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Act for Health v. United Energy Workers Healthcare Corp.

United States District Court, W.D. Kentucky, Paducah Division

May 3, 2018

ACT FOR HEALTH, d/b/a Professional Management, et al., Plaintiffs/Counterclaim Defendants,
UNITED ENERGY WORKERS HEALTHCARE CORP., et al., Defendants/Counterclaimants,


          Thomas B. Russell, United States District Court Senior Judge

         ACT for Health, doing business as Professional Case Management, along with its wholly-owned subsidiary, Professional Case Management of Kentucky, LLC (collectively, PCM), filed this action against United Energy Workers Healthcare Corp., (UEW), and its wholly-owned subsidiary, Kentucky Energy Workers Healthcare, LLC, (KEW), along with Brightmore Home Care of Kentucky, LLC, (“Brightmore”), John Falls, Travis Shumway, Chad Shumway, and Nicholas Bame. PCM brings claims for unfair competition, for violating Kentucky law regarding the licensure of health care service providers, for tortious interference with contractual and prospective business relationships, and for civil conspiracy. Defendants have filed a motion to dismiss all of PCM's claims against them for failure to state a claim and for lack of personal jurisdiction. [DN 154.] PCM responded, [DN 177], and Defendants replied, [DN 186.] PCM then moved for leave to file a sur-reply, [DN 190], which Defendants oppose, [DN 193.] For the reasons discussed in detail below, Defendants' motion to dismiss, [DN 154], is GRANTED, and PCM's motion to file a sur-reply, [DN 190], is GRANTED.[1]


         This case arises out of a dispute between providers of home-health care services to eligible individuals under the Energy Employees Occupational Illness Compensation Program Act of 2000 (EEOICPA), 42 U.S.C. §§ 7384 to 7385s-16. Administered by the U.S. Department of Labor, the EEOICPA affords “benefits to individuals or their survivors for illnesses incurred from exposure to toxic substances while working for the Department of Energy or certain related entities.” Watson v. Solis, 693 F.3d 620, 622 (6th Cir. 2012). Under the EEOICPA, eligible individuals may receive health-care services, including home-health care services and personal-care services, from designated providers, whom the Department of Labor reimburses. See 42 U.S.C. §§ 7384e, 7384t; 20 C.F.R. §§ 30.400, 30.403.

         The Commonwealth of Kentucky regulates providers of home-health care services, known as “home health agencies, ” and providers of personal-care services, called “personal services agencies, ” differently. To provide home-health care services under Kentucky law, an entity must first obtain a “certificate of need” from the Cabinet of Health and Family Services to establish a “home health agency.” See Ky. Rev. Stat. § 216B.061(1)(a); see also Id. § 216B.015(9), (13). A “home health agency” is, in broad terms, an “organization . . . which provides intermittent health and health related services, to patients in their place of residence, either singly or in combination as required by a plan of treatment prescribed by a licensed physician.” 902 Ky. Admin. Reg. 20:081, § 2. “Health services, ” in turn, means “clinically related services provided within the Commonwealth to two . . . or more persons, including but not limited to diagnostic, treatment, or rehabilitative services.” Ky. Rev. Stat. § 216B.015(14).

         To provide personal-care services, on the other hand, an entity must obtain certification from the Cabinet to operate a “personal services agency.” Ky. Rev. Stat. § 216.712(1); see also 906 Ky. Admin. Reg. 1:180, § 2. Generally speaking, a “personal services agency” is an organization “that directly provides or makes provision for personal services.” Ky. Rev. Stat. § 216.710(8). “Personal services, ” in turn, include:

[a]ssisting with a client's ambulation and activities of daily living as defined in KRS 194A.700; . . . [f]acilitating the self-administration of medications if such medications are prepared or directed by a licensed health-care professional or the client's designated representative; . . . [p]roviding services which may be referred to as attendant care, in-home companion, sitter and respite care services, and homemaker services when provided in conjunction with other personal services; and . . . [p]roviding services that enable the client to live safely, comfortably, and independently.

