Renal Treatment Centers West Incorporated v. Allegiant Healthcare West LLC

• Court: District Court, D. Arizona
• Decided: September 17, 2021
• Docket: 2:20-cv-01437
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Renal Treatment Centers West Incorporated, No. CV-20-01437-PHX-GMS

10 Plaintiff, ORDER

11 v.

12 Allegiant Healthcare West LLC,

13 Defendant. 14 15 16 Before the Court is Defendant Allegiant Healthcare West LLC’s (“Defendant”) 17 Motion to Withdraw and/or Amend Admissions (Doc. 49). For the following reasons, 18 Defendant’s Motion is denied. 19 BACKGROUND 20 Plaintiff Renal Treatment Centers West, Inc. (“Plaintiff”) “provides hospitals and 21 skilled nursing facilities with necessary non-physician personnel, including registered 22 nurses and patient care technicians, for certain in-patient and out-patient services.” (Doc. 23 53 at 2.) Defendant operates nursing homes in Mesa and Phoenix. In 2017, Defendant 24 agreed to take over a contract between Plaintiff and a third party (“Amended Acute 25 Services Agreement”). Seven months later, Plaintiff and Defendant entered into a second 26 agreement (“Dialysis Services Agreement”). Both agreements provided that Plaintiff 27 would supply Defendant personnel, supplies, and equipment at its Mesa and Phoenix 28 locations in exchange for payment “on or before the twenty-fifth day of the month 1 following the month in which the [services] were provided.” (Doc. 53 at 3–4.) Defendant 2 admits that it did not pay the invoices related to either agreement, (Doc. 50 at 4), arguing 3 instead that both agreements are invalid or unenforceable. (Doc. 56 at 4.) 4 Plaintiff served its initial discovery requests, including the requests for admission at 5 issue, on December 30, 2020. The deadline for Defendant’s response was originally 6 February 1, 2021, but Plaintiff granted a two-week extension to February 15. Defendant 7 did not meet the deadline, citing ongoing settlement negotiations and the COVID-19 8 pandemic. (Doc. 50 at 9–10.) Because Defendant failed to respond, all of Plaintiff’s 9 requests were deemed admitted pursuant to Federal Rule of Civil Procedure 36(b). 10 Defendant now moves to withdraw three of those admissions: “Admit that the Amended 11 Acute Services Agreement is a valid and enforceable contract”; “Admit that the Dialysis 12 Services Agreement is a valid and enforceable contract”; and “Admit that RTCW did not 13 breach the Amended Acute Services Agreement or the Dialysis Services Agreement.” 14 (Doc. 56 at 2 n.2.) 15 DISCUSSION 16 I. Legal Standard 17 When a party fails to make a timely response to a request for admission, the requests 18 are deemed admitted. Fed. R. Civ. P. 36(a)(3). Any matter that is “admitted under this 19 rule is conclusively established unless the court, on motion, permits the admission to be 20 withdrawn or amended.” Fed. R. Civ. P. 36(b). The court may permit withdrawal or 21 amendment (1) “if it would promote the presentation of the merits of the action,” and (2) “if 22 the court is not persuaded that it would prejudice the requesting party in maintaining or 23 defending the action on the merits.” Id. However, a court may, in its discretion, decline 24 to grant such a motion even if both factors are present. Conlon v. United States, 474 F.3d 25 616, 625 (9th Cir. 2007). “[I]n deciding whether to exercise its discretion when the moving 26 party has met the two-pronged test of Rule 36(b), the district court may consider other 27 factors, including whether the moving party can show good cause for the delay and whether 28 the moving party appears to have a strong case on the merits.” Id. 1 II. Analysis 2 Here, Plaintiff has offered no evidence of prejudice. Therefore, only the first prong 3 of the Rule 36(b) test and the discretionary factors are at issue. 4 A. Promote the Presentation of the Merits 5 “The first half of the test in Rule 36(b) is satisfied when upholding the admissions 6 would practically eliminate any presentation of the merits of the case.” Hadley v. United 7 States, 45 F.3d 1345, 1348 (9th Cir. 1995). The relevant question is whether the admission 8 resolves an ultimate issue that precludes the need for any future determination on the 9 merits. Hadley, 45 F.3d at 1348 (holding that the first prong was satisfied because the 10 admission “essentially admitted the necessary elements of [the offense]”); Conlon, 474 11 F.3d at 622 (holding that the first prong was satisfied because the admission admitted the 12 lack of causation in a tort case); see also Sonoda v. Cabrera, 255 F.3d 1035, 1039–40 (9th 13 Cir. 2001) (holding that the admissions “effectively eliminate[d] a merits determination” 14 as to the plaintiff’s First Amendment and due process claims). Supermarket Energy Techs., 15 LLC v. Supermarket Energy Sols., Inc., No. CV-10-2288-PHX-SMM, 2013 WL 12107468, 16 at *3 (D. Ariz. Jan. 9, 2013), does not show otherwise. Although Supermarket does have 17 language suggesting that the merits of the defendant’s case factors into this prong of the 18 analysis,1 the merits are more properly analyzed as a discretionary factor. See Conlon, 474 19 F.3d at 625. 20 In this case, Plaintiff alleges a breach of contract claim against Defendant. (Doc. 21 53 at 2.) The elements of a breach of contract claim are (1) the existence of a contract; 22 (2) breach; and (3) resulting damages. First Am. Title. Ins. Co. v. Johnson Bank, 239 Ariz. 23 348, 353, 372 P.2d 292, 297 (2016). Here, Defendant’s affirmative defenses concern the 24 validity of both contracts—specifically, that the contracts were invalid or unenforceable 25 due to mutual mistake or illegality/impossibility. (Doc. 56 at 4.) The first two of the three 26 admissions at issue effectively foreclose any future discussion on Defendant’s two 27 defenses: “Admit that the Amended Acute Services Agreement is a valid and enforceable

