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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

March 16, 2018

CORNERSTONE THERAPY SERVICES, INC., Plaintiff,
v.
RELIANT POST ACUTE CARE SOLUTIONS, LLC, ET AL., Defendants.

          Mary Foil Russell, Sands Anderson PC, Christiansburg, Virginia, for Plaintiff

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

          OPINION AND ORDER

          James P. Jones United States District Judge

         In this breach of contract case arising under Virginia law, the facts show that the parties, contemplating the purchase and sale of a business, entered into a written non-disclosure agreement that prohibited the prospective purchaser for two years from soliciting for employment or hiring any manager of the seller. The sale did not occur and it is alleged by the plaintiff seller that the purchaser did in fact hire several managers of the seller in violation of the no-hire restriction. The defendant purchaser has now filed a Motion for Summary Judgment, contending that the contract provision is not enforceable because the seller could not have retained the managers in question in light of its loss of business and thus there was no legitimate business interest to be protected by the no-hire restriction. The defendant also contends that the plaintiff is unable to prove its damages with reasonable certainty.

         I.

         The following facts are taken from the summary judgment record, viewed in the light most favorable to the nonmoving plaintiff.

         The plaintiff Cornerstone Therapy Services, Inc. (“Cornerstone”) provides physical and occupational therapy to home health agencies and physical, occupational, and speech therapy to skilled nursing facilities.

         Cornerstone previously employed licensed therapists who provided 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 skilled nursing facilities. 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. Beginning in 2014, Cornerstone had a contract with CCR to provide therapy services at Abingdon Health & Rehab. Cornerstone's contracts with CCR 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.

         Defendants Reliant Post Acute Care Solutions, LLC, Reliant Medical Management, LLC, and Reliant Rehabilitation Holdings, Inc., do business as Reliant Post Acute Care Solutions. For convenience I will refer to the defendants collectively as “Reliant.” Like Cornerstone, Reliant provides therapy services in skilled nursing facilities.

         In 2014, Reliant and Cornerstone began negotiations for the purchase of Cornerstone by Reliant. As part of the negotiations, Cornerstone requested a nondisclosure agreement (“NDA”). Reliant produced such an agreement and the parties executed it on August 8, 2014. In addition to provisions concerning the protection of confidential business information provided to Reliant by Cornerstone, the NDA also contains the following no-hire provision:

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 . . . 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.

Am. Compl. Ex. C ¶ 4, ECF No. 35-3.[1]

         Following execution of the NDA, Reliant engaged in due diligence examination of Cornerstone's business, as permitted by the NDA, but without the execution of a final agreement of sale. On June 3, 2016, CCR gave notice to Cornerstone that it was terminating the Abingdon Health & Rehab contract for services and it expired on September 3, 2016. On June 22, 2016, CCR similarly gave notice to Cornerstone that it was terminating the contract at Lee Health & Rehab, which accordingly expired on or about September 22, 2016.

         After the expiration of the CCR contracts with Cornerstone, Reliant began providing therapy services to the same two skilled nursing facilities and hired Cornerstone employees who had been assigned to these facilities, ...


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