United States District Court, W.D. Kentucky, Louisville
CHARLES R. SIMPSON, III, Senior District Judge.
This matter is before the court on motion of the Plaintiff, Community Ties of America, Inc., for partial summary judgment as to Counts I, II, III, IV, VI, VII, XI, and XII in the Complaint, on motion of the Defendants, Stephen M. Foreman and Barbara J. Foreman (the "Foremans"), for summary judgment as to all Counts in the Complaint, and on motion of the Defendants, NDT Care Services d/b/a Homeplace Support Services, LLC, The Carla Barrowman Corporation d/b/a Barrowman Case Management, and Carla Barrowman Clevenger (the "Clevenger Defendants"), for summary judgment as to all Counts in the Complaint. DN 1. Fully briefed, the matter is now ripe for adjudication. Having considered the parties' respective positions, the Court concludes that there are no material issues of fact in dispute as to all Counts against the Defendants. For the reasons set forth below, the Court will grant the Defendants' motion for summary judgment and deny the Plaintiff's. DN 87-1; DN 89-1.
Community Ties of America, Inc. ("CTA") is a corporation based in Nashville, Tennessee that, as of the time the actions described herein began, provided "Behavior Support" and "Residential Services" to individuals with severe developmental disabilities across several states. In 2009, CTA's Chief Executive Officer ("CEO") Ron Lee ("Lee") decided to expand CTA's business into Kentucky. Lee enlisted Tim Lloyd ("Lloyd"), Executive Director of CTA, and Stephen Foreman, a Behavior Analyst, to lead this expansion. He appointed Stephen Foreman to supervise the Kentucky operations and gave him the title of Program Manager. Barbara Foreman, Stephen's wife and fellow Behavior Analyst, also relocated to Kentucky to continue working for CTA. Through their positions, Stephen and Barbara Foreman (the "Foremans") had access to CTA's client files, employee files, and client lists, which were kept under "double lock and key" in their home office. The Foremans are now employed by Homeplace Support Services, LLC ("Homeplace"), which comprises one part of the, and is closely related to the remaining, Clevenger Defendants. CTA's claims against the Foremans and the Clevenger Defendants arise from the following facts that, except as noted, are undisputed.
From its entry into the Commonwealth and up to the events in question, CTA's Kentucky revenue was almost wholly comprised of reimbursements it received from the Commonwealth under its enrollment in what is known as the Supports for Community Living ("SCL") program. Kentucky's SCL program provides Medicaid reimbursements to organizations like CTA that maintain a Medicaid Provider Number, Medicaid Certification, and a Medicaid Contract with the Commonwealth, all of which enable them to provide services to Medicaid-eligible individuals. The Kentucky Cabinet for Health and Family Services (the "Cabinet") administers the SCL program and furnishes Medicaid Provider Numbers to organizations like CTA. CTA obtained a Provider Number in 2009 and used it to supply reimbursable services on two fronts: through its Residential Supports program, where it provided services to clients living in supervised group homes, and through its Behavior Supports program, where it provided services to privatelyhoused clients. CTA had several group homes in Kentucky, although the Behavior Supports program comprised the majority of its business in the Commonwealth.
On June 12, 2011, CTA employee Trevor Brock murdered a CTA client, Shawn Akridge, in a CTA Residential Supports group home in Paint Lick, Kentucky. News coverage ensued, and the Cabinet responded by placing CTA on its second moratorium - an act that prevents a provider from taking on any new clients - in a period of six months. In response to the moratorium, CTA wrote the Cabinet on June 15, 2011 to indicate that it would be voluntarily ceasing the Residential Supports portion of its Kentucky operations but desired to continue its Behavior Supports program. DN 89-20. During this time, at least one CTA Behavior Analyst expressed concern about CTA's future and its employees' job security. DN 82-14. The Foremans allege that Lee did not reach out to CTA's Kentucky employees during this time, even though Lloyd had warned Lee that CTA's staff was disgruntled.
