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Humana, Inc. v. Cave Consulting Group, Inc.

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

September 19, 2018

HUMANA, INC., Plaintiff/Counter Defendant,
CAVE CONSULTING GROUP, INC., Defendant/Counter Claimant.


          DAVID J. HALE, JUDGE

         This case arises out of a dispute between Humana and Cave Consulting Group (CCG) over materials that Humana did not destroy after it terminated its software license with CCG. The parties have filed cross motions for summary judgment. (Docket Nos. 103, 108/109)[1]Because the parties' contract is ambiguous and the extrinsic evidence does not clearly support either side's position, the Court will deny CCG's motion for summary judgment, grant in part and deny in part Humana's motion for summary judgment, and refer the matter to a magistrate judge for a pretrial status conference.

         I. BACKGROUND

         The facts underlying this case are largely undisputed. In April 2003, Humana contracted with CCG for CCG's consulting services. (D.N. 106, PageID # 1145) Approximately six months later, the parties entered into the Marketbasket System License Agreement (MSLA), which allowed Humana the use of CCG's Marketbasket System, computer software for measuring physician efficiency. Humana paid monthly licensing fees under the MSLA and renewed the agreement through December 31, 2012; those renewals, as well as modifications to the MSLA, are reflected in Amendments 1 through 4. (See D.N. 107-3, PageID # 1403-13) After notifying CCG of its intent to terminate the agreement, Humana certified to CCG on January 11, 2013, that it had destroyed all of CCG's confidential information as required by the MSLA, and it attached a spreadsheet listing the destroyed files. (D.N. 106-1, PageID # 1161) Nevertheless, CCG continued to bill Humana, arguing that Humana was obligated to destroy all data generated by the Marketbasket System, which CCG believes are “Interface Reports” under the MSLA. (D.N. 106, PageID # 1158; see generally D.N. 105)

         Humana does not deny that it retained the data in question but maintains that the MSLA did not require destruction of the data it kept. It filed this action seeking a declaratory judgment that it is not liable for any further payments to CCG under the parties' agreements. (D.N. 1, PageID # 5-6) CCG counterclaimed, alleging breach of contract, conversion, and unjust enrichment and seeking specific performance of the MSLA. (D.N. 18, PageID # 62-68) The counterclaim asserts that “[a]fter expiration of the MSLA and contrary to the surviving terms of the MSLA, Humana retained, and continued to use, CCG's Intellectual Property, including, but not limited to, Interface Reports and Practitioner Efficiency Measurement Reports.” (Id., PageID # 64)

         During discovery, Humana moved to compel responses to requests for production of documents it believed would shed light on the intended meaning of the term “Interface Reports.” (D.N. 72) The magistrate judge viewed Humana's request as an impermissible attempt to create an ambiguity in the MSLA through extrinsic evidence, and he denied the motion to the extent it sought discovery of documents unrelated to CCG's agreement with Humana. (See D.N. 87, PageID # 1040-43 & n.15) The Court overruled Humana's objection to that ruling, agreeing with Magistrate Judge Whalin that the information Humana sought “was ‘not potentially relevant.'” (D.N. 99, PageID # 1089)

         The parties each seek summary judgment on the issue of whether Humana breached the MSLA. They also dispute whether CCG has suffered damages or is entitled to recover its attorney fees. (D.N. 103; D.N. 108) Humana additionally seeks summary judgment as to CCG's counterclaims of conversion and unjust enrichment (D.N. 108, PageID # 2418-20) and moves to strike CCG's reply in support of its summary-judgment motion, which exceeded the page limit set by local rule. (D.N. 126) CCG has now moved for leave to file excess pages. (D.N. 127) All of these motions are fully briefed, and the Court has heard oral argument on the motions for summary judgment. (D.N. 146)

         II. ANALYSIS

         At the heart of the parties' disagreement are their differing characterizations of the data in question. According to CCG, the files retained by Humana constitute “Interface Reports, ” which, under the MSLA, are “Confidential Information” that must be destroyed. Humana, however, believes that the files comprise the “Client Database” and thus belong to Humana; it claims never to have used the Interface Report component of the Marketbasket System. Therefore, to resolve the motions for summary judgment, the Court must interpret the MSLA.

