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Cornerstone Therapy Services, Inc v. Reliant Post Acute Care Solutions, LLC

United States District Court, W.D. Virginia, Big Stone Gap Division

November 21, 2016


          Mary Foil Russell and Kenneth R. Russell, Jr., Russell Law Firm, Bristol, Virginia, for Plaintiff.

          Gary L. Edwards and Ronald S. Range, Jr., Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C., Johnson City, Tennessee, for Defendants.


          James P. Jones United States District Judge.

         In this civil case invoking the court's diversity jurisdiction, the plaintiff asserts claims of breach of contract, tortious interference with business expectancy, violation of the Virginia Trade Secrets Act, and violation of certain federal healthcare laws. The defendants have moved to dismiss the Amended Complaint. I find that the Amended Complaint adequately pleads a claim of breach of contract, and I will deny the Motion to Dismiss as to that count. However, because I find that the other counts of the Amended Complaint fail to state claims upon which relief can be granted, I will grant the defendants' Motion to Dismiss as to the remaining claims.


         The Amended Complaint alleges the following facts, which I must accept as true for purposes of deciding the Motion to Dismiss.

         Plaintiff Cornerstone Therapy Services, Inc. (“Cornerstone”), a Tennessee corporation with its principal offices in Pennington Gap, Virginia, provides physical and occupational therapy to home health agencies and physical, occupational, and speech therapy to skilled nursing facilities. Dwayne Steven Garrett is the President of Cornerstone and is also a shareholder.

         Until recently, Cornerstone employed approximately 28 licensed therapists who provided physical, occupational, and speech therapy to patients of Abingdon Health & Rehab Center, LLC (“Abingdon Health & Rehab”) and SP Lee LLC d/b/a Lee Health & Rehab (“Lee Health & Rehab”). Both Abingdon Health & Rehab and Lee Health & Rehab are owned by Commonwealth Care of Roanoke (“CCR”). Beginning in 2010, Cornerstone had a contract with CCR to provide therapy services at Lee Health & Rehab. Since 2014, Cornerstone had a contract with CCR to provide therapy services at Abingdon Health & Rehab. Cornerstone's contracts with Abingdon Health & Rehab and Lee Health & Rehab were automatically renewable for one-year terms but could be terminated by either party upon written notice of nonrenewal ninety days prior to the end of a term.

         Reliant Post Acute Care Solutions, LLC, is a Delaware limited liability company with principal offices in Texas. Reliant Medical Management, LLC is a Delaware corporation, as is Reliant Rehabilitation Holdings, Inc. These three entities do business as Reliant Post Acute Care Solutions (“Reliant”). Reliant provides therapy services in skilled nursing facilities. Joe McDonough is Reliant's Chief Executive Officer, and Robert W. Harrington, M.D., is the Chief Medical Officer. Louis Collier is the Vice President of Post-Acute Networks at Reliant.

         Wellmont Health Systems (“Wellmont”) is a healthcare provider that provides hospital and other services in northeast Tennessee and southwest Virginia. Mountain States Health Alliance (“MSHA”) is also a healthcare organization that provides hospital and other services in northeast Tennessee, southwest Virginia, southeast Kentucky, and western North Carolina.

         The Centers for Medicare and Medicaid Services (“CMS”) of the United States Department of Health and Human Services regulates the provision of health care services. CMS has adopted regulations designed to reduce the number of patients readmitted to hospitals after being discharged. The changes largely focus on services provided after a patient's discharge from a hospital, known as post-acute care. Post-acute care providers include long-term care hospitals, skilled nursing facilities, home health agencies, and inpatient rehabilitation facilities.

         In October, 2014, Congress enacted the Improving Medicare Post-Acute Care Transformation Act (“IMPACT”). IMPACT standardized assessments for critical care issues across the spectrum of post-acute care providers and required reporting of certain data to ensure that patient care is delivered based on what the patient needs and to reduce unnecessary in-patient delays. IMPACT incorporates standardized assessment and public reporting of quality measures. To satisfy the CMS requirements for post-acute care, a hospital must either create and manage its own network of post-acute care providers or contract with another entity to provide the coordination of post-acute care. These coordination entities are commonly known as PAC networks.

