Justia Contracts Opinion SummariesArticles Posted in US Court of Appeals for the Sixth Circuit
SHH Holdings, LLC v. Allied World Specialty Ins. Co.
A False Claims Act qui tam action was filed under seal against SHH and its nursing facilities, alleging that SHH provided unreasonable and unnecessary services to claim the highest possible Medicare reimbursement. Three co-relators also alleged that SHH retaliated against them for internally reporting fraudulent billing practices. SHH received a Department of Justice notification that it was the subject of a fraudulent claims investigation, requesting information about recent terminations of SHH employees, including the relators. It did not explicitly refer to the retaliation allegations.Two years later, SHH obtained liability coverage. Allied's claims-made policy applies only to claims first made during the policy period. SHH's application checked "none" when asked to “provide full details of all inquiries, investigations, administrative charges, claims, and lawsuits filed” within the last three years. SHH checked “no” to whether “[SHH], any Subsidiary, any Executive or other entity proposed for coverage kn[ew] of any act, error or omission which could give rise to a claim, suit or action.” An application exclusion, incorporated into the policy, stated that if such information existed, any inquiry, investigation, administrative charge, claim, or lawsuit arising therefrom or arising from such violation, knowledge, information, or involvement is excluded from coverage.The qui tam action was unsealed. SHH notified Allied and sought coverage for defense costs. Allied denied coverage. SHH sued. SHH later settled the relators' retaliation claim ($2.2 million) and finalized a $10 million settlement for the claims-submissions violations. The district court granted SHH partial summary judgment, awarding $2,336,786.35. The Sixth Circuit reversed. The plain language of SHH’s policy excluded coverage. View "SHH Holdings, LLC v. Allied World Specialty Ins. Co." on Justia Law
BNA Associates LLC v. Goldman Sachs Specialty Lending Group, L.P.
Maryville College leased a building to Ruby Tuesday, which used it for corporate retreats. In financial trouble years later, Ruby Tuesday decided to sell its interest in the lease. BNA, a real estate developer, and Ruby Tuesday signed an agreement. Ruby Tuesday had previously secured a loan from Goldman Sachs that prevented Ruby Tuesday from selling its interest in the lease without Goldman’s consent. The agreement with BNA stated that Ruby Tuesday “must obtain approval from [Goldman] for the transaction.” Goldman refused to approve. Goldman later acquired the lease, after Ruby Tuesday’s bankruptcy.BNA sued Goldman under Tennessee law for intentional interference with business relations (IIBR). The Sixth Circuit affirmed the dismissal of the suit. To establish a viable IIBR claim, BNA had to adequately plead an existing business relationship with Ruby Tuesday, Goldman’s knowledge of that relationship, Goldman’s intent to cause a breach or termination of the relationship, Goldman’s improper motive or improper means, and damages from the tortious interference. BNA’s pleading did not satisfy the tort’s fourth prong: improper motive or means. The court also noted the lack of an existing business relationship between BNA and Ruby Tuesday. View "BNA Associates LLC v. Goldman Sachs Specialty Lending Group, L.P." on Justia Law
Stryker Employment Co., LLC v. Abbas
Stryker develops, manufactures, and sells spinal implants and products, and employed Abbas from 2013-2022. Abbas purports to have worked exclusively within Stryker’s finance department. Stryker claims that Abbas worked in various roles, including in sales. Abbas regularly used significant amounts of Stryker’s confidential information and trade secrets and supported Stryker’s litigation efforts. Abbas entered into confidentiality, noncompetition, and nonsolicitation agreements with Stryker when he commenced his employment, and again in 2022.Alphatec competes with Stryker. Stryker alleges that Alphatec "systematically misappropriate[s] Stryker[’s] confidential information, trade secrets, customer goodwill, and talent” and is litigating against Alphatec and former Stryker employees in several cases. Abbas resigned from Stryker to take a newly-developed position with Alphatec, a sales role, “crafted to protect Stryker’s confidential information.” Stryker sued for breach of contract and misappropriation of trade secrets.The Sixth Circuit affirmed the issuance of a preliminary injunction on behalf of Stryker. The district court crafted the injunction to preserve the status quo, reserving the possibility that other prospective jobs might be consistent with Abbas's employment agreement. It is not an impermissible industry-wide ban. Stryker is likely to succeed on the merits, based on findings that Abbas worked for Stryker in both sales and finance; Abbas had unfettered access to Stryker’s most sensitive sales and financial information, Stryker’s sales representatives, and key customer decision-makers; the Alphatec position involved work similar to the work Abbas performed for Stryker; and Abbas supported Stryker on litigation matters. View "Stryker Employment Co., LLC v. Abbas" on Justia Law
