balthazor offered to pay $10, 000 each week until Hooper Holmes's cash flow had improved. Once that improvement occurred, Hooper Holmes would increase its weekly payments to pay the remainder of the debt as quickly as possible. Mr. Taylor acknowledged Mr. Balthazor's proposal but he explicitly invoked Wellness's contractual right to recover interest on all overdue amounts. Later, Mr. Balthazor offered to make a $50, 000 good faith payment. Hooper Holmes never made that payment, however. On November 15, 2015, Hooper Holmes began paying $10, 000 each week and in February 2016, Hooper Holmes increased its weekly payments to $20, 000.
While Wellness was trying to persuade Hooper Holmes to pay its outstanding bills, it continued sending invoices to Hooper Holmes for its services, including screenings and PCP forms. It appears that some employees who had missed Wellness's health screenings mistakenly sent the PCP forms to Wellness instead of sending them to Hooper Holmes. Ms. Gathright testified that Wellness debated whether to forward the forms because Wellness was unsure: (1) whether the MSA was still binding; and (2) whether the MSA-assuming it was still binding- required Wellness to forward the PCP forms. Trial Tr. 181:14-21. Ultimately, Wellness elected to send the forms to Hooper Holmes and bill it $7.50 for each one-the price set by the MSA for this service.
On June 6, 2016, Hooper Holmes made a $20, 000 payment to Wellness. It was Hooper Holmes's last payment. But Wellness continued billing Hooper Holmes for PCP forms that employees of Hooper Holmes's clients sent through September 6, 2016. Hooper Holmes's unpaid balance topped out at $235, 167.63 on September 6, 2016. At trial, Wellness produced an aging summary of the remaining outstanding balance. Def.'s Ex. 411. The outstanding bills and the interest accrued on them are described in detail in Appendix A.
On June 9, 2016-three days after Hooper Holmes sent its final $20, 000 payment- Hooper Holmes informed Wellness that it would make no more payments against its outstanding debt. It explained that Hooper Holmes had made this decision because it recently had learned that one of its long-time customers, Building Materials Corporation of America, doing business as GAF (“GAF”), had decided not to renew its contract and, instead, begin contracting directly with Wellness for GAF's wellness services.
GAF is one of the largest roofing material producers in the country. It was also one of Hooper Holmes's largest clients. In 2012, GAF signed a two-year contract with Principal Wellness-one of Hooper Holmes's predecessors-to provide wellness services. This contract provided that it would renew automatically each year after the initial two-year term ended. The contract included wellness coaching, on-site biometric screenings, and an online portal where GAF employees could track their health status. At first, Principal Wellness performed the screenings. After Accountable Health bought Principal Wellness in 2014, Wellness performed GAF's screenings under the MSA. It did so in 2014 and 2015. To prepare for these screenings, Hooper Holmes provided Wellness with a company overview of GAF. See Pls.' Ex. 42. This overview included information about GAF's business, where its offices were located, and the date range when GAF's screenings would take place. As the screenings approached, Wellness created a checklist of tasks that it needed to complete to perform the screenings. During the screenings, Wellness collected data about where it performed GAF's screenings, how many GAF employees had participated at each screening site, when Wellness had performed each screening, and the number of screeners that Wellness had dispatched to GAF's various offices. See Pls.' Ex. 41.
In February 2015, GAF hired Jeanine Love as its Senior Benefits Manager. In that role, Ms. Love led a team of people who managed GAF's wellness program. In summer 2015, Ms. Love and her team started evaluating GAF's wellness program. Specifically, they wanted to cut costs. By this time, the original contract between Hooper Holmes and GAF already had renewed under the automatic renewal provision, but Hooper Holmes aspired to form a new contract with GAF before its employees received their 2015 biometric screenings. In short, Hooper Holmes hoped to lock GAF into a new three-year contract that charged higher prices. GAF, on the other hand, wanted to maintain the same prices and sign a one-year contract. In the summer of 2015, the parties came to an agreement whereby Hooper Holmes agreed to maintain existing prices and GAF agreed to a two-year contract. The effective date of the contract was retroactive to August 1, 2014. This contract also contained a provision that automatically extended the contract for a one-year period after the initial term expired unless one of the parties gave 60 days' notice that it would not renew.