28 1 “Defendant has not articulated any basis for the Court to find that these defenses have merit.” Supermarket Energy Techs., LLC, 2013 WL 12107468, at *3. 1 contract” and “Admit that the Dialysis Services Agreement is a valid and enforceable 2 contract.” (Doc. 56 at 2 n.2.) Moreover, the third admission states that “[Plaintiff] did not 3 breach the Amended Acute Services Agreement or the Dialysis Services Agreement.” 4 (Doc. 53 at 12 n.6.) This admission forecloses any argument that Defendant was 5 discharged from performing due to a breach by Plaintiff. Considering Defendant has 6 admitted—and will not withdraw—“that it did not pay the invoices related to the Acute 7 Services Agreement and . . . it did not pay the invoices related to the Dialysis Services 8 Agreement,” the admissions at issue establish all the elements of a breach of contract claim. 9 (Doc. 50 at 4.) Plaintiff and Defendant had valid and enforceable contracts; Defendant 10 failed to pay on those contracts; and Plaintiff suffered damages as a result of the 11 nonpayment. If the admissions are not withdrawn, any presentation of the merits of the 12 case would be unnecessary. Therefore, Rule 36(b)’s first prong is satisfied. 13 B. Discretionary Factors 14 Because Plaintiff does not claim prejudice, Defendant has satisfied Rule 36(b)’s 15 two-prong test. However, even if the two-prong test is satisfied, the Court may still deny 16 Defendant’s Motion based on the discretionary factors. Conlon, 474 F.3d at 625. The 17 discretionary factors include (1) whether the moving party can show good cause for the 18 delay and (2) whether the moving party appears to have a strong case on the merits. Id. 19 1. Good Cause 20 Defendant has not shown “good cause” for why it failed to timely respond to 21 Plaintiff’s discovery requests. Defendant was well aware of the discovery deadline because 22 it referenced the deadline in a court filing only the week before. (Doc. 30.) Although 23 Defendant attempts to assert that the parties’ settlement negotiations provide “good cause,” 24 Plaintiff flatly rejected any such notion by refusing to grant an open extension of the 25 deadline to focus on settlement. (Doc. 34-2 at 13, 23.) Additionally, in its scheduling 26 order, this Court quite clearly informed the parties that it did not consider settlement 27 negotiations “good cause”: “The pendency of settlement discussions or the desire to 28 schedule mediation does not constitute good cause, unless discovery is substantially 1 complete and the extension requested in minimal.” (Doc. 24 at 5 (emphasis added).)2 2 Because Defendant can show no reason for its failure to meet the deadline—other than a 3 reason this Court has already stated it would reject—Defendant cannot show good cause 4 to withdraw its admissions.3 5 2. Strength of the Case on the Merits 6 Defendant asserts that the Dialysis Services Agreement is unenforceable because of 7 mutual mistake. (Doc. 50 10–11.) It also contends that both agreements are unenforceable 8 due to “illegality/impossibility.” (Doc. 56 at 9.) The Court considers each defense in turn. 9 a. Mutual Mistake 10 “Mutual mistake of the parties to a written contract makes that contract voidable.” 