Around July 13, 2011, while the investigation of Akridge's death continued to unfold, Carla Barrowman Clevenger ("Clevenger"), owner of Homeplace and Barrowman Case Management ("BCM"), approached Stephen Foreman to discuss the possibility of him transferring to Homeplace, which had a valid Medicaid Provider Number at the time, and creating a Behavior Supports Division there. Clevenger was aware of the murder and assumed it would result in the Cabinet "terminating" CTA's Medical Provider Contract and Number - an assumption that would eventually prove correct. DN 82-2. She then set up a dinner with the Foremans, and they agreed to attend as part of the their larger plan to "interview other companies to see who would be viable and who would be the best fit for [CTA's] clients." DN 82-17, p. 108. It is undisputed that Clevenger offered the Foremans employment at Homeplace during that dinner, DN 82-1, p. 84-85, and that they discussed what a transition of CTA's clients and Behavior Analysts to Homeplace "would look like." DN 82-1, p. 24-25. Then, as early as June 18, the Foremans began "brainstorming some place to hold meetings" with CTA's Behavior Analysts. DN 89-23.
Then on June 25, 2011, Clevenger confirmed her assumption that the Cabinet would terminate CTA's Medical Provider Contract and Number. She spoke to a Cabinet employee who indicated that the Cabinet was preparing to terminate a SCL provider's Medicaid Contract - a provider Clevenger deduced was CTA. DN 82-2, p. 126-27. Clevenger called Stephen Foreman to inform him of the impending termination, and, that same day, decided to offer employment to all of CTA's Behavior Analysts. Id. at 147. She and Stephen's conversation rested on the continued assumption that CTA's termination would prevent CTA from serving Medicaid clients and, thus, removing its need and ability to employ Behavior Analysts. Id. at 149-53.
Next, the Cabinet issued the anticipated Notice of Termination letter to CTA on July 26, 2011. DN 89-24. The letter advised CTA that "as of July 29, 2011, [its] certification as an SCL provider will hereby be terminated... [and it] shall not be entitled to receive any reimbursement for SCL services provided after July 29." Id. It explained that the "[t]ermination... [wa]s necessary to protect the health, safety, and well[-]being of residents who have been placed under its care" and based on the indictment of Tyler Brock. Id. The Cabinet cited two critical provisions in the letter: Sections 1(39) and 6(19) of 907 Ky. Admin. Regs. 1:671. Section 1(39) defines the operative term "terminated" as meaning "a provider's participation in the Medicaid Program has been ended, and that a contractual relationship no longer exists between a provider and the department for the provision of Medicaid covered services." 907 Ky. Admin. Regs. 1:671 § 1(39). Relevant here, Section 6(19) explains that the Cabinet "may terminate a provider immediately, if necessary to protect healthy, safety, or well-being of Medicaid recipients" - not coincidentally, the same language the Cabinet invoked as its basis for the termination. 907 Ky. Admin. Regs. 1:671 § 6(19); DN 89-24. The letter explained, critically, that the Cabinet would be "seeking immediate alternative placement" for CTA's clients and warned that "[a]ny efforts by [CTA], its staff, or anyone working in concert with it to disrupt or impede the orderly relocation of the[se] individuals... shall be subject to any and all remedies provided by law." Id. Nothing in it, however, prevented CTA from continuing to provide non-SCL services to privatepaying clients.
The Notice went on to explain that CTA had the right to apply for reinstatement as a SCL provider, and that it could appeal the termination in "an administrative hearing pursuant to 907 KAR 1:671, Section 9." DN 89-24. So on August 1, 2011, after hiring counsel, CTA filed an appeal of the Notice of Termination. DN 89-25. In a CTA conference call to which Stephen Foreman and Lloyd were parties, Lee explained that CTA was appealing the termination and that it planned to continue paying its employees and serving clients during the appeal. DN 82-5; DN 82-1. Stephen Foreman and Lloyd then participated in strategy calls with CTA management and Lee, during which CTA's future was discussed. Id. During these calls, Stephen Foreman never mentioned Homeplace, his plans to leave CTA, or any plans to transition CTA's Behavior Analysts and clients to Homeplace. Id. Nor did he reveal the actions that he was taking action to see these plans through.