Electronic Merchant Systems LLC v. Gaal
In 2014, EMS entered into a payment processing agreement with Procom, a business owned by Gaal that sold historical tours. The Agreement was executed by Gaal, who signed a personal-guaranty provision. It contained terms relating to “chargebacks,” which occurred when a Procom customer’s transaction was declined or canceled after EMS had credited Procom’s account for the purchase; EMS repaid the money to the Procom customer, then charged Procom for that money plus a fee. In 2019, EMS and Procom executed a second agreement, which contained an explicit integration clause; the guaranty provision was not signed by Gaal but by another Procom employee. During the COVID-19 pandemic, many customers canceled purchases with Procom, resulting in $10 million in chargebacks. Procom is involved in Chapter 7 bankruptcy proceedings. EMS filed a creditor’s proof of claim and sued Gaal. The district court dismissed for failure to state a claim, finding that the 2019 Agreement superseded the 2014 agreement “in all material respects,” including replacing Gaal’s guaranty.The Sixth Circuit affirmed in part, upholding the district court’s consideration of the bankruptcy filing for purposes of determining when chargebacks occurred and its finding that the 2019 Agreement replaced the 2014 Agreement rather than merely supplementing it. The court reversed in part, holding that any chargeback related to transactions occurring before the execution of the 2019 Agreement arose under the 2014 Agreement. View "Electronic Merchant Systems LLC v. Gaal" on Justia Law
Bluegrass Materials Co., LLC v. Freeman
The 1985 “Manning Lease” granted the lessee rights to oil and gas on an approximately 100-acre tract of land in Bowling Green that is adjacent to a quarry. There is a long-expired one-year term, followed by a second term that conditions the maintenance of the leasehold interest on the production of oil or gas by the lessee. Bluegrass now owns the property. Believing that lessees were producing an insufficient quantity of oil to justify maintaining the lease, Bluegrass purported to terminate the lease and sought a declaration that the lease had terminated by its own terms while asserting several other related claims.The district court found that Bluegrass’s termination of the lease was improper and granted the lessees summary judgment. The Sixth Circuit reversed and remanded. There is a factual dispute regarding whether the lease terminated by its own terms. The trier of fact must determine if the lessee has produced oil in paying quantities after considering all the evidence. There is a material factual dispute about whether the lessee ceased producing oil for a period of time, and, if so, whether that period of time was unreasonable. View "Bluegrass Materials Co., LLC v. Freeman" on Justia Law
Stackpole International Engineered Products, Ltd.. v. Angstrom Automotive Group, LLC
Stackpole (Purchaser) makes car parts. Precision (Seller) makes automotive subcomponents. In 2014, Seller gave Purchaser quotes on pumps, making “[a]cceptance of order” subject to APQP [Advanced Product Quality Planning Review]. Purchaser issued a “Letter of Intent” to buy 1.1 million 10R/10L shafts and 306,000 Nano shafts. Seller's employee signed the letter, which provided that Purchaser would issue purchase orders for actual shipments. The purchase orders contained six pages of supplemental terms, allowing Purchaer to “terminate . . . this contract, at any time and for any reason, by giving written notice,” and providing that purchase orders would “not become binding” until the additional provisions were “signed and returned.” Seller did not sign the purchase orders but shipped parts to Purchaser for two years. In 2017, Seller stated that it needed a price increase or it would have to halt production. Purchaser agreed to price increases “under duress and protest,” then sued for breach of contract. Seller counterclaimed, alleging that Purchaser had impermissibly withheld its approval to make the parts by an automatic rather than manual process.The district court awarded Purchaser summary judgment, finding the parties had formed a contract “for successive performances.” “indefinite in duration.” Michigan law makes such contracts presumptively terminable upon “reasonable notification” A jury awarded $1 million. The Sixth Circuit affirmed. The Letter of Intent constituted a contract, notwithstanding the failure to engage in APQP. No contextual factor suggests a right to terminate the Letter of Intent without notice. View "Stackpole International Engineered Products, Ltd.. v. Angstrom Automotive Group, LLC" on Justia Law
New Lansing Gardens Housing Limited Partnership v. Columbus Metropolitan Housing Authority