Id. § 216.710(7)(a). The definition explicitly excludes, among other things, services that “require the order of a licensed health-care professional to be lawfully performed in Kentucky, ” id. § 216.710(7)(b)(6), as well as any “health-care entity or health-care practitioner otherwise licensed, certified, or regulated by local, state, or federal statutes or regulations, ” id. § 216.710(7)(b)(9).

         ACT for Health, doing business as Professional Case Management, furnishes home-health care services to EEOICPA-eligible patients in Kentucky through its wholly-owned subsidiary, Professional Case Management of Kentucky, LLC. [DN 148 at 5, ¶¶ 21-22 (First Amended Complaint).] PCMK is a licensed “home health agency” under Ky. Rev. Stat. § 216B.105(1). [See DN 57-2 at 3 (Home Health Agency License).] United Energy Workers Healthcare Corp., through its wholly-owned subsidiary, Kentucky Energy Workers Healthcare, LLC, also furnishes home-health care services to EEOICPA-eligible patients in Kentucky.

         PCM alleges that UEW and KEW have been providing home-health care services without the necessary licensure required for a “home health agency.” [See DN 148 at 6-7, ¶¶ 28-30.] Further, according to PCM, “KEW and UEW have solicited or attempted to solicit PCM's patient-clients” and have “offered incentives as a way to induce patients to choose KEW or UEW and/or to switch from PCM, such as offering free, unrelated services (e.g., free lawn care or other services or items), ” which PCM contends violates the federal Anti-Kickback Statute, 42 U.S.C. §1320a-7b(b). [Id. at 7, ¶¶ 31-33.] PCM further alleges that KEW and UEW have acted unlawfully by improperly advertising jobs for home health nurses as independent contractors rather than employees, which gives them “an unfair advantage in the market.” [Id. at 7, ¶¶ 34- 36.]

         In support of its proposition that KEW and UEW are operating unlawfully, PCM asserts that, “[d]uring the pendency of this litigation, the Kentucky Office of Inspector General (“OIG”) investigated UEW's provision of services in Kentucky, and determined in August 2016 that UEW had exceeded the scope of its Personal Services Agency certification in connection with six out of six patients sampled by OIG.” [Id. at 8, ¶ 37.] Additionally, in its First Amended Complaint, PCM adds Brightmore as a Defendant, claiming that Mr. Falls and the Shumways formed Brightmore in August 2016, after this litigation began, “apparently with the intent to purchase Private Duty Nursing Agency licenses held by other entities.” [Id. at 8, ¶ 38.]

         PCM alleges that, “after its formation, Brightmore began providing home health care services to UEW's and/or KEW's clients, in conjunction with UEW and/or KEW.” [Id. at 8, ¶ 40.] PCM further alleges that, “[u]pon information and belief, Brightmore is not a licensed home health agency, as that term is defined under Kentucky law and, therefore, its provision of home health care services is unauthorized, ” and therefore contends that “any liability resulting from the unauthorized provision of home health care services by Brightmore is attributable to UEW and/or KEW, and vice versa.” [Id. at 9, ¶¶ 49, 51.] In essence, PCM believes that “one or more of the Defendants formed Brightmore for the express purpose of hiding and/or limiting UEW's and/or KEW's liability in this litigation.” [Id. at 10, ¶ 53.]

         PCM brings claims against UEW, KEW, and Brightmore for unfair competition and for violating Chapter 216B of the Kentucky Revised Statutes, which governs the licensure of health care service providers. [Id. at 11-13.] Against all Defendants, including UEW, KEW, Brightmore, and the Individual Defendants (John Falls, Travis Shumway, Chad Shumway, and Nicholas Bame), PCM brings claims of tortious interference with contractual and prospective business relationships and civil conspiracy.

         After PCM filed its First Amended Complaint, [DN 148], Defendants filed the instant motion to dismiss, asserting that each of the four claims in PCM's complaint fail to state a claim upon which relief can be granted. [See DN 154 (Motion to Dismiss); DN 155 (Memorandum in Support of Motion to Dismiss).] Additionally, Defendants argue that this Court does not have personal jurisdiction over the Individual Defendants, and therefore that they must be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(2). [DN 154; DN 155.]