So what actions was Stephen Foreman taking? In an e-mail dated July 26, 2011, Stephen told Clevenger that he had copied CTA's "employee files, " DN 89-27, though he never requested CTA's permission to do so. Then on July 27, 2011, the Foremans invited CTA's Behavior Analysts to an "urgent" meeting through their CTA e-mail accounts. DN 89-16. At the meeting, the Foremans informed the Behavior Analysts in attendance about the Notice of Termination letter, of their plans to begin working for Homeplace, and that Homeplace was willing to employ any CTA Behavior Analyst that desired to transfer with them. DN 82-1. The Foremans communicated the same by telephone to the Behavior Analysts who could not attend. Id. They did not explain to the Behavior Analysts, however, that CTA planned to appeal the termination, continue paying its Behavior Analysts, and continue serving its clients. DN 82-12. Whether the Foremans communicated that CTA was "closing" during these conversations is disputed, DN 89-1, p. 21-22; DN 82-1, p. 84-85, 159; moreover, whether the Behavior Analysts understood Stephen Foreman's representations, regardless of whether he used the term "closing, " to mean that CTA was shutting down its Kentucky operations or merely losing its Medicaid Provider Contract is also disputed. It is undisputed, however, that the Foremans never informed Lee that they would be holding this meeting.
Then, on July 29, the Cabinet issued another Notice of Termination ("Termination II") that extended CTA's termination deadline to August 2, 2011. This letter postponed CTA's termination deadline back to August 2 to "allow for a safe transition of the five waiver recipients still residing in [CTA] homes" as of July 29. DN 56-6. When CTA received the letter, Stephen Foreman had a telephone conversation with Cabinet employee Pam Taylor - a conversation that he claims confirmed his understanding that the Notice of Termination letters required that CTA's Behavior Analysts and clients be transferred to a provider other than CTA. DN 87-1. Pam Taylor's testimony, however, is that she never gave such an instruction to Stephen Foreman, and that Foreman "[b]asically" represented that "CTA had decided to no longer provide services to its behavioral support clients" in response to the termination. DN 82-16, p. 13-14. Taylor's testimony also reveals that, in response to her mentioning that CTA's clients had "freedom of choice" with regards to service providers, Stephen Foreman represented that CTA's clients would be transferring to Homeplace. Id. at 12. And in a follow-up e-mail to Taylor later that day, Stephen Foreman wrote that he was "in the process of transitioning all of [CTA's] behavior support specialists to Homeplace Support Services" and that he was "contacting all case managers to let them know of CTA's closing and [with which] agency that the providers will be continuing their service." DN 89-38 (emphasis added). Taylor has since indicated that she is unsure whether Stephen Foreman represented that CTA was voluntarily closing during their telephone conversation, or that, instead, "it was [just] understood that CTA was closing." DN 87-4, p. 2.
CTA alleges that, next, its Behavior Analysts began contacting CTA's clients and client case managers, notifying them that CTA was closing, and explaining that they could follow the Behavior Analysts to Homeplace to avoid a lapse in coverage. DN 89-1. It further alleges that the Behavior Analysts presented them with no provider options other than Homeplace. CTA claims that the clients and case managers were then given pre-formatted Homeplace documents to effect such a transaction. Id.
One Behavior Analyst testified that, in meeting with his clients, he told them "that really nothing changed other than the agency that [he] work[s] with;" he now explains that the transition was "pretty immaterial to [the clients]." DN 82-13, p. 22. It is undisputed that every CTA client moved over to Homeplace in a matter of days, DN 82-14, and that the clients signed information release forms at some point during or after the transfer. Along those lines, the parties dispute whether the clients signed any such release or "consent form" before their information was transferred to Homeplace.
