Richman v. Possibilities Counseling Svs., Inc.

• Court: Superior Court of Maine
• Decided: July 18, 2012
• Docket: CUMcv-10-53
• Status: Unpublished

Opinion

j

STATE OF MAINE BUSINESS AND CONSUME~ COURT Cumberland, ss.

NICOLE RICHMAN, JULIE HOWARD, JOHN THIBODEAU, and MARYANN CARROLL, on behalfofthemselves and others similarly situated,

Plaintiffs

V. Docket No. BCD-CV-10-5.'3

POSSIBILITIES COUNSELING SERVICES, INC., WENDY L. BERGERON, AFFILIATE FUNDING, INC., EMILE L. CLAVET, KEVIN DEAN, AND FOSTER CARE BILLING, LLC d/b/a PROVIDER FINANCIAL

Defendants

ORDER ON AFI DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

Before the court is the Motion for Summary Judgment of Affiliate

Funding, Inc., ("AFI") and Foster Care Billing, Inc. d/b/a Provider Financial,

Kevin Dean, Emile Clavet, ("the AFI Defendants") and the opposition thereto of

the Plaintiff class. For the reasons stated, the Motion is granted.

Background

In 2005, Defendant Wendy Bergeron started Defendant Possibilities

Counseling Services, Inc. ("PCS"). (De£ S.M.F. ~ 1.) PCS entered into service

agreements with numerous mental health service providers, including members

of the Plaintiff class, pursuant to which PCS handled the submittal and processing of insurance claims for services rendered by the providers to their

clients. (Def S.M. F. ~ 2.) There are two types of insurance claims under the

terms of these service agreements: 1) those billable to Maine's Medicaid

program known as MaineCare, and 2) those billable to other third party or

private insurers. The parties have referred to the second type as Explanation of

Benefits ("EOB") claims. Under the service agreements, PCS would pay the

clinician the amount due on a MaineCare claim within two weeks of receipt of the

billing, and would remit payment on the EOB claims fifteen days after PCS

received payment from the third party payer. (Def S.M.F. ~ ~ 6,8.)

PCS entered into a purchase agreement with AFT's predecessor in April

2006, under which AFI would purchase PCS's accounts receivable that were less

than 60 days old. 1 (Def S.M.F. ~~11-14.) As a result ofthis agreement, it was

possible for PCS to make timely payment to the clinicians on a weekly basis even

before PCS received payment on those claims from MaineCare or the third party

insurers. (Def S.M.F. ~ 16.)

Plaintiffs were not parties to this contract, but allege that they were

intended third-party beneficiaries to the contract between PCS and AFI. Prior to

commencement ofthis lawsuit, however, none of the named plaintiffs (or the class

members) had ever been in communication with any of the AFI defendants. (Def

S.M.F. ~ ~ 38-41.)

1 The agreement was amended on July 25, 2010.

2 In August 2010, due to several disagreements between PCS and AFI, AFI

gave PCS .'30 days notice that it intended to terminate the purchase agreement,

effective September 24, 2010. (Def S.M.F. ~ 22.)

Meanwhile, individuals with an ownership interest in AFI founded a new

mental health agency, Health Affiliates of Maine ("HAM"), to perform essentially

the role as PCS had been. (Def S.M.F. ~ ~ 25-26, as qualified.) Because HAM

was not able to secure a necessary operating license until November 1, 2010, AFI

agreed to continue its relationship with PCS for the month ofOctober.

In November 2010, the individuals who controlled AFI and HAM caused

the clinician class members to receive an advance of funds sufficient to reimburse

them for their October MaineCare billings. (S.M.F. ~ 26.) This advance came in

the form of a direct payment from HAM to the individual clinicians totaling

$550,275. 2 (Def S.M.F. ~26, as qualified.)

On December 1, 2010, AFI and PCS entered into a settlement agreement

and corresponding service agreement that obligated both parties to conduct

claims processing activities on behalf of the clinicians. (Pl. S. Add'l M.F. ~ 45.)