11 State ex rel. Herman v. Mestas, 12 Ariz. App. 289, 295, 469 P.2d 855, 861 (1970). “The 12 burden of proving a mutual mistake of law is on the party seeking to avoid the contract and 13 must be by clear and convincing evidence.” Gill v. Kreutzberg, 24 Ariz. App. 207, 209, 14 537 P.2d 44, 46 (1975). The elements of mutual mistake are that “(1) the parties made a 15 mistake about a basic assumption on which they made the contract, (2) the mistake had a 16 material effect on the exchange of performances, and (3) the party seeking avoidance does 17 not bear the risk of the mistake.” Hall v. Elected Offs. Ret. Plan, 241 Ariz. 33, 41–42, 383 18 P.3d 1107, 1115–16 (2016). 19 Here, Defendant argues that both it and Plaintiff mistakenly believed that Defendant 20 was the proper party to the contract. (Doc. 56 at 8.) Instead, Defendant argues, Allegiant 21 Healthcare of Phoenix, LLC is the owner of Allegiant Healthcare of Phoenix and thus 22 2 Although the Court was referring to the deadlines in the Scheduling Order, it appears that 23 Defendant’s failure to meet the admissions deadline was not without impact on the Court- ordered deadlines. (Doc. 56 at 6.) While this Motion was pending, Defendant also filed a 24 motion seeking to extend the deadlines “to amend affirmative defenses, take depositions, and to file dispositive motions.” (Doc. 76 at 2.) 25 3 Moreover, the COVID-19 pandemic does not provide “good cause” to justify Defendant’s 26 delay. Defendant does not explain how the pandemic affected discovery other than citing its vaccination efforts in early 2021. (Doc. 50 at 10); (Doc. 56 at 7–8.) But Defendant’s 27 attempts to settle this action were not hindered by the pandemic, and Defendant itself admitted that the purpose for the delay was “based solely upon the desire to keep costs low 28 in this litigation to promote settlement.” (Doc. 50 at 10.) Therefore, the Court does not find this reason persuasive. 1 should be responsible for services provided to Allegiant Healthcare of Phoenix. (Doc. 56 2 at 8.) But Defendant does not show how this alleged mistake satisfies the three-part test 3 for mutual mistake. There is no evidence that the identity of the contracting party was a 4 “basic assumption” on which the parties relied when creating the contract, and Defendant 5 has not shown that the mistake had a material effect on the exchange of performances. 6 Notably, Defendant itself has admitted that it did not substantially perform.4 Therefore, 7 even if Defendant were to have future discovery in this case, it would not have a strong 8 case on the merits. 9 b. Illegality 10 “Contract provisions are unenforceable if they violate legislation or other 11 identifiable public policy.” 1800 Ocotillo, LLC v. WLB Grp., Inc., 219 Ariz. 200, 202, 196 12 P.3d 222, 224 (2008). “In determining whether a provision is unenforceable, courts 13 balance the interest in enforcing the provision against the public policy interest that opposes 14 enforcement.” Id. The principal question is whether the “enforcement of the term would 15 be injurious to the public welfare.” Id. 16 Here, Allegiant alleges that the agreements violated 42 C.F.R. § 413.210. That 17 provision states,