         A complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). In order to survive a motion to dismiss under Rule 12(b)(6), a party must “plead enough ‘factual matter' to raise a ‘plausible' inference of wrongdoing.” 16630 Southfield Ltd. P'ship v. Flagstar Bank, F.S.B., 727 F.3d 502, 504 (6th Cir. 2013) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). A claim becomes plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)). When considering a Rule 12(b)(6) motion to dismiss, the court must presume all of the factual allegations in the complaint are true and draw all reasonable inferences in favor of the non-moving party. Total Benefits Planning Agency, Inc. v. Anthem Blue Cross & Blue Shield, 552 F.3d 430, 434 (6th Cir. 2008) (citing Great Lakes Steel v. Deggendorf, 716 F.2d 1101, 1105 (6th Cir. 1983)). “The court need not, however, accept unwarranted factual inferences.” Id. (citing Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987)). Should the well-pleaded facts support no “more than the mere possibility of misconduct, ” then dismissal is warranted. Iqbal, 556 U.S at 679. The Court may grant a motion to dismiss “only if, after drawing all reasonable inferences from the allegations in the complaint in favor of the plaintiff, the complaint still fails to allege a plausible theory of relief.” Garceau v. City of Flint, 572 F. App'x. 369, 371 (6th Cir. 2014) (citing Iqbal, 556 U.S. at 677-79).


         Defendants move for the dismissal of each of PCM's claims against them. [DN 155 at 6.] The Court will address each of PCM's claims in turn.

         A. Unfair Competition

         Defendants first move to dismiss PCM's claim of unfair competition on the grounds that PCM has failed to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6).

         While a common-law action for unfair competition has long been recognized in the Commonwealth, and elsewhere, its boundaries under Kentucky law are somewhat unclear. The essence of the tort “is the bad-faith misappropriation of the labors and expenditures of another likely to cause confusion or to deceive purchasers as to the source or origin of goods.” Kenney v. Hanger Prosthetics & Orthotics, Inc., 269 S.W.3d 866, 871 (Ky. Ct. App. 2007) (quoting 54A Am. Jur. 2d Monopolies, Restraints of Trade, and Unfair Trade Practices § 1107 (1996)). According to Kentucky's highest court, unfair competition under Kentucky law

consists of either (1) injuring the plaintiff by taking his business or impairing his good will, or (2) unfairly profiting by the use of the plaintiff's name, or a similar one, in exploiting his good will. Underlying the whole theory is the matter of actual or intended deception of the public for business reasons.

Covington Inn Corp. v. White Horse Tavern, Inc., 445 S.W.2d 135, 139 (Ky. 1969).

         In their motion to dismiss, Defendants argue that PCM's allegations that “UEW does not have proper licensure and has misclassified caregivers as independent contractors, resulting in cost savings that give UEW an unfair advantage in the marketplace, ” even when accepted as true, “fail to state a claim under Kentucky law because PCM makes no claim that UEW tried to confuse potential customers or otherwise capitalize on PCM's goodwill.” [DN 155 at 11.]

         PCM argues, on the other hand, that “Defendants define Kentucky unfair competition claims far too narrowly.” [DN 177 at 7.] In support of this argument, PCM relies on a portion of Covington Inn Corp. v. White Horse Tavern, Inc., in which Kentucky's highest court (then the Court of Appeals) cited a treatise, American Jurisprudence on Trademarks, to explain the evolution of the doctrine of unfair competition:

‘As stated by some authorities, the essence of the wrong is the sale of one's own goods for those of another person, and it has sometimes been declared that nothing less than conduct tending to pass or ‘palm' off one's own merchandise, services, or business as that or those of another will constitute unfair competition. According to other authorities, however, the doctrine of unfair competition is not limited to such passing off of one's goods, services, or business for those or that of another, but extends to others acts done or practices employed for the purpose of pirating the trade of a competitor. It has been held to apply to misappropriation as well as misrepresentation, to the selling of another's goods as one's own-to misappropration [sic] of what equitably belongs to a competitor. Also, the doctrine has been extended in many cases, especially the more recent, so as to afford protection and relief against the unjust appropriation of, or injury to, the good will or business reputation of another, even though he is not a competitor.' (Emphasis added.)