On July 31, Stephen Foreman sent an e-mail to the CTA clients' case managers explaining that CTA would "no longer be providing behavior services under the Medicaid waiver." DN 89-31. The e-mail went on to say:
[CTA's] current clinicians will be transferring to Homeplace... and will have the ability to continue serving all of their current clients. I deeply apologize for this inconvenience and ask for your assistance in transferring those clients/families who wish to continue receiving the services of their current clinician over to Homeplace by modifying their Map 109's and dating their PA's for August 2nd to ensure there is no lapse in services....
[The Cabinet] has contacted us with their support of the transitions of and have expressed their willingness to help out in any way during this process.
Id. That same day, Lee sent Stephen Foreman an e-mail asking why he wouldn't return his calls. DN 89-26.
Then, early the morning of August 1, 2011, Stephen Foreman sent Tim Lloyd a 30-day notice of his intent to resign from his position at CTA. DN 89-33. Around 9:00 AM that same morning, Stephen used his CTA e-mail account to send Homeplace job applications to CTA's Behavior Analysts. His e-mail indicated that he would follow up with more documentation and asked the Behavior Analysts to "follo[w] up with [case managers] and [clients'] guardians" to "help speed up the transfer process." DN 89-37. He then used his CTA e-mail account to inform Clevenger that he had "copied all client files." DN 89-28. And late that evening, around the same time Stephen Foreman was attending a Homeplace Board of Directors meeting, DN 89-32, Lee's suspicions about Stephen's activity prompted him to examine Stephen's CTA e-mails for misconduct.
This quickly revealed Stephen's behind-the-scenes activity and evidence indicating that Stephen had deleted several emails. DN 82-6. In response, CTA "unplugged the [Foremans'] internet connection... from [its] network." Id. By this point, however, the Foremans had copied all of the CTA-related files from their CTA-issued laptops and saved them onto personal hard drives. DN 82-1. Stephen turned to a personal e-mail account and continued to contact CTA employees and ask if they could contact clients' guardians and case managers "to speed up the process." DN 89-35. Not a single CTA client faced a disruption in services because of the transfer to Homeplace.
On August 2, 2011, the effective date of the Notice of Termination, Lee e-mailed CTA's staff and communicated the following:
1). they, the staff, had been incorrectly informed that CTA no longer intended to provide behavioral support services under the Medicaid Waiver in Kentucky;
2). CTA had always intended to pursue remediation of the termination and wished to retain all staff and contractors during the appeal with pay;
3). because a review of Stephen Foreman's e-mail indicated "that all staff and contractors have been encouraged and have transitioned to a new provider, " he stated that he was unable to "know which clients, employees, or contractors remain" with CTA and, thus, terminated all of their contractual relationships as of July 31, 2011; and,
4). CTA's plans to seek an injunction against the Cabinet and enjoin the termination had been cancelled due to all of the transfers to Homeplace. DN 89-30.
After this e-mail, CTA went forward with its appeal of the Notice of Termination. It resolved the appeal by a Notice of Settlement and Dismissal on July 12, 2012, almost an entire year after the termination's August 2, 2011 effective date. DN 25-1. The terms of the settlement were that CTA agreed to dismiss its appeal and terminate its Medicaid Provider Contract for convenience and without prejudice in exchange for the Cabinet's withdrawal of the July 26, 2011 Notice of Termination for cause. Id. The Settlement permits CTA to reapply for a Medicaid Provider Number in Kentucky. Id. CTA maintains that, but for the Foreman's actions, it would have continued to pay staff and serve clients during the appeal period. DN 82-15.
Based on the foregoing, CTA filed this action against the Foremans and the Clevenger Defendants bringing fourteen claims centered around their alleged wrongful misappropriation of CTA's clients, employees, contracts, certifications, and contractors and tortious interference with CTA's business and governmental relationships.
