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M-Audits, LLC v. Healthsmart Benefit Solutions, Inc.

United States District Court, N.D. Ohio, Eastern Division

March 31, 2017




         This matter is before the Court on the motion of defendant HealthSmart Benefit Solutions, Inc. (“defendant” or “HealthSmart”) for reconsideration (Doc. No. 66 [“Mot.”]), and supplemental brief in support (Doc. No. 68 [“Supp.”]), of one aspect of Court's Memorandum Opinion and Order (Doc. No. 65 [“MOO”]) filed September 29, 2016. Specifically, defendant seeks reconsideration of the Court's denial of defendant's second motion to modify the agreed order (“agreed order” or “order”) entered by the Court on August 24, 2015 (Doc. No. 22 [“Order”]). Plaintiff M-Audits, LLC (“plaintiff” or “M-Audits”) opposes the motion (Doc. No. 69 [“Opp'n”]), and has filed a separate response to defendant's supplemental brief (Doc. No. 76 [“Opp'n to Supp.”]), to which defendant replied (Doc. No. 77 [“Reply”]).

         For the reasons that follow, HealthSmart's motion for reconsideration is denied.

         A. Background

         1. Factual

         This case was removed from the Lorain County Court of Common Pleas on July 21, 2015, on the basis of diversity jurisdiction, 28 U.S.C. § 1332. (Doc. No. 6 [“Notice”].) As alleged in the state court complaint (Doc. No. 6-2 [“Compl.”]), plaintiff is an auditing firm that provides claim review services for health benefit plans, including health plans administered by Commerce Benefit Group Agency, Inc. (“CBG”), a third-party administrator (“TPA”) for self-insured health care plans. (Compl. ¶¶ 5, 6.)

         After lengthy negotiations, a deal was structured whereby defendant HealthSmart would purchase the assets of CBG, M-Audits, and four other entities pursuant to an asset purchase agreement (“APA”) for a total purchase price of $7 million dollars. The APA contemplated an immediate payment of $1.5 million dollars, and $5.5 million dollars to be paid “pursuant to three year earn-out schedules for CBG and M-Audits.” (Id. ¶¶ 4, 7, 8.)

         Before closing, HealthSmart notified CBG and M-Audits that its lender, Silver Point Finance, LLC (“Silver Point”), was demanding that all payments earned by CBG and M-Audits pursuant to the earn-out schedule be subordinated to any debt owed to Silver Point. (Id. ¶ 9.) M-Audits would not agree to the subordination, so an alternative deal was structured whereby the assets of M-Audits were removed from the APA and purchased separately by HealthSmart pursuant to a side letter agreement. (Id. ¶¶ 4, 10.) The side letter agreement provided that, instead of the agreed earn-out purchase price for the assets of M-Audits, HealthSmart would use commercially reasonable efforts to cause its customers to enter into M-Audits' service agreement contract for claim auditing. (Id. ¶ 13.) The APA and side letter agreement closed on July 1, 2014. (Id. ¶ 12.)

         M-Audits claims that HealthSmart violated the terms of the side letter agreement. (See id. ¶¶ 15-24.) M-Audits' complaint alleges breach of contract and interference with contract, and seeks injunctive relief. (Id. ¶¶ 29-47.)

         2. Procedural

         Resolution of plaintiff's motion for injunctive relief-the Agreed Order

         When defendant removed this case to federal court, a motion by plaintiff for a temporary restraining order (“TRO”) was pending in state court. The Court was advised of the motion by counsel during a telephonic status conference conducted on July 22, 2015.[1] (See Minutes of proceedings July 22, 2015.)

         The Court referred the matter to Magistrate Judge Kathleen Burke (Doc. No. 10), and the magistrate judge scheduled a mediation conference to address the issues raised by plaintiff in its motion for a TRO (Doc. Nos. 12, 13). Before the mediation, defendant filed a motion to dismiss or, alternatively, to stay proceedings and compel arbitration. (Doc. No. 19 [“MTD”].) Attached to the motion to dismiss is the side letter agreement referred to in plaintiff's complaint (Compl. ¶ 13), which contains a provision that “[a]ny dispute or claim arising under or with respect to this Agreement will be resolved . . . in accordance with the Rules for Commercial Arbitration of the American Arbitration Association[2] before a panel of three (3) arbitrators . . . The decision or award of a majority of the arbitrators will be final and binding upon the parties.” (Doc. No. 19-1 at 237 (footnote added).) After removal, but before the motion to dismiss was filed, plaintiff lodged a demand for arbitration. (Doc. No. 19-2 at 241.)

         In addition to counsel, M-Audits' principal, Thomasina Patton, as well as Tom Patton (“Patton”) and Kathleen O'Leary (“O'Leary”), were present at the mediation conference. Party representatives present for HealthSmart were Tom Kelly (CEO), Sarah Bittner (general counsel), Mark Stadler (chief of marketing), and Loren Claypool (chief of operations). (Doc. No. 23.) The parties reached an agreement to resolve plaintiff's motion for a TRO at the mediation conference, and memorialized the terms in a proposed agreed order. (Id.) Because the parties settled their issues regarding plaintiff's motion for injunctive relief, neither the Court nor the magistrate judge conducted a hearing or issued an opinion regarding the merits of plaintiff's motion for a TRO. Thus, the Court made no findings regarding plaintiff's likelihood of success on the merits of its claims, or analyzed and balanced any of the other factors that must be considered in ruling on a motion for injunctive relief.[3]

         Directly after the mediation conference was concluded, counsel and their respective client representatives appeared on the record before the Court. The Court conducted a detailed inquiry of both counsel and Ms. Patton and Mr. Kelly as to whether they had an opportunity to review the proposed agreed order with their respective counsel and teams, and whether they understood and agreed with the terms of the order. While the Court had reservations regarding the clarity of certain terms, both Ms. Patton and Mr. Kelly assured the Court that they understood and agreed to the ...

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