After the 2015 screenings were completed, GAF continued debating-internally- whether it should retain Hooper Holmes to administer its wellness program. By February 2016, Ms. Love and her team had decided that GAF was not receiving good value from Hooper Holmes's wellness program. Love Dep. 27:18-21. Ms. Love particularly disliked the online portal because very few GAF employees used it. Id. at 13:12-20. But still, Ms. Love testified, the screenings benefited the company. Id. at 13:4-6. So, GAF reached out to Aon Hewitt-a wellness broker-and commanded Aon to look for a suitable replacement provider of wellness services. Aon first contacted a company called Catapult, but Catapult failed to impress GAF because Catapult's screening service provided employees, in effect, with an annual physical. GAF believed that Catapult's model provided more services than it desired to buy.
GAF then turned its attention to Wellness. Ms. Love testified that she and her team believed Wellness would fit well with GAF's goals because Wellness already had performed screenings for GAF and the two had developed a good working relationship. Id. at 15:1-3. So, Ms. Love asked Aon to reach out to Wellness. At no point during this process did GAF consider renewing its contract with Hooper Holmes. Id. at 19:20-20:3. While Ms. Love knew that Hooper Holmes had returned to the screening business when it acquired Accountable Health, she distrusted Hooper Holmes because it was too new to the screening enterprise. Id. at 18:1-15.
On March 7, 2016, Aon contacted Wellness about GAF's wellness work. Kelly Geppi- Wellness's sole salesperson at the time-took charge of formulating a sales pitch to GAF and she set up a meeting with Aon. To prepare for its sales pitch with GAF, Ms. Geppi asked Emily Kolakowski-Wellness's chief operations officer-what Hooper Holmes had charged GAF for the screening services that Wellness performed under the MSA. Pls.' Ex. 37 at 6; Trial Tr. 428:11-21. Ms. Kolakowski replied that she believed Hooper Holmes charged 20% more than Wellness's pricing for the biometric screenings. Ex. 37 at 5. Ms. Geppi testified that 20% is the standard mark-up in the wellness industry. Trial Tr. 428:14-21.
At the sales meeting, Wellness presented a slide show it had prepared for GAF. It showcased Wellness's capabilities and included information about an online health tracking portal licensed through a company called Cerner. Ms. Love quickly informed Wellness that GAF was not considering online portal services. After the meeting, Ms. Geppi used a workbook of information that it had collected while screening GAF employees under the MSA to advise the broker how much GAF likely would spend on screenings. Ari Klenicki-Wellness's Director of Screening Services-also used a workbook Wellness had created in 2015. This workbook described GAF generally, how many employee locations had participated in screenings, the date ranges the screening events took place, and a timeline when Wellness had completed the tasks necessary to conduct the screenings. Pls.' Ex. 42.
Though Ms. Geppi was Wellness's only salesperson at the time, she did not attend the April 27 sales meeting because she was far along in her pregnancy and could not make the airplane trip to GAF's headquarters. Wellness sent two other employees in her place. One was Ms. Torroella and the other was Jennifer Silverman-Wellness's Senior Program Manager. As Senior Program Manager, Ms. Silverman worked with Wellness's clients who used its online wellness portal. She was not in sales. But she had become involved with Wellness's sales pitch to GAF through a chance encounter at a birthday party a few months earlier.
In late February 2016, Ms. Silverman attended a birthday party for her sister-in-law. At that party, she struck up a conversation with Jennifer Millstone. Ms. Millstone asked Ms. Silverman what she did for a living and she explained that she worked for Wellness. She also described what Wellness did in the wellness marketplace. Ms. Millstone then informed Ms. Silverman that her husband's company-GAF-was looking for a new wellness provider and asked if she could connect Ms. Silverman with someone at GAF. Before Ms. Silverman accepted Ms. Millstone's offer, she emailed Ms. Gathright on March 3, 2016. Ms. Silverman's email asked if anything in the MSA precluded Ms. Silverman from speaking with GAF about Wellness's services. Ms. Gathright replied that she saw no problem. Ms. Millstone then put Ms. Silverman in touch with Scott Carroll-Ms. Love's boss. Mr. Carroll, in turn, directed Ms. Silverman to Ms. Love. On March 31, 2016, Ms. Silverman sent Ms. Love an email asking if they could discuss a potential contract.