Covington, 445 S.W.2d at 137-38. PCM construes portions of the above-excerpt from Covington to mean that unfair competition law in Kentucky has a broad reach beyond the trademark context. [See DN 177 at 9.] The way PCM sees it, its allegations “that UEW (which includes Defendant Kentucky Energy Workers Healthcare) and Brightmore provide unlicensed home health care in Kentucky, which has unfairly injured PCM by taking its business and/or impairing its good will” are more than sufficient to state a claim for unfair competition under Kentucky law. [Id. at 9.] PCM further argues that it states a claim for unfair competition through the allegations that “UEW is . . . misclassifying its employees as contractors, which gives it an unfair advantage in recruiting workers and unlawfully increases its profit margins” and that “UEW's and Brightmore's actions are deceptive, because UEW and Brightmore surely are not notifying their patients that they are operating unlawfully, without appropriate licensure or authority.” [DN 177 at 10 (citing First Amended Complaint).] In essence, PCM alleges “that UEW injured PCM by taking PCM's business.” [Id.]; see Covington, 445 S.W.2d at 139 (“[U]nfair competition consists [in part] of . . . injuring the plaintiff by taking his business or impairing his good will.”).

         The Court disagrees that the tort of unfair competition extends to PCM's allegations in this suit. PCM's unfair competition claim, in essence, consists of allegations that UEW's provision of home-health care services without the required licensure, along with its misclassification of employees, gives UEW an unfair advantage in the marketplace. [See DN 148 at 7, ¶¶ 29-36.] Even if PCM's allegations are true, however, they do not support an actionable claim for unfair competition under Kentucky law. All of the cases discussed by the Covington in articulating “its definition of unfair competition involved one party alleging that another party was using a similar name with the intent to deceive the public.” Raheel Foods, LLC v. Yum! Brands, Inc., No. 3:16-CV-00451-GNS, 2017 WL 217751, at *7 (W.D. Ky. Jan. 18, 2017) (discussing Covington, 445 S.W.2d at 138-39). Indeed, in Covington, the court noted that “[t]he classic case” of unfair competition “is when the defendant uses a name or symbol to identify products [or services] for the obvious purpose of capitalizing on the good will created by a competitor in the same line of business.” Covington, 445 S.W.2d at 138. For example, the Covington court explained that,

[i]n Louisville Taxicab & Transfer Co., v. Yellow Cab T. Co., D.C., 53 F.Supp. 272, the plaintiff claimed a property right in the name ‘Yellow Cab'. The defendant was a foreign corporation by the name of ‘Yellow Cab Transit Company'. It operated only as a common carrier of freight but it solicited business in Louisville as the ‘Yellow Transit Company'. The plaintiff was given injunctive relief basically on the ground that the defendant was capitalizing on the plaintiff's good will.

Id. The Court also cited an analogous Kentucky case, Kay Jewelry Co. v. Gay's Jewelry, Inc., 277 S.W.2d 30 (Ky. 1955), in which Kay Jewelry Company had operated a store on Fourth Street in the City of Louisville since 1931. In 1952 GAY'S JEWELRY, INC., opened the same sort of business in a store about four blocks away on the same street. We affirmed a judgment of the Chancellor refusing to grant KAY an injunction. In reaching this conclusion it was said (page 33 of 277 S.W.2d):

‘* * *, the intent to deceive is the gravamen of the offense in all cases of this character.'

         No such intention was established. The opinion goes on to say (page 34 of 277 S.W.2d):

‘Therefore, the greater consideration should be given to the intent with which the name is used, the manner in which it is used, and whether the public is deceived or confused by the use of the name ...

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