A court may grant a motion for summary judgment if it finds that there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The moving party bears the initial burden of specifying the basis for its motion and identifying that portion of the record which demonstrates the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Once the moving party satisfies this burden, the nonmoving party thereafter must produce specific facts demonstrating a genuine issue of fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).
The evidence must be construed in a light most favorable to the party opposing the motion. Bohn Aluminum & Brass Corp. v. Storm King Corp., 303 F.2d 425 (6th Cir. 1962). However, the nonmoving party is required to do more than simply show there is some "metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The nonmoving party cannot rely upon the assertions in its pleadings; rather that party must come forward with probative evidence, such as sworn affidavits, to support its claims. Celotex, 477 U.S. at 324. It must present specific facts showing that a genuine factual issue exists by "citing to particular parts of materials in the record" or by "showing that the materials cited do not establish the absence... of a genuine dispute[.]" Fed.R.Civ.P. 56(c)(1). "The mere existence of a scintilla of evidence in support of the [nonmoving party's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [nonmoving party]." Anderson, 477 U.S. at 252.
Plaintiff contends that it is entitled to summary judgment on Counts I, II, III, IV, VI, VII, XI and XII in the Complaint. The Defendants separately contend that they are entitled to summary judgment on each count in the Complaint. The parties have dedicated a large part of their briefing to addressing CTA's proof of causation in the aggregate and separate from their claim-specific arguments. To accommodate this approach, the Court will also discuss the parties' causation arguments separately, in Part K below. Accordingly, our count-specific analysis in Parts A-J will intentionally exclude any discussion of damage causation, infra Part A-J, and we will address it on the back-end.
A. Count I: Breach of Fiduciary Duties
All parties have moved for summary judgment as to Count I of the Complaint, in which CTA alleges that the Foremans breached their fiduciary duties by planning, arranging and completing the transfer of CTA's Behavior Support business to Homeplace. A breach-offiduciary-duty claim has three elements: "(1) the existence of a duty arising from a fiduciary relationship; (2) a failure to observe such duty; and (3) an injury proximately resulting therefrom." Westlake Vinyls, Inc. v. Goodrich Corp., 518 F.Supp.2d 902, 916 (W.D. Ky. 2007) (citing Strock v. Pressnell, 38 Ohio St.3d 207, 527 N.E.2d 1235, 1244 (Ohio 1988)).
1. Existence of a Fiduciary Relationship
Kentucky recognizes fiduciary relationships in several forms, ranging from attorneyclient, to partner-to-partner, and even employer-employee. Henkin, Inc. v. Berea Bank & Trust Co., 566 S.W.2d 420, 423 (Ky. Ct. App. 1978). And while it is presumed that an officer or director of a corporation is a fiduciary that owes duties of loyalty and faithfulness, a "mere' salesperson" may owe a fiduciary duty to his or her employer if the "specific circumstances of his or her employment" so require. Miles Farm Supply, LLC v. Helena Chem. Co., 4:06-CV-23-R, 2008 WL 3010064, at *7 (W.D. Ky. Aug. 1, 2008) (citing ATC Distrib. Grp., Inc. v. Whatever It Takes Transmissions & Parts, Inc., 402 F.3d 700, 715-16) (6th Cir. 2005)) aff'd, 595 F.3d 663 (6th Cir. 2010). These circumstances exist where there is a relationship "founded on trust or confidence reposed by one person in the integrity and fidelity of another and which also necessarily involves an undertaking in which a duty is created in one person to act primarily for another's benefit in matters connected with such undertaking." ATC Distribution Grp., 402 F.3d at 715 (quoting Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 807 S.W.2d 476, 485 (Ky. 1991). Courts derive these relationships from agency principles and their understanding that "[o]ne cannot faithfully or fairly serve two masters" - one's employer and oneself. Stewart, 557 S.W.2d at 436, 438 (quoting Hoge v. Kentucky River Coal Corp., 287 S.W. 226 (1926)); Aero Drapery of Kentucky, Inc. v. Engdahl, 507 S.W.2d 166, 168 (Ky. 1974).