         In 2014, Collier was employed by Wellmont, and his duties included implementing a PAC network. Collier approached Garrett about Cornerstone becoming a part of the Wellmont PAC network. Collier later began working for Reliant. On behalf of his new employer, Collier approached Garrett and indicated that Reliant was interested in purchasing Cornerstone. Cornerstone and Reliant began negotiations for the purchase of Cornerstone by Reliant and exchanged emails, voice and text messages, and other written correspondence about the potential purchase.

         In August, 2014, Collier and McDonough, representing Reliant, met with Garrett and Ella Sue Daugherty, the other shareholder of Cornerstone, and her husband Jim Daugherty, to discuss the contemplated sale of Cornerstone to Reliant. At the meeting, McDonough expressly represented that Reliant would purchase Cornerstone and that a Letter of Intent (“LOI”) was forthcoming. McDonough further expressly confirmed that in the event the sale was not completed, Reliant would not solicit Cornerstone's business or contracts. The parties concurred that the purchase price would be $4, 000, 000, an amount based on the industry standard of five to six times Cornerstone's annual revenue plus the cost of recruiting therapists.

         As part of the negotiations, Cornerstone requested a non-disclosure agreement (“NDA”). Reliant produced a proposed agreement and with minimal modifications, the parties executed the NDA. In the NDA, Reliant agreed that it would not use Cornerstone's confidential information “directly or indirectly, for any purpose other than the evaluation or undertaking of the Proposed Relationship.” (Am. Compl. Ex. C ¶ 2, ECF No. 35-3.) More specifically, the NDA provides:

Each Party agrees that during the term of this Agreement and for a period of two years from the date of this Agreement, except per the terms of a specific written consent of the other Party, neither Party, nor any of its Representatives on its behalf, will directly or indirectly (i) use Confidential Information for any purpose, including any competitive or commercial purpose, other than the Business Purpose, or (ii) solicit for employment or engagement or hire or engage any director, manager, officer, or managerial-level employee of the other Party with whom it has had contact or who became known to it in connection with consideration of the Proposed Relationship, except that neither Party will be precluded from engaging in general solicitations of employment not specifically directed at employees of the other Party or hiring any employee who responds to such general solicitation or has terminated employment with the other Party at least six months prior to the date of such Party's solicitation of such employee.

(Id. ¶ 4.) The NDA defines “Confidential Information” as follows:

For purposes of this Agreement, “Confidential Information” means any information, data or know-how, whether in oral, written or electronic form, that is not available to the general public or is otherwise confidential or proprietary in nature, whether furnished before or after the date hereof, and all copies of, extracts from, analyses and other materials based on, containing or otherwise reflecting such information, that is disclosed by the Disclosing Party to the Receiving Party or is otherwise learned by the Receiving Party in the course of its discussions or business dealings with, or its physical or electronic access to the premises of, the Disclosing Party. . . . Confidential Information shall not include any information, data or know-how that: (i) is or becomes publicly available other than as a result of a violation of the Agreement, (ii) is or becomes available to Receiving Party through lawful receipt from a third party not prohibited from disclosing such information by a legal, fiduciary or contractual obligation to the Disclosing Party, or (iii) was within the Receiving Party's possession prior to it being furnished to the Receiving Party by or on behalf of the Disclosing Party or (iv) is independently developed by the Receiving Party without reference to or use or disclosure of the Disclosing Party's Confidential Information.

(Id. ¶ 1.)

         Following execution of the NDA, Cornerstone provided Reliant a list of Cornerstone's clients and other confidential information important to the operation of Cornerstone, including information about the contracts between Cornerstone and CCR. Cornerstone provided the type of patients at each facility by discipline, the percentage of patients covered by ...

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