Based on indications that the State of Maine had reservations about making

payments for MaineCare services directly to either PCS or AFI, the court in this

case elected in January 2011 to create a mechanism under which the State could

2 Plaintiffs contend that the actual amount was $561,000. (Pl. Opp'n S.M.F. ~26.) AFI Defendants characterize this disbursement as payment from HAM on behalf of AFI because the funds to support the disbursement were first advanced from AFI to HAM. (Def. Reply to Pl. S. Add'l M.F. ~78.) Plaintiffs contend that the payment was made by HAM merely to advance its own business interests, and the payment was not made in compensation for the unpaid October claims.

3 make the payments into a court-supervised fund established and controlled by a

court-appointed referee. See Order Appointing Referee, Richman, et al. v.

Posszbzidies Counselz"ng Services, Inc., et al., Docket No. BCD-WB-CV-10-5.'3 (Me.

Super. Ct., Jan. 25, 2011). The State of Maine elected to make payment of

amounts due to the plaintiff class members for MaineCare-covered into one or

more accounts managed by the referee, for distribution to the clinicians entitled

to receive the proceeds, even though the State presumably could have directed

the payments instead to one or more of the Defendants. See Order Permitting

Release of Funds, Richman, et al. v. Possibilities Counselz"ng Services, Inc., et al.,

Docket No. BCD-CV-10-5.'3, 2 (Me. Super. Ct., Apr. 14, 2011).

In July 2011, the court certified a class that included the following:

All social service providers licensed in Maine with written agreements as independent contractor affiliates of possibilities Counseling Services, Inc. in effect any time from November 1, 2009 through October .'31, 2010 ("the Class Period"), whose claims are limited to damages for unpaid claims for payment submitted by the provider (including any claim that no processing fee should be deducted from the face amount of the claim), interest and costs. Any providers whose claims for damages extend beyond the just- stated limitation are hereby excluded from the class because their claims are not typical of those of the Class.

Order Granting Class Certification, Richman, et al. v. Possibilz"ties Counseling Services, Inc., et al., Docket No. BCD--CV-10-5.'3, 1-2 (Me. Super. Ct., Jul. 12, 2011).

AFI's claims-processing activity focused initially on claims for MaineCare

reimbursement, for which AFI collected a total of $1,674,.'37 .'3, of which $7 57, 1.'37

was paid over to the clinicians, resulting in the reimbursement of 100% of their

4 MaineCare claims. 3 (Def S.M.F. ~ ~ 27-29.)

After all claims for MaineCare reimbursement were completed, AFI

turned its attention to processing EOB claims. (Def S.M.F. ~ .'30.) Many of the

EOB claims had become "stale," and as a result only a small amount has been

received for reimbursement of EOB claims. (Def S.M.F. ~ .'3.'3.) AFI and PCS

agreed with the Referee that, notwithstanding the inability to collect payment on

most of the EOB claims submitted by the plaintiff class clinicians, the clinicians

should be paid the full value of their EOB claims from funds held by the referee

that had been received from MaineCare but had not been used to reimburse the

MaineCare claims. (Def S.M. F. ~ 4.) The referee then released a total of

$29.'3,971 to clinicians for their EOB claims. (Def. S.M.F. ~ .'35.) In total, class

members have received $1,051,108.00 from the referee's account for EOB and

MaineCare disbursements. (Pl. S. Add'l M.F. ~76.)

In April 2011, the court ordered the referee to release $.'3.'38,000 of funds

to AFI, stating that the action "should be taken as more of a cash flow decision

than a pronouncement on the merits of either side's position." See Order

Permitting Release of Funds, Richman, et al. v. Possibilities Counseling Services, Inc.,

et al., Docket No. BCD-CV-10-5.'3, s (Me. Super. Ct., Apr. 14, 2011 ). AFI had

requested this release of funds as compensation for performing claims processing

activities and for reimbursement of the October advances. (Pl. S. Add'l M.F.

s There is a dispute regarding whether, at some point, AFI ceased processing claims in violation of the terms ofthe service agreement. (Pl. Opp'n S.M.F. ~27.) However, there is no dispute that any violation has not caused actual loss to the plaintiff class, which has been paid the full amount of MaineCare and EOB claims for the class period.