Kentucky courts are willing to find a fiduciary relationship between an employer and employee when the employee has a "position of trust, the freedom of decision[, ] and access to confidential corporate information." Aero, 507 S.W.2d at 168-69; Stewart v. Ky. Paving Co., 557 S.W.2d 435, 438 (Ky. App. 1977). For example, a Kentucky court found that a salesman owed fiduciary duties to his employer simply because he solicited contracts on behalf of the company and had access to its confidential information - circumstances, the court found, that put him in a position of trust. Stewart, 557 S.W.2d at 436, 438. This Court has cited this line of cases with approval and found similarly. Serv. Drywall Co. v. Commonwealth Walls, Inc., 3:06-CV-372-S, 2008 WL 1897728, at *2 (W.D. Ky. Apr. 28, 2008). In Service Drywall, we found that a "branch manager" owed fiduciary duties to his employer because he had oversight and control over operations of one office and access to the company's confidential information; he referred to himself as a manager; and, he was charged with "selling the company, " budgeting and billing jobs, and approving time sheets and payroll. Serv. Drywall, 2008 WL 1897728, at *2. These decisions focus our inquiry here.
The conditions of Stephen Foreman's employment with CTA leaves no doubt that he was a fiduciary. First, that he held a position of trust is evident from the following: 1). Lee sent him to Louisville to "begin a branch of Community Ties, " DN 82-16, p. 19; 2). Stephen was named Program Manager in Kentucky, a position that required to him to manage CTA's entire Behavior Supports program in the Commonwealth, ensure its compliance with state and company standards, and consult with CTA's funding sources, DN 82-1; 3). CTA required him to sign a confidentiality agreement that contemplated his exposure to, and non-disclosure of, protected health, proprietary, and confidential information,  DN 89-11, and; 4). Lee included him in executive-level conference and strategy calls about CTA's future. DN 82-1. Second, and bolstering our finding that he held a position of trust, Stephen not only had access to all of CTA's Kentucky client files, employee files, and business records, but kept them at his and Barbara Foreman's residence. DN 82-16. Lastly, Stephen had at least some "freedom of decision" because his duties as Program Manager also required that he decide which clinicians to hire, review behavior support plans and assessments, and make efforts to increase CTA's business. DN 82-1. Consequently, given the trust CTA held in him, the discretion CTA allocated to him, and his substantial access to confidential information, we find that Stephen Foreman was a fiduciary of CTA.
Nevertheless, we are not convinced that Barbara Foreman was a fiduciary of CTA. It is undisputed that she reviewed and had significant access to CTA's confidential records, but the theme running through our fiduciary-duty jurisprudence is that such access will not, alone, put an employee in a position of trust. Stewart, 557 S.W.2d 435, 438 (Ky. Ct. App. 1977) (finding that a salesman owed fiducial duties to his employer where he had access to confidential information and played a role in managing the company); Miles, 2008 WL 3010064, at *12 (finding that a member of upper-management did not owe fiduciary duties despite referring to himself as a manager and having access to confidential information). CTA has not pointed to that "something more." Harmful here, CTA has not shown that Barbara had any sort of "oversight and control over the operations [CTA's] Louisville office." Serv. Drywall, 2008 WL 1897728, at *2. She did not sell the company, budget or bill, was not a manager, and had never even met CTA's CEO, Lee.
In other words, although Barbara was trusted with access to confidential information - access that a secretary might have - we are unconvinced that CTA placed her in a "position of trust" for fiduciary purposes. She worked at CTA as a mere Behavior Analyst and only began providing clinical supervision services sometime during or prior to 2011. DN 82-16, p. 26-27. Although CTA places significant weight on the fact that Barbara provided these clinical supervision services, she did so simply because the Behavior Analysts needed someone to document their hours as part of their board-certification process; it was to meet regulatory requirements and was not an internal promotion. This role did not give her "any rank over employees" or increase her salary. In fact, any Behavior Analyst that has been board-certified for over two years can provide clinical ...