WDVA: Accepting benefits, successor formed implied contract

Although written documents were unclear as to whether a therapy service contract transferred to a subsequent facilities operator, the successor’s acceptance of therapy services as if the service contract applied created a contract implied-in-fact, with the same payment terms as the initial contract. The successor was liable for payment of back invoices totaling over $2.1 million, plus pre- and post-judgment interest.

Background

Prior to 2015, Defendant BROC owned and operated Blue Ridge Rehab Center. In November 2013, Plaintiff RehabCare and BROC entered into a Therapy Services Agreement that generally obligated RehabCare to provide therapists and therapy services to the Center’s patients and obligated BROC to pay RehabCare according to a fee schedule.

On July 30, 2015, BROC entered into an Operations Transfer Agreement transferring its ownership and management of the facility to Defendant BRNURSCO. At the time of the Transfer Agreement, none of the parties appear to have attempted to have BRNURSCO assume the RehabCare agreement. Nevertheless, RehabCare continued to provide therapy services at the facility under BRNURSCO’s management. No express agreement was entered between RehabCare and BRNURSCO.

Over the next two years, RehabCare provided therapy services at the facility, totaling over $2 million. According to Michael Marshall, BROC and BRNURSCO’s corporate representative, BRNURSCO paid for some of those services, but some invoices went unpaid. In its interrogatory answer, BRNURSCO asserted that it failed to pay because of improper billing to third-party payors, such as Medicare. Marshall admitted that BRNURSCO was indebted to RehabCare for some amount.

RehabCare sued BROC and BRNURSCO in June 2017 and informed BRNURSCO that it was terminating its services at the facility due to BRNURSCO’s failure to pay. RehabCare moved for summary judgment against BROC and BRNURSCO for breach of the Therapy Servics Agreement and against BRNURSCO for quantum meruit and unjust enrichment.

Breach of contract – BROC

There’s no dispute that there was a legally enforceable agreement between RehabCare and BROC. The dispute is whether BROC breached that agreement when it failed to pay for services rendered after the Transfer Agreement took effect.

The Therapy Services Agreement gives clear answer: Rehab was under no contractual obligation to provide services, and BROC was under no obligation to pay for services rendered after the Transfer Agreement became effective. Once the Transfer Agreement was signed, the Center’s patients were not BROC’s patients, but BRNURSCO’s. Accordingly, RehabCare’s services provided after the Transfer Agreement took effect were not services under the BROC contract, and BROC accordingly didn’t breach that contract. In the absence of breach, RehabCare is not entitled to summary judgment against BROC.

Breach of contract – BRNURSCO

RehabCare contends that the Transfer Agreement obligated BRNURSCO to assume the Therapy Services Agreement, pointing to the following provision:

“Following the Closing Date, if permitted by the terms of the applicable agreement, [BROC] agree[s] to promptly assign to [BRNURSCO], and [BRNURSCO] shall accept and assume, any agreement related to the operation of the Facility (other than real property leases and personal property leases relating solely to the Facility) ….”

In relying on this provision, RehabCare overlooks the phrase, “if permitted by the terms of the applicable agreement.” The “applicable” Therapy Services Agreement spells out how it may be assigned or assumed by an entity not a party to the contract:

“Any such assumption of this Agreement shall be pursuant to an assignment and assumption agreement executed by the Vice President of Finance and Controller of RehabCare, a duly authorized representative of Facility, and the successor operator pursuant to which Facility assigns its rights under this Agreement to such successor operator, and such successor operator assumes Facility’s obligations hereunder, in each case with respect to periods from and after the effective date of the Facility Operator Change.”

Thus, even if the Transfer Agreement for BROC to assign the Therapy Services Agreement to BRNURSCO, RehabCare has failed to establish that its necessary contractual obligations — an assignment and assumption executed by RehabCare’s Vice President of Finance — was completed. Absent such a showing, RehabCare has not established that BRNURSCO properly assumed the Therapy Services Agreement, and therefore it is not entitled to summary judgment against BRNURSCO for breach of contract.