18 Except as noted in § 413.174(f), items and services furnished on or after 19 January 1, 2011, under section 1881(b)(14)(A) of the Act and as identified in § 413.217 of this part, are paid under the ESRD [End-Stage Renal Disease] 20 prospective payment system described in § 413.215 through § 413.235 of 21 this part.

22 (a) Qualifications for payment. To qualify for payment, ESRD facilities must meet the conditions for coverage in part 494 of this 23 chapter. 24 25

26 4 In addition to failing to meet the three-part test, Defendant’s contention that it mistakenly assumed it was the owner of Allegiant Healthcare of Phoenix is dubious. If, as Defendant 27 contends, the two entities are separately operated and controlled, (Doc. 53-12 at 2), it makes little sense that Defendant would think itself responsible for Allegiant Healthcare of 28 Phoenix’s debts. Because Defendant has offered no evidence that it was ever under such a belief, the Court finds Defendant’s case for mutual mistake unpersuasive. 1 (b) Payment for items and services. CMS [Centers for Medicare & 2 Medicaid Services] will not pay any entity or supplier other than the 3 ESRD facility for covered items and services furnished to a Medicare beneficiary. The ESRD facility must furnish all covered items and 4 services defined in § 413.217 of this part either directly or under 5 arrangements. 6 42 C.F.R. § 413.210 (2021). Essentially, Defendant contends that because it is a nursing 7 home, it is not an ESRD facility, and cannot bill Medicaid for dialysis under § 413.210. 8 However, Defendant fails to articulate why its inability to bill Medicare makes the 9 agreements illegal. Although Plaintiff, as the ESRD facility, could have billed Medicare 10 for the services provided, it was not mandated to do so, and, in fact, it was forbidden to do 11 so through the very language of the agreements.5 Defendant’s acceptance of the contracts 12 despite not being able to bill Medicare to recoup its costs was likely a poor business 13 decision—but a poor business decision does not make a contract illegal. Defendant’s case 14 for illegality weighs against granting the Motion to Withdraw. 15 c. Impossibility 16 “It is well settled that when, due to circumstances beyond the control of the parties 17 the performance of a contract is rendered impossible, the party failing to perform is 18 exonerated.” Mobile Home Ests., Inc. v. Levitt Mobile Home Sys., Inc., 118 Ariz. 219, 222, 19 575 P.2d 1245, 1248 (1978) (quoting Garner v. Ellingson, 18 Ariz. App. 181, 182, 501 20 P.2d 22, 23 (1972)). “[A] contract is discharged where its purpose is frustrated and 21 rendered impossible of performance by a supervening event not reasonably foreseeable.” 22 Id. 23 42 C.F.R. § 413.210 became effective on January 1, 2011. Defendant entered into 24 the Amended Acute Services Agreement in 2017 and the Dialysis Services Agreement in 25 2018. (Doc. 53 at 3–4.) The regulation was already in effect—and thus completely 26 foreseeable—when Defendant entered these agreements. Therefore, Defendant’s case for 27 impossibility is weak.

28 5 “Company shall not bill or collect from any patient or third-party payor any fee or charge for the Services rendered hereunder.” (Doc. 50-1 at 21); (Doc. 50-2 at 31). 1 C. Whether the Discretionary Factors Weigh Against Granting the Motion 2 Although Defendant meets the two-part test for withdrawal, this Court will exercise 3 its discretion and deny Defendant’s motion. Defendant has a history of failing to comply 4 with deadlines. Aside from missing the discovery deadline at issue, which had already 5 been extended, Defendant also missed two other deadlines. First, Defendant did not 6 provide Plaintiff with its initial disclosure statement until March 25, 2021—well after the 7 November 20, 2020 deadline, which was itself subject to an extension. (Doc. 24 at 1); 8 (Doc. 53 at 6.) Second, Defendant failed to have an attorney enter an appearance before 9 December 30, 2020, in contravention of this Court’s order. (Doc. 26 at 2); (Doc. 29); 10 (Doc. 34-1 at 3.) In addition to the three missed deadlines, during the Scheduling 11 Conference on November 20, 2020, this Court ordered Defendant to set forth with 12 specificity its alleged defenses in the initial disclosure statement. When Plaintiff received 13 Defendant’s initial disclosure statement—125 days late—no explanation of the defenses 14 was included. (Doc. 53-3.) Moreover, after the filing of this Motion, the parties twice 15 represented to the Court that this case was settled, (Doc. 58); (Doc. 60), and based on those 16 representations, the Court granted an extension of time, (Doc. 61).6 Despite these 17 representations, nearly three and half months later, the parties still have not settled. 18 (Doc. 72); (Doc. 76). Finally, Plaintiff contends, and Defendant does not appear to contest, 19 that Defendant has produced only seven pages of original discovery to Plaintiff throughout 20 the entirety of this litigation.7 (Doc. 53 at 9); (Doc. 53-7 at 1–105); (Doc. 53-8 at 1–7.) 21 The Court finds the discretionary factors controlling and that Defendant has not acted in 22 good faith. 23 CONCLUSION 24 Despite Defendant’s satisfying the Rule 36(b) test, the discretionary factors weigh 25 against granting its motion. Accordingly, its Motion to Withdraw Admissions is denied. 26 6 The Court also granted an extension after Defendant—belatedly—hired new counsel. 27 (Doc. 47); (Doc. 48); (Doc. 26.)

28 7 It appears that Defendant merely re-numbered and re-disclosed much of Plaintiff’s disclosure as part of its own. 1 IT IS THEREFORE ORDERED that Defendant’s Motion to Withdraw || Admissions (Doc. 49) is DENIED. 3 Dated this 17th day of September, 2021. : Wars ) ; A Whacrsay Sooo) 6 Chief United States District Judge 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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