Order Granting in Part and Denying in Part Defendants’ Motion in Limine. The Defendants sought to preclude the Plaintiff from presenting evidence and expert testimony of damages at trial that were allegedly undisclosed or deficiently supplemented in violation of Federal Rules of Civil Procedure 26(a) and (e). The Defendants further argued that the proposed testimony and reports of Plaintiff’s damages expert was founded upon a basis that did not adhere to the law of case and was therefore not relevant or helpful the trier of fact under Federal Rules of Evidence 401, 402, and 702.
The Court first found that the expert’s inability to tie alleged damages to specific breaches of the contract at issue did not undercut the relevance or helpfulness of the expert’s reports and testimony. There were numerous potential breaches of the contract to be determined at trial with potential damages flowing from each. The Defendants did not point to any authority requiring an expert to specifically tie each calculation of damages to a particular alleged legal breach and at least one court found that Rule 702 contains no such requirement. See Audi of Am., Inc. v. Bronsberg & Hughes Pontiac, Inc., No. 3:16-CV-2470, 2018 WL 11229469 (M.D. Pa. Apr. 24, 2018). Therefore, the Court denied that portion of the motion, finding the expert’s reports and proposed testimony to be relevant under Rules 401 and 402 and helpful for purposes of Rule 702.
The Court also denied the bulk of the Defendants’ motion to exclude damages evidence, finding the Plaintiff’s disclosures regarding loss of enterprise value, preferences, constructively fraudulent transfers, and amounts for fees incurred by its restructuring professional as a result of contract breaches satisfied Federal Rule of Civil Procedure 26. The Plaintiff filed computations for each category of damages and provided the documents or other evidentiary material on which each computation was based. The Court rejected the Defendants’ argument that Plaintiff’s inability to break down its loss of enterprise value computation by individual breaches of the contract rendered his evidence of those damages subject to exclusion. The Defendants could not point to any authority for that position and at least one court rejected that theory. See Med. Sales & Consulting Grp. v. Plus Orthopedics USA, Inc., No. 08CV1595 BEN BGS, 2011 WL 1898600, at *3 (S.D. Cal. May 19, 2011). The Court also found that, given the nature of the Plaintiff’s breach of contract claim, the computation provided for the restructuring professional’s fees, along with the evidentiary support provided to the Defendants, was sufficient to meet the bar for compliance under Rule 26.
The Court, however, granted the Defendants’ motion to exclude evidence for lost referral damages, finding the Plaintiff never computed those damages or referenced them during his Rule 30(b)(6) deposition. The Court further found that the Plaintiff offered no justification for the failure to disclose, which would both surprise and prejudice the Defendants. The Court, therefore, granted that portion of the motion in limine, barring the Plaintiff from presenting any testimony or evidence on damages stemming from the loss of physician referrals.
Opinions
The NCMB offers a database of opinions for the years 2000 onward, listed by year and judge. For a more detailed search, enter the keyword or case number in the search box above.
(Judge: Lena M. James)
(Judge: Fourth Circuit Court of Appeals)
On appeal, the Fourth Circuit Court of Appeals (J. Hanes, Heytens, and Benjamin) affirmed the rulings of the Bankruptcy Court and the District Court for the Middle District of North Carolina sustaining the Chapter 7 Trustee’s objection to the Debtor’s claimed exemptions. The Debtor owed a tax debt to the Internal Revenue Service (“IRS”) and the Fourth Circuit panel considered the lower courts’ ruling that the Debtor’s interest in entireties property was not “exempt from process under applicable bankruptcy law.” 11 U.S.C. § 522(b)(3)(B). The Fourth Circuit utilized the same standard of review as the District Court, i.e. it reviewed the Bankruptcy Court’s legal conclusions de novo and its findings of fact for clear error.
Writing for the majority, District Judge Elizabeth Hanes (sitting by designation) affirmed the lower courts’ ruling that, while North Carolina law exempts entireties property from the claims of non-joint creditors, such property is not exempt from federal law and specifically the U.S. Tax Code. She also seconded the lower courts’ finding under United States v. Craft, 535 U.S. 274 (2002) that, “because a federal lien can attach to one spouse’s interest in entireties property, even when the tax debt is not jointly owed, the property is not ‘exempt from process’ under federal nonbankruptcy law if the IRS has the right to obtain such a lien.”