Moreover, the Therapy Services Agreement doesn’t permit either party to assign its rights or obligations without the other’s prior written approval. RehabCare has not offered evidence to show that BROC and BRNURSCO, despite sharing a corporate representative, have a common parent corporation so as to waive this approval. Therefore, the court cannot say that any assignment or assumption, even assuming that one took place, was valid.

It should be apparent why such contractual niceties must be followed prior to the assignment or assumption of a contract. When two parties contract with one another, they presumably know enough about the other party to agree to enter into a contractual relationship. When a third party assumes that contract, one of the original parties is forced into a contractual relationship with one to whom it may not wish to be bound. In such an instance, it is vital that the necessary steps, which are spelled out in the contract, be followed. Here, RehabCare agreed that the contract would be assignable under certain circumstances and after specific steps were taken. Had BROC attempted to assign the contract to an entity RehabCare did not believe could satisfy its obligations, it would have been free not to enter into the necessary “assumption and agreement.” By failing to do so in its dealings with BRNURSCO, RehabCare has not shown a valid assumption by BRNURSCO, and accordingly BRNURSCO was not bound by its terms.

Implied contract

BRNURSCO admits that there was an implied-in-fact contract between it and RehabCare. Accordingly, summary judgment is appropriate as to BRNURSCO.

Strangely, despite admitting the existence and its breach of an implied-in-fact contract with RehabCare, BRNURSCO opposes summary judgment on the contention that the existence of an implied-in-fact contract means that an implied-in-law contract cannot exist. Presumably, BRNURSCO reads the heading of RehabCare’s Count II — “Implied Contract/Quantum Meruit” — as asserting an implied-in-law contract. But “quantum meruit” is the term used to refer to the cause of action for breach of an implied-in-fact contract. Thus, even granting BRNURSCO the argument that the heading on Count II is controlling, Count II plainly asserts a claim for breach of an implied-in-fact contract.

Even without BRNURSCO’s admission that there was an implied-in-fact contract, the evidence leads to the inexorable conclusion that there was an implied-in-fact contract, and BRNURSCO breached it. There is no dispute that RehabCare, in providing therapy services at BRNURSCO’s facility, conferred a benefit on BRNURSCO and that BRNURSCO knew it was receiving services from RehabCare. It would certainly be inequitable to permit BRNURSCO to receive over $2 million worth of services without paying for them.

By failing to pay for the services it received from RehabCare, BRNURSCO breached its implied-in-fact contract with RehabCare. Because there was an implied-in-fact contract, RehabCare is not entitled to summary judgment against BRNURSCO on Count III, Unjust Enrichment.

Damages

The court is not persuaded by BRNURSCO’s argument that RehabCare hasn’t established that it charged a “reasonable” amount for its services. The Fee Schedule in the Therapy Services Agreement was reasonable and appropriate with RehabCare’s prior client, and BRNURSCO took no issue with the reasonableness of RehabCare’s fees when it paid certain invoices.

Even if the fees were not reasonable, the implied-in-fact contract between RehabCare and BRNURSCO set the terms of the agreement between the parties – terms which included the fees. Here, BRNURSCO acted in accordance with the Fee Schedule when it paid some of RehabCare’s invoices. By its actions, BRNURSCO adopted and incorporated the prior Fee Schedule into its contract with RehabCare. Therefore, even if the fees were not reasonable, RehabCare would nevertheless be entitled to them because BRNURSCO agreed to them. Accordingly, RehabCare is entitled to recover the full amount it billed BRNURSCO: $2,182,109.04.

RehabCare also seeks both pre-judgment and post-judgment interest. Pre-judgment interest at the statutory rate in Virginia is appropriate, given that BRNURSCO admitted the existence of an implied-in-fact contract existed but refused to pay under that contract. Pre-judgment interest is also needed to make RehabCare whole. Accordingly, RehabCare is entitled to pre-judgment interest at a rate of six percent under Code § 6.2-302, totaling at least $114,242.63, as well as post-judgment interest as set forth in 28 U.S.C. § 1961.

RehabCare Grp. E. Inc. v. BROC LLC, Case No. 4:17cv43, Apr. 24, 2018. WDVA at Danville (Kiser). VLW No. 018-3-159, 14 pp.