5 ~57, as qualified.) The disbursement was made on the basis of AFI's

representation that it had used its own funds to reimburse the plaintiff class. See

id. In total, AFI has received $430,237,76 in distributions from the referee's

account. (Pl. S. Add'l M.F. ~ 48.)

Currently, although not all EOB claims attributable to the class period

have been formally processed between AFI and the third party payers because

some claims have expired, the clinicians in the plaintiff class have been paid what

they would have received had all EOB claims been timely processed. (Def S.M.F.

~ 36, as qualified.)

AFI Defendants have moved for summary judgment on all remammg

counts of Plaintiffs' Complaint, contending that they are not liable under any of

the theories of recovery set forth therein, and, alternatively, that Plaintiffs cannot

demonstrate that they have suffered any damages as a result of AFI's actions.

In opposition to the AFI Defendants' motion, Plaintiffs assert that there

are genuine issues of material fact relating to AFI's liability and the amount of

damages that remain uncompensated.

Plaintiffs' primary contentions include the following: Plaintiffs are third

party beneficiaries to the service agreement between PCS and AFI; AFI breached

that agreement when it ceased to process claims; under the collateral source rule,

the AFI Defendants cannot be "credited" with the HAM disbursement, thus

Plaintiffs have remaining claims for damages; the court should order AFI

Defendants to set aside an award of attorney fees under Savoie v. Merchants Bank

6 et al., 84 F.sd 52 (2d Cir. 1996); and the court should impose a sanction of

attorney fees on AFI defendants for their alleged misrepresentation of the source

ofthe HAM disbursement.

Discussion

This analysis addresses each ofthe counts ofthe complaint as to which the

court certified the plaintiff class, and examines whether there are any genuine

issues of material fact and whether the AFI defendants are entitled to judgment

as a matter oflaw.

To survive a motion for summary judgment on a claim as to which the

non-moving party has the burden of persuasion, the non-moving party must

make out a primafacie case on each element of the claim that the motion puts into

contention. See Quirion v. Geroux, 2008 ME 41, ~9, 942 A.2d 670, 67.3

(negligence claim); Relz.ance Nat'l Indem. v. Knowles Indus. Servs. Inc., 2005 ME 29,

~ 9, 868 A.2d 220 (subrogation); Rippett v. Bemis, supra, 672 A.2d at 84

(defamation). Here, the Plaintiffs have the burden ofproofon all oftheir claims.

As a threshold matter, it is undisputed that the named Plaintiffs and

Plaintiff class have been paid for all claims within the scope of class certification. 4

Admittedly, the Plaintiff class received full payment of claims later than

contemplated by class members' agreements with PCS, but any damages apart

from the face amount of the claims resulting delay in payment are outside the

scope of the class certification, because such damages would be consequential,

4 The providers who opted out of the class and thereby excluded themselves from this case have evidently also received payment in full for the claims covered in the complaint, as amended.

7 ansmg from an individual provider's particular circumstances, rather than

common to the entire class ofproviders.

The AFI Defendants suggest that the fact that the Plaintiff class has been

made whole for all class claims should bring an end to the entire case. For two

reasons, the court disagrees. First, as a general principle, the fact that a plaintiff

is made whole during the pendency of a case does not preclude an award of costs

should the plaintiff otherwise deserve such an award. Second, the Plaintiff class

argues that the Defendants should not be credited with the payment made by

HAM. Accordingly, it remains necessary to address the merits of the AFI

Defendants' motion.

I. Breach ofContract (Count II)

Plaintiffs allege that the AFI Defendants breached both the initial

purchase agreement with PCS and the subsequent service agreement executed

with PCS as part of the settlement agreement. Plaintiffs seek to enforce their

rights under the contracts as intended third party beneficiaries of those

agreements.