Judge Hanes specifically refuted the Debtor’s two primary arguments. Citing to the Fourth Circuit’s decision in Sumy v. Schlossberg, 777 F.2d 921, 928 n.1 (4th Cir. 1985), Judge Hanes rejected the Debtor’s argument that the IRS must obtain a perfected tax lien on the Debtor’s real property in order to find the Debtor’s interest was not exempt from process under § 522(b)(3)(B), noting that “the absence of a judgment or lien has no bearing on the hypothetical issue of whether the debtor’s interest would be exempt from process[.]” Judge Hanes was similarly unpersuaded by the Debtor’s second argument, that Craft requires the IRS to perfect a lien against the Debtor’s property before he filed for bankruptcy. Judge Hanes found that “[n]othing in Craft limits its holdings to instances where the IRS has perfected a tax lien against the property,” and “to rule otherwise would create perverse incentives by allowing a debtor to shield his entireties property from federal tax obligations as long as the debtor files for bankruptcy before the IRS issues a demand for the taxes or a Notice of Federal Tax Lien.” For those reasons, Judge Hanes affirmed the lower courts, holding “that property owned as a tenancy by the entirety may not be exempted from an individual debtor’s bankruptcy estate under 11 U.S.C. § 522(b)(3)(B) to the extent of the debtor’s tax debt to the IRS.”
(Judge: Lena M. James)
Order Granting Motion to Reopen Case. The Debtor moved to reopen his chapter 7 case nearly four years after it was closed in order to file motions to avoid judicial liens under 11 U.S.C. § 522(f). One of the lienholders (the “Creditor”) objected to the motion, arguing it would be unfairly prejudiced given the Debtor’s long delay in moving to reopen as well as the additional expenses it accrued pursuing the judgment since the case was closed.
Initially, the Debtor had to establish cause to reopen the case under 11 U.S.C. § 350(b) and courts have routinely held that avoidance of a judicial lien constitutes such cause. However, while courts generally take a permissive approach to motions to reopen cases to avoid judicial liens, and the Bankruptcy Code does not contain deadlines to seek such relief, they have also incorporated a defense akin to laches, meaning “a debtor may reopen the bankruptcy case to avoid a lien absent a finding of prejudice to the creditor.” In re Bianucci, 4 F.3d 526, 528 (7th Cir. 1993). A party asserting laches carries the burden of proving “(1) lack of diligence by the party against whom the defense is asserted… and (2) prejudice to the party asserting the defense.” Miller v. Hooks, 749 Fed. Appx. 154, 161 (4th Cir. 2018) (quoting Costello v. United States, 365 U.S. 265, 282 (1961)). Therefore, in addressing the Creditor’s laches-based objection to reopening, the Court balanced the length and reason for the Debtor’s delay against the alleged prejudice to the Creditor.
The Court first observed that the four-year gap between the closing of the case and the filing of the motion to reopen was substantial and the Debtor had knowledge of the judicial liens when he filed his petition and schedules. The Court also found that the Creditor had come forward with a sufficient showing of prejudice. Specifically, the Court observed that the Creditor had incurred unnecessary fees and costs pursuing its judgment since the Debtor’s case was closed and may also face additional, delay-related expenses in defending against the expected motion to avoid lien. Nevertheless, despite a showing of laches, courts retain great discretion in fashioning the appropriate equitable remedy and frequently opt to reopen closed cases where the prejudice is monetary and curable. Citing that guidance, the Court granted the motion to reopen the case, but conditioned its consideration of a motion to avoid the Creditor’s lien on the Debtor’s reimbursement of the reasonable fees and costs the Creditor incurred as a result of the delay.
(Judge: Lena M. James)
Order Overruling in Part and Sustaining in Part Objection to Expert Reports. Defendant objected to the admission and consideration of the Plaintiff’s expert reports, arguing that the opinions and proposed testimony failed to satisfy the reliability and relevancy requirements of Federal Rules of Evidence 401 and 702 and should be excluded from consideration on summary judgment.
The Court conducted the reliability and helpfulness analysis mandated by Rule 702, specifically addressing the four main points of objection raised by the Defendant. First, the Court found that the expert’s opinion would be helpful to determining the applicable healthcare industry standard contained within the parties’ contract. Second, the Court found the Plaintiff’s expert had the qualifications and knowledge necessary to testify under Rule 702 and the Defendant’s assertion that her experience was insufficiently related to the specific circumstances of the proceeding went to the credibility of the expert’s testimony, not its admissibility. Third, the Court found that the majority of the report and proposed testimony was firmly within the realm of permissible ultimate-issue testimony, but determined it would strike and disregard any statements or opinions that ventured too close to impermissible legal conclusions. Fourth, the Court found that, although there were no authoritative, published industry standards that could be directly applied, the expert’s extensive knowledge and training in the healthcare field provided a sufficiently reliable basis under Rule 702 for forming opinions on the contract’s performance standard. The Court further found that the expert adequately based her opinions on depositions and other documentary evidence in the record; the Defendant’s challenges to any of the expert’s assumptions went to the credibility of her testimony and could be addressed through cross-examination at trial.
