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Twin Crest Group v. Delaware Valley Urology, LLC

United States District Court, Third Circuit

December 12, 2013

JOSEPH PLANDOWSKI, et al., Third-Party Defendants.

OPINION [Doc. No. 69]

JOEL SCHNEIDER, Magistrate Judge.

This matter is before the Court on the "Motion for Partial Summary Judgment" [Doc. No. 69] filed by plaintiff Twin Crest Group ("TCG") and third-party defendants Joseph Plandowski, Bernie Ness, B.J. Ness Consulting, LLC, Lakewood Consulting, LLC, Twin Crest, LLC, and In-Office Pathology, LLC. TCG is seeking partial summary judgment on Delaware Valley Urology's ("DVU") counterclaims for breach of contract, breach of covenant of good faith and fair dealing, and unjust enrichment. The third-party defendants are seeking summary judgment on all of DVU's third-party claims. (Unless otherwise noted, TCG and third-party defendants shall be collectively referred to as "movants"). The Court received DVU's opposition. [Doc. No. 78]. The Court exercises its discretion to decide movants' motion without oral argument. See Fed.R.Civ.P. 78; L. Civ. R. 78.1. For the reasons to be discussed, movants' motion is DENIED.


Since this Order is primarily for the benefit of the parties who are already familiar with the background of this matter, only the most salient facts are set forth herein. DVU is a urology physician practice group serving the Southern New Jersey and Philadelphia area. Am. Third-Party Compl. ¶ 1 [Doc. No. 67]. Prior to judicial dissolution, TCG was a consulting group that provided consulting services to physician practice groups seeking to set up in-office pathology laboratories. Id. at ¶ 2; see Answer to Movants' Statement of Material Facts at ¶¶ 3-4 [Doc. No. 78].[1] On May 23, 2007, the parties entered into an "In-Office Laboratory Agreement" ("Agreement") in which TCG agreed to install a 600 square foot, fully functional in-office anatomic pathology laboratory within DVU's existing Voorhees, New Jersey facility. Movants' Statement of Material Facts, ¶ 6 [Doc. No. 69-2]. Under the Agreement, TCG was responsible for completing the following work: (1) design, construct, and equip the laboratory; (2) select, order, and install necessary equipment; (3) recruit and recommend medical and technical staff needed to operate the laboratory; (4) assure that "the laboratory [was] inspected by all necessary governmental, professional and other entities and obtain all necessary licenses and permits for construction and... assure that the [l]aboratory receive[d] its Clinical Laboratory Improvement Amendment (CLIA) certification prior to processing patient tests"; (5) flowchart specimens and paperwork routing to ensure a smooth workflow; (6) review laboratory operations; (7) recommend a billing services company; and (8) provide a Physician Office Laboratory pathology reporting system. Id. at ¶ 7; see Agreement, Ex. A ¶¶ 1-9 [Doc. No. 78-1].

In consideration for TCG's services, DVU agreed to pay TCG in accordance with the compensation schedule set forth in the Agreement. See Agreement, Ex. C. Specifically, TCG was to be paid "Specimen Fees" for "Covered Procedures" as defined by Schedule C-3 of the Agreement. Id. at C-3; see Answer to Movants' Statement of Material Facts, ¶ 8-9. The Agreement also prescribed the manner in which DVU was "entitled" to terminate the contract in the event of a breach by TCG, providing:

Any breach by TCG of this Agreement shall be actionable by DVU. DVU shall be entitled to terminate this Agreement upon 10 days notice for any breach not cured within such 10 day period, may sue for damages and may withhold and set off against such damages any amount owing by it to TCG.

Agreement at 3, ¶ 18.[2] Subsequently, on January 31, 2009, counsel for DVU notified Bernie Ness, then Vice President of TCG, that DVU was exercising its right to terminate the Agreement based upon TCG's alleged material breach. Movants' Statement of Material Facts, ¶ 11; see also Termination Email [Doc. No. 69-8]. DVU's counsel specified that TCG had "materially breached the Agreement by its failure to obtain the required CLIA licenses and certifications for DVU's Voorhees Laboratory." See Termination Email.

TCG filed the instant action against DVU on December 8, 2010, asserting claims for breach of contract, promissory estoppel, unjust enrichment, and breach of good faith and fair dealing. See generally Complaint [Doc. No. 1]. TCG alleges that DVU wrongfully terminated the Agreement and refused to remit payments owed to TCG for performing its obligations under the contract. See id. at ¶¶ 15-18. In response, DVU denies breaching the contract, arguing that it exercised its contractual right to terminate the Agreement in light of TCG's "fail[ure] to timely construct [DVU]'s Laboratory... fail[ure] to obtain necessary building permits to construct [DVU's lab]... fail[ure] to obtain the necessary Clinical Laboratory Improvement Amendment license certifications for [DVU] to operate its laboratory... fail[ure] to oversee and ensure preparation or all necessary laboratory manuals and specimen processing practices... [and] fail[ure] to perform monthly inspections of the Laboratory as required by the Agreement." Am. Answer, ¶ 8 [Doc. No. 66].[3] In addition, DVU asserts six counterclaims against TCG.[4]

DVU filed its initial third-party complaint on January 28, 2011, against third-party defendants, a group comprised of partners and/or successor entities of TCG asserting the following claims: fraud in the inducement, negligent misrepresentation, breach of contract, breach of covenant of good faith and fair dealing, unjust enrichment, tortious interference with contract, and a violation of the New Jersey Consumer Fraud Act pursuant to N.J. Stat. Ann. § 56:8-1 et seq. See generally Third-Party Compl. [Doc. No. 9]. DVU's third-party complaint was later amended to include allegations that TCG failed to perform monthly inspections of the lab as required by the Agreement and committed "unconscionable commercial practices" by representing that it would continue to service DVU despite having no intention to do so. See Am. Third-Party Compl., ¶¶ 15, 55-56.