The U.S. Department of Housing and Urban Development (HUD) oversees the Section 8 low-income housing assistance program, 42 U.S.C. 1437f. New Lansing renewed its Section 8 contract with Columbus Metropolitan Housing Authority in 2014 for a 20-year term. In 2019, at the contractual time for its fifth-year rent adjustment, New Lansing submitted a rent comparability study (RCS) to assist CM Authority in determining the new contract rents. Following the 2017 HUD Section 8 Guidebook, CM Authority forwarded New Lansing’s RCS to HUD, which obtained an independent RCS. Based on the independent RCS undertaken pursuant to HUD’s Guidebook requirements, the Housing Authority lowered New Lansing’s contract rents amount.The Sixth Circuit affirmed the dismissal of New Lansing’s suit for breach of contract. The Renewal Contract requires only that the Housing Authority “make any adjustments in the monthly contract rents, as reasonably determined by the contract administrator in accordance with HUD requirements, necessary to set the contract rents for all unit sizes at comparable market rents.” HUD has authority to prescribe how to determine comparable market rents, the Renewal Contract adopted those requirements, and thus the Housing Authority was required to follow those HUD methods. The Housing Authority did not act unreasonably by following the requirements in the 2017 HUD guidance. View "New Lansing Gardens Housing Limited Partnership v. Columbus Metropolitan Housing Authority" on Justia Law
Product Solutions International, Inc. v. Aldez Containers, LLC
PSI helps customers bring products to market. P.B. contacted PSI for assistance with the design, manufacture, and distribution of a custom cosmetics bag (Orgo Bag). PSI submitted a purchase order to its Chinese manufacturers indicating that P.B. would purchase 100,000 Orgo Bags in the first year and purchase another 1.5 million bags annually thereafter. During the first 18 months, P.B. purchased only 38,296 Orgo Bags. PSI directed the Chinese manufacturer to mitigate its losses and liquidate any materials it had purchased for the Orgo. The failure of the Orgo cost PSI $506,129.44. In 2019, PSI sued P.B., Aldez, Copek, and Byrne, alleging breach of contract, promissory estoppel, fraud, silent fraud, negligent misrepresentation, innocent misrepresentation, and non-acceptance of conforming goods under the U.C.C. The court dismissed Copek, Byrne, and Aldez but permitted some claims against P.B. to continue.In 2021, PSI sued Aldez for breach of contract, promissory estoppel, and nonacceptance of conforming goods, arguing that in the 2019 suit, its claims were pleaded directly against Aldez, whereas in the 2021 suit, it sought to pierce P.B.’s corporate veil and hold Aldez vicariously liable. The district court dismissed, citing res judicata. The Sixth Circuit affirmed. The complaint does not allege any wrongdoing by Aldez and corporate veil piercing is not a cause of action under Michigan law; the 2021 suit’s complaint fails to state a claim. View "Product Solutions International, Inc. v. Aldez Containers, LLC" on Justia Law
New London Tobacco Market, Inc. v. Ky. Fuel Corp.
The Sixth Circuit affirmed in part and reversed and remanded in part the judgment of the district court entering default judgment against Defendants in this breach of contract and fraud action and awarding damages to Plaintiffs on all counts, holding that there was error in the damages award.During the underlying litigation, Defendants committed a string of "egregious" discovery violations, and the district court entered default judgment as a sanction. After a hearing, the district court awarded Plaintiffs two types of breach-of-contract-related damages. The Court then awarded fraud and punitive damages. The Sixth Circuit reversed in part, holding (1) Plaintiffs' fraud claim failed because it did not plead fraud with particularity as required by Fed. R. Civ. P. 9(b); (2) Kentucky's choice-of-remedies rule and the economic-loss doctrine barred Plaintiffs from recovering for both breach of contract and fraud; and (3) because Plaintiffs could not recover fraud damages, the punitive damages award could not stand. View "New London Tobacco Market, Inc. v. Ky. Fuel Corp." on Justia Law
Posted in: Contracts, US Court of Appeals for the Sixth Circuit
Greenhouse Holdings, LLC v. International Union of Painters
The Sixth Circuit vacated the judgment of the district court vacating an arbitration award to the extent that it applied to Greenhouse Holdings, LLC (Greenhouse), holding that it was disputed whether Greenhouse consented to arbitrate, and therefore, the evidence should be weighed by the district court in the first instance.At issue was whether an arbitrator has the authority to bind someone who hasn't signed the underlying arbitration agreement to an arbitration award. A Union filed a grievance against "Clearview Glass," alleging that it violated the parties' collective bargaining agreement. An arbitrator concluded that Greenhouse was bound by an in violation of the CBA. The district court vacated the award to the extent it applied to Greenhouse because it was unclear whether Greenhouse ever assented to the CBA. The Sixth Circuit vacated the judgment, holding that remand was required for the district court to first decide whether Greenhouse consented to arbitrate the threshold arbitrability question. View "Greenhouse Holdings, LLC v. International Union of Painters" on Justia Law