In order for Plaintiffs to survive a summary judgment motion and proceed

as third party beneficiaries on a contract theory, they must generate a genuine

issue of material fact on the element of the contracting parties' intent that they

receive an enforceable benefit under the respective contracts. Devine v. Roche

Biomedical Lab., 659 A.2d 868, 870 (Me. 1995) ("Devine Il'). It is not enough that

plaintiffs did benefit or could have benefited from the performance of the

8 contract. !d. The intent to benefit must be clear and definite, whether it is

expressed in the contract itself or in the circumstances surrounding its execution.

F.O. Bailey Co., Inc. v. Ledgewood, Inc., 60.'3 A.2d 466, 468 (Me. 1992). If PCS and

AFI did not intend to confer upon the clinicians an enforceable right, any benefit

enjoyed by the clinicians as a result of the performance of the contract renders

them incidental beneficiaries who cannot sue to enforce third party beneficiary

rights. Id.

The inquiry turns to each of the two contracts at issue.

A. Purchase Agreement Between PCS and AFI

The record clearly demonstrates that the clinicians who contracted with

PCS for billing services were not intended third-party beneficiaries of the

purchase agreement between PSC and AFI.

The purchase agreement details the terms of AFI's exclusive right to

purchase PSC's accounts receivable that are less than 60 days old, and contains

details about the purchase price and processing fees applicable to such accounts.

The contract requires creation of various accounts that will facilitate the parties'

relationship. Paragraph 14 states that AFI shall not be deemed to have assumed

liabilities relating to, or arising out of, the accounts. The amendment to the

purchase agreement, dated July 24, 2010, states that AFI shall incur no liability

for failing or refusing to fund the Purchase of Accounts, unless doing so would

constitute a breach ofthe underlying agreement.

9 This was in effect a financing arrangement designed to enable PCS to

meet the cash flow needs associated with its commitment to pay clinicians on

their claims before actually receiving payment from MaineCare and the EOB

msurers. There was nothing about this arrangement that suggests any

intention to benefit the clinicians, as opposed to benefiting PCS and AFI. In that

regard, this financing arrangement was similar to the myriad financing

arrangements in the business world. Absent special circumstances, the

customers of a business that obtains financing do not have third-party beneficiary

status for purposes of the financing, and those special circumstances do not

appear here. See Devine II, 659 A.2d at 870. Plaintiffs have failed to demonstrate

that there is any question of material fact unique to the nature of this specific

purchase agreement that demonstrates any intent on the part of PCS and AFI to

create an enforceable right for the third party class members.

Accordingly, the AFI Defendants' motion for summary judgment on the

breach of contract claim arising from the purchase agreement is granted.

B. The Settlement and Service Agreements of December 1, 2010 between PCS and AFI

In February 2012 the Plaintiffs supplemented their Amended Consolidated

Class Action Complaint to include a breach of contract claim arising from AFI's

alleged failure to timely process EOB claims in violation of the Service

Agreement between PCS and AFI executed on December 1, 2010.

The Plaintiffs' contentions, as explained at the hearing held on April 27,

2012, proceed as follows: 1) Plaintiffs were third-party beneficiaries under the

10 settlement agreement; 2) AFI breached the agreement when it ceased processing

EOB claims; 3) but for AFI's failure to process some of the claims, there would be

more money in the referee's account. The depleted funds in the referee's account

could potentially harm the plaintiffs in two ways: a) if PCS and AFI defendants

should not be "credited" with HAM advance, Plaintiffs are owed additional funds,

and if there were more money in the referee's account, Plaintiffs could recover

such funds; or 2) if Plaintiffs are entitled to attorney fees under Savoie, or as a

sanction, they would benefit from more funds available in the referee's account.

The court does not accept Plaintiffs' reasoning. First, the service

agreement was executed after the October advances had been distributed to

clinicians, and therefore that disbursement could not have been made m

fulfillment of AFI's obligations under a subsequent service agreement. Second,

the collateral source rule would not bar subtraction of those amounts from AFI's

total liability, assuming AFI was found liable for damages resulting from its

alleged failure to process all claims in a timely fashion.