In sum and substance, DVU alleges that third-party defendants intentionally misrepresented their background, experience and ability to construct, operate, design, and license DVU's pathology lab which ultimately led to DVU being cited for various deficiencies and the need for corrective action. Id. at ¶ 8. DVU claims that under the Agreement, the laboratory was to be "designed, built, equipped, and CLIA licensed" within ninety (90) days, meaning the project was to be fully completed by August 23, 2007. Supplemental Counterstatement of Material Facts, ¶ 32 [Doc. No. 78].[5] DVU accuses TCG of hiring "unqualified" subcontractors, whose lack of experience and expertise led to defective work, problems and delays in the completion of the laboratory. Id. at ¶¶ 41-46.

DVU also accuses TCG of breaching the Agreement by failing to obtain the proper certification under the Clinical Laboratory Improvement Amendments of 1988 ("CLIA") (42 U.S.C. § 263a), which is required to operate DVU's laboratory. Id. at ¶¶ 48-50. DVU claims that after operating its facility for eight months, it discovered that its CLIA certification was invalid. Id. at ¶ 51. As a result, DVU was unable to retroactively recover lost Medicare payments that were denied because of the invalid CLIA license. Id. at ¶ 52. DVU also claims to have suffered damages as a result of its inability to perform additional lab procedures while waiting to receive a proper CLIA certification. Id. at ¶ 53.[6]

In the present motion, movants seek partial summary judgment in favor of TCG on DVU's counterclaims for breach of contract, breach of covenant of good faith and fair dealing, and unjust enrichment. Movants also seek partial summary judgment on all of DVU's third-party claims.[7] The gravamen of movants' argument as to the contract claims is that under the Agreement, DVU was required to provide written "notice to [TCG] and the opportunity to cure any alleged default before it [could] sue for damages." Brief at 6; see Agreement at 2-3, ¶¶ 12, 18. Movants argue that the "notice provision was clearly a condition precedent to DVU's right to bring a lawsuit for any alleged breach." Brief at 7. Movants rely heavily on the deposition testimony of Nancy Romeo, DVU's chief operating officer, to show that TCG was never notified of its alleged breach or given an opportunity to fix any such breach. Id .; see Romeo Dep. ¶¶ 79:5-12, 80-81:13-2 [Doc. No. 69-7]. Furthermore, movants argue that DVU's claims against third-party defendants should be dismissed as a matter of law because they were not parties to the Agreement and thus cannot be held individually liable for actions taken on behalf of TCG. Brief at 7-9.

In its opposition, DVU contends that "it did, in fact, provide [TCG] written notice of its breach of the Agreement, but [TCG] failed to provide any assistance" in fixing the problems arising out of the invalid CLIA certification. Brief at 1. DVU argues that TCG was not only notified of its failure to acquire a valid CLIA license in an email sent by Ms. Romeo to Bernie Ness on November 17, 2008, but it also refused to assist DVU in correcting the CLIA problems or perform any work for DVU due to TCG's internal partnership dispute. Id. at 5, 15; see November 17, 2008 Email [Doc. No. 78-1, Ex. 5]. To support its claims, DVU cites to the following exchange in Mr. Ness' deposition testimony:

Question: The email is dated November 17th. My question is, after that, did you provide any assistance [on the CLIA issue]?
Answer (Ness): No.

Supplemental Counterstatement of Material Facts, ¶ 58; see Ness Dep. ¶¶ 429-30:23-4 [Doc. No. 78-1, Ex. 6]. In explaining the nature of its business relationship with TCG, DVU claims that it "could no longer reasonably trust that [TCG] was capable of overseeing compliance, billing, and operations of the [l]aboratory." Id. at ¶ 59.

DVU argues that "the termination provision in the Agreement is not the exclusive remedy for terminating the Agreement." Brief at 2. DVU contests movants' interpretation of the notice and cure provision, arguing that the "provision applies only to terminating the Agreement, not suing [TCG] for damages." Brief at 6 (emphasis in original). From DVU's perspective, the provision provided two independent remedies: "(1) to terminate the Agreement upon notice and an opportunity to cure and/or (2) to sue for damages." Id . As such, DVU argues that it was not required to provide TCG with notice of its breach or an opportunity to cure before exercising its right to sue for damages. Id. at 7. DVU asserts that "notwithstanding that the notice and opportunity to cure provision applies only to terminating the [A]greement, DVU had the right to terminate the Agreement and to sue [TCG] for damages without providing any written notice and an opportunity to cure because TCG materially breached the Agreement." Id . In other words, the provision "did not abrogate or diminish DVU's common law right" to terminate for material breach. Id.

Alternatively, DVU argues that even if it were required to give TCG written notice of breach and an opportunity to cure, doing so would have been a "futile act" given the materiality and circumstances surrounding TCG's alleged breach. Id. at 13. DVU explains that because laboratories must be properly certified in order to receive Medicare or Medicaid payments, there was no way for TCG to "go back in time to cure its breach by acquiring a valid CLIA prior to [DVU] processing patient tests.'" Id. at 12-13. DVU argues that there was no way to recover the "lost reimbursements for the procedures that [DVU] performed and Medicare rejected and... the lost profits for the time DVU was required to close its [l]aboratory." Id . In further support of its argument that providing notice of breach and an opportunity to cure would have been a "useless gesture, " DVU attributes TCG's refusal to perform services to an alleged ...

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