OPTIONS HOME HEALTH OF NORTH FLORIDA, INC., BRIAN VIRGO, and JOSH GOODE, Plaintiffs,
NURSES REGISTRY AND HOME HEALTH CORPORATION, Defendant.
AMENDED MEMORANDUM OPINION & ORDER
JOSEPH M. HOOD, Senior District Judge.
This matter is before the Court on Plaintiffs' Motion for Summary Judgment on Count I of the Complaint (D.E. 81), Plaintiffs' Motion for Summary Judgment on Counts II and VI of the Complaint (D.E. 79), Plaintiffs' Motion for Summary Judgment on Counts II and III of Defendant's Counterclaim (D.E. 80), Defendant's Motion for Summary Judgment (D.E. 78), and Defendant's Motion to Amend the Counterclaim (D.E. 82). All parties have responded (D.E. 83, 84, 85, 86, 91) and replied (D.E. 87, 88, 89, 90, 92). Thus, these motions are now ripe for review.
This dispute centers around Defendant Nurses Registry's purchase of the assets of Plaintiff Options Home Health of North Florida, Inc. ("Options") and the effect of a change in the law prohibiting the transfer of Options' existing Medicare License on the parties' agreement. For the reasons that follow this Court will grant summary judgment to Plaintiffs in part and deny it in part, deny summary judgment to Defendant, and deny Defendant's motion to amend. The issue of damages remains pending for a jury trial.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. Asset Purchase Agreement & Closing Statement
Plaintiff Options, a Florida company founded and previously owned by Plaintiffs Brian Virgo and Josh Goode, operated as a home healthcare service business. (D.E. 1 at 2-3). In June 2009, Plaintiffs and Defendant Nurses Registry and Home Health Corporation ("Nurses Registry") entered into an asset purchase agreement (the "APA") providing for the sale of essentially all of Options' assets for a price of $650, 000. (D.E. 101-1 at 10). The assets covered by the agreement included Options' tangible personal property, contracts, inventory, work-in-process, books, records, goodwill, intellectual property, licenses, certain insurance proceeds, intangible assets, claims and defenses, and leased personal property, as set forth in the APA and schedules thereto. (D.E. 101-1 at 8-9). The APA provided that the closing would occur on the later date of August 25, 2009, or on the date at which all of the contingencies set forth in the APA were met, whichever occurred later.
Plaintiff Goode was to remain on staff as an acting DON/Administrator for a certain time period during the transition, and, under the APA and incorporated Trust Agreement, Nurses Registry was required to pay Options $75, 000 upon his departure. (D.E. 101-1 at 11; D.E. 100-3). Although it appears that Nurses Registry paid Plaintiff Goode a sum classified as salary,  it is undisputed that the $75, 000 severance fee was never paid to Options. (D.E. 78-2 at 6).
Following the execution of the APA, Options and Nurses Registry executed a "Closing Statement" in February, 2010. (D.E. 1-2 at 1). The Closing Statement stated that "the issuance of the Medicare License is a prerequisite and condition to the duty of [Nurses Registry] to pay the Purchase Price set forth in this Settlement Statement." (D.E. 1-2 at 1). Further, the Closing Statement reallocated the purchase price, such that $2, 000 was allocated to the tangible items set forth in 2.1(a) and 2.1(c) of the APA,  and the remaining $648, 000 towards the intangible items set forth in Section 2.1 and Schedule 2.1 of the APA. The Closing Statement also provided that the closing would be "void ab initio " and the total Purchase Price, except for the $20, 000 deposit, returned to Nurses Registry "if the Medicare License is not issued to [Nurses Registry] for any reason not within the control of [Nurses Registry]...." (D.E. 1-2 at 2).
To transfer Options' Medicare license, Nurses Registry filed an Application for a "Change in Ownership" ("CHOW"). (D.E. 78-2 at 5-6). While the CHOW application was pending, changes were made to federal law that prevented Nurses Registry from obtaining Options' Medicare license. (D.E. 78-2 at 6). Specifically, an amendment to 42 C.F.R. § 424.550 was enacted, which has been termed as the "36 month rule." Under § 424.550,
[I]f there is a change in majority ownership of a home health agency... within 36 months after the effective date of the [home health agency]'s initial enrollment in Medicare or within 36 months after the [home health agency]'s most recent change in majority ownership, the provider agreement and Medicare billing privileges do not convey to the new owner.
42 C.F.R. § 424.550(b)(1). Instead, the prospective home health agency's owner had to re-enroll in the Medicare program or obtain a state survey or accreditation from an approved accreditation organization. 42 C.F.R. § 424.550(b)(1). Because this rule was deemed to apply to the transaction at issue, it was determined that Options' license was not transferable. (D.E. 78-12). Nurses Registry applied to acquire a new Medicare license of its own and received final approval in August, 2011. (D.E. 1 at 7; D.E. 56 at 6; D.E. 85-2 at 3-4).
To date, of the $650, 000 purchase price, Nurses Registry paid Options a $100, 000 deposit under the APA, $20, 000 of which was determined by the parties to be nonrefundable. (D.E. 101-1 at 10; D.E. 101-7 at 2). While Nurses Registry has enjoyed the benefits of all of Options' assets, with the exception of the transfer of Options' specific Medicare license, Nurses Registry has refused to pay the remainder of the purchase price, or the $75, 000 severance fee to Options. (D.E. 78-2 at 6).
B. Medicare Overpayments
While the CHOW was pending, as well as during the period that Nurses Registry was waiting to receive its new license, Nurses Registry billed Medicare using Options' old license number and accepted advance payments from Medicare associated with these billed services. (D.E. 1 at 10; D.E. 56 at 6; D.E. 83-1 at 4). When the CHOW was denied due to the 36-month rule, the Center for Medicare ("CMS") refused to allow Nurses Registry to submit a final bill verifying that it actually rendered the provided services under Options' Medicare license. [D.E. 1 at 10]. Therefore, CMS disallowed some of Nurses Registry's reimbursements billed under Options' provider number, and now seeks repayment for those services. [D.E. 1 at 10].
Because Nurses Registry had been operating under Options' provider number during the relevant time period, the collection demands from CMS are addressed to Options directly, but were originally sent to Nurses Registry. [D.E. 86-5]. Nurses Registry ignored these letters at first but, later, forwarded the accumulated demand letters and delinquent notices to counsel for Options. (D.E. 1 at 11; D.E. 56 at 6-7; D.E. 79-7). According to these documents, CMS now seeks to recover roughly $80, 000 plus accumulating interest from Options, a company that is no longer in existence. (D.E. 79-7). As the previous owners of Options, Plaintiffs Virgo and Goode are unable to apply for another billing number and/or open another healthcare agency as long as this debt remains unpaid. (D.E. 88 at 7).
II. STANDARD OF REVIEW
Under Rule 56(a), summary judgment is proper "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). In deciding a motion for summary judgment, the factual evidence and all reasonable inferences must be construed in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Summers v. Leis, 368 F.3d 881, 885 (6th Cir. 2004).
The judge's function on a summary judgment motion is not to weigh the evidence, but to decide whether there are genuine issues of material fact for trial. Anderson, 477 U.S. at 249; Multimedia 2000, Inc. v. Attard, 374 F.3d 377, 380 (6th Cir. 2004). A material fact is one that may affect the outcome of the issue at trial, as determined by substantive law. Anderson, 477 U.S. at 242. A genuine dispute exists on a material fact, and thus summary judgment is improper, if the ...