Under the collateral source rule, a collaterally provided benefit, such as

unemployment insurance or workers' compensation benefits, is not to be

subtracted from a plaintiffs recovery from the defendant, thus avoiding a

potential windfall to the party liable for the harm suffered. See Potvin v. Seven

Elms, Inc., 628 A.2d 115, 116 (Me. 1993). The same rule applies in non-tort

contexts, including actions for breach of contract. Id. The rule would be

inapplicable in regard to the HAM payment, however, because payments made by

11 an entity that is not jointly liable, such as HAM, will diminish the claim of the

injured person against others responsible for the same harm if the payments are

made in compensation of that claim. See Restatement (Second) of Torts § 885

Comment F.

Payments from a source independent of the party liable do not operate to

reduce the party's liability, but payments from a source on behalf of a liable party

are credited to the party. Thus, an injured party's health insurance benefits and

workers' compensation benefits are not credited against the defendant's liability,

whereas payments made by the defendant's own insurance carrier are. Within

this framework, HAM is associated with all of the defendants. The payment by

HAM was plainly intended to substitute for the payments due to the plaintiff

class members from PCS, so payments by HAM indeed serve to reduce and

eliminate the liability of any and all defendants to the Plaintiff class members.

The Plaintiffs argue that the HAM payment should not be credited

because HAM made the payment for its own business purposes. They also cite to

cases involving voluntary payments in which the payor was denied recoupment.

Neither point is relevant here--HAM is not seeking to recover what it paid and

it matters not why HAM made the payment. It is sufficient that HAM's payment

was clearly intended to compensate the Plaintiff class for the amounts due on

their claims from any Defendant or other source.

12 Accordingly, HAM's payment does operate to reduce and eliminate any

liability of the Defendants to the Plaintiff class for claims within the scope of the

class certification.

Second, even assuming, without deciding, that Plaintiffs were third party

beneficiaries under the December 1 service agreement, and that AFI breached

that agreement, the Plaintiff class's asserted harm remains speculative. Plaintiffs'

loss is predicated on there being insufficient funds in the referee's account with

which to fund a potential award of attorney fees, even though there is no

applicable fee-shifting provision in the service agreement under which plaintiffs

assert their claims.-5

In a breach of contract action, the defendant may not be liable for damages

that were not within the contemplation of the parties when the contract was

entered into. Forbes v. Wells Beach Casino, Inc., 409 A.2d 646, 654-55 (Me. 1979).

Plaintiffs' argument is that, at the time AFI entered into the service

agreement, it should have foreseen that its failure to maximize the funds in the

referee's account would harm the Plaintiffs because, at some future date, Plaintiffs

would be entitled to an attorney fee award which AFI would be unable to satisfy

from its own funds, and therefore Plaintiffs would need to collect additional

money from the referee's account as compensation for the fee award. The

5 The only fee-shifting agreement that even arguably applies to the providers is a provision in the PCS agreement obligating the provider to pay PCS's attorney fees if PCS prevailed in an action against the provider under a non-solicitation provision in the same agreement. That attorney fee provision could be applied reciprocally if the provider prevailed in such a suit under the same non-solicitation provision, but it cannot reasonably be expanded to apply reciprocally to any and all breaches of the PCS-Provider contract by either party.

13 potential fee award, when coupled with the other necessary contingencies m

plaintiffs theory of injury, is insufficient to constitute a definite and foreseeable

harm for the purposes of sustaining a breach of contract action.

Also, the Plaintiff class's requests for attorney fees, both under Savoie or as

a sanction for litigation misconduct, are more appropriately considered in regard

to the separate motions addressing those issues, and should not be entangled

with questions pertaining to Defendants' liability raised in the current motion for

summary judgment. The United States Supreme Court has explained, that as a

general rule, "a claim for attorney fees is not part of the merits of the action to

which the fees pertain" because such an award is separate from remedy the injury

giving rise to the action. 6 Budinich v. Becton Dickinson & Co., 486 U.S. 196, 200

( 1988).