         A. Summary Judgment Standard

         Summary judgment is required when the moving party shows, using evidence in the record, “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); see 56(c)(1). For purposes of summary judgment, the Court must view the evidence in the light most favorable to the nonmoving party. Loyd v. Saint Joseph Mercy Oakland, 766 F.3d 580, 588 (6th Cir. 2014) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)). However, the Court “need consider only the cited materials.” Fed.R.Civ.P. 56(c)(3); see Shreve v. Franklin Cty., Ohio, 743 F.3d 126, 136 (6th Cir. 2014). If the nonmoving party “fails to properly support an assertion of fact or fails to properly address another party's assertion of fact as required by Rule 56(c), ” the fact may be treated as undisputed. Fed.R.Civ.P. 56(e)(2)-(3). “[O]n cross-motions for summary judgment, the court must evaluate each party's motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration.” Dixon v. Univ. of Toledo, 702 F.3d 269, 273 (6th Cir. 2012) (alteration in original) (quoting B.F. Goodrich Co. v. U.S. Filter Corp., 245 F.3d 587, 592 (6th Cir. 2001)).

         B. Choice of Law

         As an initial matter, the Court must determine what state's law applies. The MSLA provides that it is to be construed in accordance with the laws of Missouri. (D.N. 109-18, PageID # 3340) However, the Court must apply Kentucky's choice-of-law rules, see Performance Contracting, Inc. v. Dynasteel Corp., 750 F.3d 608, 611 (6th Cir. 2014), and “Kentucky courts have an extremely strong and highly unusual preference for applying Kentucky law even in situations where most states would decline to apply their own laws.” Osborn v. Griffin, 865 F.3d 417, 443 (6th Cir. 2017) (citations omitted). Because “Kentucky courts will not automatically honor a choice-of-law provision, to the exclusion of all other considerations, ” id. (quoting Wallace Hardware Co. v. Abrams, 223 F.3d 382, 393 (6th Cir. 2000)), the MSLA's designation of Missouri law is not dispositive. Rather, if Kentucky has the “most significant relationship to” the MSLA and the parties, the Court must apply Kentucky law. Id. (quoting Schnuerle v. Insight Commc'ns Co., 376 S.W.3d 561, 566-67 (Ky. 2012)).

         Humana asserts that Kentucky has the most significant relationship to this case because Humana's principal place of business is in Kentucky; Humana's negotiation and execution of the MSLA occurred in Kentucky; the MSLA specifically authorized use of the Marketbasket System in Louisville, Kentucky; and the stated purpose of the MSLA was to facilitate data-processing by Humana at its Kentucky headquarters. (D.N. 109, PageID # 2489-90 (citing various MSLA provisions)) CCG does not dispute these points; instead, it merely asserts that Missouri law should apply because the MSLA says so.[2] (D.N. 105, PageID # 1125, 1128; see generally D.N. 116) But “Kentucky's most-substantial-relationship test trumps even an otherwise-valid choice of law clause when the dispute is centered in Kentucky.” Osborn, 865 F.3d at 444 (citing Hackney v. Lincoln Nat'l Fire Ins. Co., 657 Fed.Appx. 563, 570 (6th Cir. 2016)). Based on the facts outlined by Humana, Kentucky has the most significant relationship to the parties' dispute. The Court will therefore apply Kentucky law.