The Court, therefore, overruled in part and sustained in part the Defendant’s objection, allowing the expert reports and proposed testimony while excluding those statements constituting legal conclusions as to the Defendant’s responsibilities under the contract or its alleged breaches.
(Judge: Lena M. James)
Memorandum Opinion and Order Granting in Part and Denying in Part the Defendant’s Motion for Partial Summary Judgment and Denying the Plaintiff’s Motion for Partial Summary Judgment. The Court considered cross-motions for summary judgment on three claims: breach of contract, breach of the implied covenant of good faith and fair dealing, and unfair or deceptive acts or practices. All three claims in this matter arose from the Defendant’s alleged conduct as required under the Management Service Agreement (the “MSA”) between the two parties.
In addressing the breach of contract claim, the Court first considered the scope of duties and performance standard under the MSA. Based on the language of the MSA, the Court found that the Defendant must perform the responsibilities listed in Section 3 of the MSA in a manner “consistent with the standards of the healthcare industry for an independent management company contracting on an arm’s length basis to provide comprehensive management services….” Despite being defined within the MSA, the Court determined that, due to its ambiguity and reference to technical benchmarks, the meaning of the performance standard required further factual development at trial.
Next, the Court addressed the Defendant’s assertion that Randolph Health waived the Defendant’s obligations. The Court found that, because the Randolph CEOs and COOs were the Defendant’s employees and subagents under the MSA, their acts or communications, standing alone, failed to satisfy the requisite intent by Randolph Health to waive the Defendant’s duties. The Court was unable to determine whether Randolph Health, through its Board of Directors, knowingly and intentionally waived potential breaches or the Defendant’s ongoing obligations when it continued to pay the Defendant’s management fees and other expenses without sending a notice of default.
The Defendant also sought judgment as a matter of law on nine of twelve specifically alleged breaches of the MSA. After review of the evidence, the Court found in favor of the Defendant for two of the nine alleged breaches – pertaining to Sections 3(a) and (e) – but was unable to determine the remaining seven alleged breaches – pertaining to Sections 3(b), (c), (g), (h), (i), (k), (n) – as the Court found that the Plaintiff produced sufficient evidence to create genuine issues of material fact.
The Court next evaluated the alleged breach of the implied covenant of good faith and fair dealing. Depending on the ultimate determination of disputed material facts at trial, the Court determined it was possible to find that the Defendant’s conduct breached the implied covenant by wrongfully recruiting vulnerable physicians it knew Randolph Health expressed interest in, thereby undercutting Randolph Health’s attempts to implement the recruitment plan and obtain benefits owed under the MSA. However, at summary judgment, the Court was unable to make credibility determinations regarding the Defendant’s intentions in recruiting physicians and denied both summary judgment motions with respect to the breach of the implied covenant claim.
The Court then assessed whether the Defendant violated the North Carolina Unfair and Deceptive Act or Practice statute (the “UDP”). Although North Carolina permits a plaintiff to assert a breach of contract claim and a UDP claim, the “plaintiff must allege substantial aggravating circumstances.” In re Charlotte Com. Grp., Inc., No. 01-52684C-11W, 2003 WL 1790882, at *3 (M.D.N.C. Mar. 13, 2003). The Court found that, despite the Plaintiff’s claims that the Defendant was misleading or secretive, its conduct was too bound up with its rights and duties under the MSA and was not attended by sufficiently egregious or aggravating circumstances to warrant a finding that such conduct was unfair or deceptive under the UDP.
Although not raised by the Defendant, the Court also observed that the Plaintiff’s claim was likely barred by the learned profession exemption. The UDP prohibits “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce.” N.C. Gen. Stat.§ 75-1.1(a). Although “commerce” under the UDP “includes all business activities,” it “does not include professional services rendered by a member of a learned profession.” N.C. Gen. Stat.§ 75-1.1(b). The Court first found that, as an operating hospital, the Defendant qualified as a “medical professional” for purposes of the learned profession exemption. The Court further found that the Defendant’s physician recruitment efforts and its allegedly anticompetitive conduct related to the provision of medical services in Randolph County and fell squarely within the learned profession exemption. As such, the Court granted the Defendant’s motion for summary judgment as to the Plaintiff’s UDP claim.
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