Sometime before March 31, 2016, Ms. Geppi discovered that Ms. Silverman was speaking with GAF. On March 21, 2016, she emailed Carisa Herweck-the person at Aon who was working with GAF-to inform her about Ms. Silverman's involvement. Ms. Geppi testified that she did so because she wanted to maintain a strong relationship with Aon and didn't want Aon to think that Wellness had tried to circumvent Aon. Doing so, Ms. Geppi testified, would violate industry norms. Trial Tr. 426:18-427:8. Even though Ms. Silverman had entered the situation in an unusual fashion, Wellness decided to let her continue working with GAF because Ms. Geppi was nearing her delivery date and thus couldn't travel to the April 27 sales meeting at GAF. But despite Ms. Silverman's personal connection to GAF and her direct contact with GAF, Ms. Love testified that Ms. Silverman's involvement did not affect GAF's decision to select Wellness for its new wellness contract. Love Dep. 25:7-13.
On May 6, 2016, GAF awarded Wellness the contract for its wellness screening services. When Ms. Kolakowski emailed Ms. Gathright to inform her about this selection, Ms. Gathright replied, “[Hooper Holmes] going down.” Pls.' Ex. 20 at 1.
Shortly afterward, Hooper Holmes learned about GAF's decision and it tried to woo GAF back. On June 9, 2016-nine days after the contract between GAF and Hooper Holmes required GAF to provide notice that it did not intend to renew-GAF gave Hooper Holmes official notice that it did not intend to renew the contract. Hooper Holmes, as noted above, then informed Wellness that it would not pay any more of its outstanding balance. This lawsuit followed.
As noted above, the parties presented breach of contract claims at trial. The court structures its analysis of these claims and other issues raised during the trial by, first, discussing which state's law governs these disputes. The court then decides whether Wellness is liable for breaching the MSA because of its contract with GAF. Then the court turns to the claim that Wellness materially breached the NDA. Fourth, the court addresses Hooper Holmes's oral motion for reconsideration. Next, the court discusses whether Hooper Holmes is liable for breach of contract because it failed to pay Wellness's invoices sent under the MSA. And last, the court addresses whether Wellness is entitled to recover its attorneys' fees. The court discusses each issue, in turn, below.
I. Delaware law governs these breach of contract claims.
In a diversity jurisdiction case like this one, federal courts apply the choice of law rules of the forum state. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). Kansas's choice of law principles provide, “Where the parties to a contract have entered an agreement that incorporates a choice of law provision, Kansas courts generally [apply] the law chosen by the parties . . . .” Brenner v. Oppenheimer & Co. Inc., 44 P.3d 364, 375 (Kan. 2002). Here, the MSA and the NDA recite that Delaware law governs. MSA ¶ 13; NDA ¶ 11. And the parties agree that Delaware law applies. Doc. 120 at 2. The court thus applies Delaware law to decide the parties' contract claims.
II. Wellness breached the MSA but the court only awards Hooper Holmes $1.00 in nominal damages.
Hooper Holmes claims that Wellness is liable for breach of contract because it contracted with GAF-Hooper Holmes's former client-in violation of the MSA's non-compete provisions. Hooper Holmes claims that Wellness's breach cost it to lose $710, 436 in profits it would have earned but for Wellness's breach. To prove a breach of contract claim, under Delaware law, the claiming party must show that (1) a contract existed, (2) a party materially breached an obligation imposed by that contract, and (3) the breach damaged the other party. VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003). The parties agree that the MSA is a binding contract. But the parties dispute whether Hooper Holmes has established the last two elements.
Wellness argues that Hooper Holmes cannot prevail on this breach of contract claim for four reasons. First, Wellness argues that Hooper Holmes's earlier material breach discharged any duty Wellness otherwise would have owed under the MSA. Second, Wellness contends that it never breached the MSA-materially or otherwise. Third, Wellness argues that Hooper Holmes failed to prove that Wellness's breach caused Hooper Holmes to lose any lost profits. And last, the MSA's limitation of liability clause, Wellness argues, bars Hooper Holmes from recovering anything. The court discusses these arguments in the following four subsections.

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