         C. Contract Interpretation

         Under Kentucky law, contract interpretation is a legal issue for the Court, with the parties' intent to be determined from the four corners of the contract if possible. VIBO Corp. v. Conway, 669 F.3d 675, 688 (6th Cir. 2012) (citations omitted); Equitania Ins. Co. v. Slone & Garrett, P.S.C., 191 S.W.3d 552, 556 (Ky. 2006). If, however, a contractual term is ambiguous-that is, “if a reasonable person would find it susceptible to different or inconsistent interpretations, ” Big Sandy Co. v. EQT Gathering, LLC, 545 S.W.3d 842, 845 (Ky. 2018)-then the Court may attempt to discern the parties' intentions through extrinsic evidence. Clark v. Hectus & Strause PLLC, 345 S.W.3d 857, 860 (Ky. Ct. App. 2011) (quoting Frear v. P.T.A. Indus., Inc., 103 S.W.3d 99, 106 (Ky. 2003)). Ultimately, “if the writing is ambiguous, the factual question of what the parties intended is for the jury to decide.” Id. at 859 (quoting Equitania, 191 S.W.3d at 556). Thus, “[c]ontract language can be interpreted by the court on summary judgment if the contract's terms are clear and unambiguous or, if the contract language is ambiguous, the extrinsic evidence supports only one of the conflicting interpretations, notwithstanding the ambiguity.” Arlington Video Prods. v. Fifth Third Bancorp, 569 Fed.Appx. 379, 386 (6th Cir. 2014) (citing United Rentals (N. Am.), Inc. v. Keizer, 355 F.3d 399, 406 (6th Cir. 2004)). Here, Humana and CCG each contend that the MSLA unambiguously supports their respective positions. (See D.N. 105, PageID # 1128-31; D.N. 108, PageID # 2407) Neither is correct.

         1. Relevant Provisions

         For purposes of the MSLA, Humana is the “Client.” (D.N. 109-18, PageID # 3327) The following definitions from the agreement are at issue:

(d) “Client Data” means medical claims and encounter information and information about medical/surgical reimbursement claims, mental health/chemical dependency claims, prescription drug reimbursement claims, and clinical laboratory services from Client's own membership that Client desires to process and create databases in-house [sic].
(e) “Client Database” means Client Data that has been processed, integrated, and organized by the Marketbasket System.™
. . . .
(g) “Confidential Information” means the Intellectual Property and information concerning either party's services, operations, business plans, processes, and financial information and other confidential information of or relating to either party and the trade secrets, proprietary and confidential all [sic] past, present and future business activities and all information related to the business of Client, its officers, directors, employees and agents, its and their clients, members and/or enrollees whether de-identified or not that may be obtained orally, in writing or from any source, as well as all information that may be obtained and or gleaned from Client or a third party[, ] including Client Data, and information on Client's mainframe, LANs and workstations and all software, middleware, firmware, licensed internal code and direct or remote access method and also including but not limited to, any information relating to the pricing, methods, processes, financial data, lists, apparatus, statistics, programs, research, development or related information of Client, its clients, members and/or enrollees concerning past, present or future business activities and/or the results of the provision of services to Client. Confidential [I]nformation does not include: (a) information that is in the public domain prior to the disclosure or becomes part of the public domain through no wrongful act of the party receiving such information, (b) information that was i[n] lawful possession of the receiving party without a confidentiality obligation prior to the disclosure, (c) information that was independently developed by the receiving party outside the scope of this Agreement, and (d) information that was disclosed to the receiving party by a third party who was in lawful possession of the information without a confidentiality obligation.
(h) “Derivatives” means all Intellectual Property, improvements, modifications, changes, alterations, amendments or the like, relating to the Intellectual Property. Notwithstanding, both parties understand and agree that should Client receive results from the Marketbasket System and create other systems or data (“Client System”), such Client Systems shall not be construed as a Derivative. Client Systems shall be the sole property of Client. . . .
. . . .
(j) “Intellectual Property” means all of the Algorithms, Interface Reports, Models, and CCGroup's other proprietary software, source code, object code, information, methods of analysis, copyrights, trade marks, service marks, patents, inventions and trade secrets, Derivatives, Upgrades, and documentation, manuals and training materials relating to any of them, all of which is ...

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