The AFI Defendants' motion for summary judgment on the breach of

contract claim arising from the service agreement is therefore granted.

II. Tortious Interference (Count III)

To prevail on a tortious interference claim, plaintiffs must show: (1) the

existence of their valid contract with PCS; (2) the defendant interfered with that

contract through fraud or intimidation, and ( 3) that such interference

proximately caused damages.

A valid contract existed between PCS and the Plaintiff clinician class m

the form of the service agreements. Plaintiffs allege that AFI interfered with this

G For this same reason, plaintiffs' allegation that there are genuine disputes ofmaterial fact as to whether the class has a viable claim for attorney fees does not preclude the grant of summary judgment for the AFI defendants. (See Pis.' Opp'n to AFI Defs.' Mot. Summ. J. 16.)

14 relationship through a "prolonged pattern of intimidation." (Pl. Opp'n Def Mot.

Summ. J. 10.) Intimidation is defined as "unlawful coercion, extortion, duress, or

putting in fear." State v. Janisczak, 579 A.2d 736, 738 (Me. 1990) (citation

omitted).

Plaintiffs assert that the acts of intimidation included: AFI controlling

revenue generated by the PCS-AFI purchase agreement; cutting checks to

clinicians with AFI's business address on them; switching the forwarding address

on a joint mail box to AFI's address; and asserting its rights regarding the

amount of money in the "reserve account" created under the purchasing

agreement. No reasonable jury could conclude that these alleged actions

amounted to acts of extortion, duress, or intimidation. Summary judgment is

granted to the AFI defendants on the claim of tortious interference.

III. "Equitable" Claims

Plaintiffs also allege Accounting 7 (Count V), Money had and Received 8

(Count VIII), Unjust Enrichment (Count IX), Conversion (Count X), and

Constructive Trust (Count XI). All of these claims share the common

requirement that the AFI Defendants have been in possession of funds or

property to which the Plaintiff class held title or some other ownership interest,

or thilt the Plaintiff class conferred a benefit upon Defendants. See Ketch v. Smith,

161 A. 300, 300 (Me. 1932) (money had and received); Estate if White, 521 A.2d

7 "Accounting" is more appropriately characterized as an equitable remedy for a potential unjust

enrichment claim. sAn action of assumpsit for money had and received arises in law, though it is "equitable in spirit and purpose." Greenlaw v. Rodick, 158 Me. 440, 446, 185 A.2d 895, 898 (Me. 1962).

15 1180, 118.3 (Me. 1987) (unjust enrichment); Baizley v. Baizley, 1999 ME 115, ~ 6

7.34 A.2d 1117 (constructive trust); Withers v. Hackett, 1998 ME 164, ~ 7, 714

A.2d 791 (conversion).

In support of its unjust enrichment claim, the Plaintiff class contends that

AFI failed to process EOB claims yet still received distributions from the

referee's account for its processing services. Even were such the case, there is no

indication in the record that AFI received funds in which the Plaintiff class had

any ownership interest or that any class members have bestowed any benefit

upon the AFI Defendants. The Plaintiffs assert that it would be unfair for AFI to

receive funds for processing claims if it did not perform the full extent of that

service. Given that the Plaintiff class has been paid in full for class claims, it

simply lacks standing to make that argument. There are no facts in the summary

judgment record suggesting that this perceived inequity has affected any legal

rights of any class members. No accounting is not necessary. The AFI

Defendants are entitled to summary judgment on Counts V, VII, IX, X, and XI.

IV. Fraud (Count IV) and Negligent Misrepresentation (Count VI)

The elements of fraud include (1) that one party made a false

representation; (2) of a material fact; (S) with knowledge of its falsity or in

reckless disregard of whether it is true or false; (4) for the purpose of inducing

another party to act in reliance upon it; and (5) the other party justifiably relied

upon the representation as true and acted upon it to its damage. Flaherty v.

Muther, 2011 ME 32, ~ 45, 17 A.sd 640 (citation omitted).

16 One may be found liable for negligent misrepresentation if, in the course

of any transaction in which he has a pecuniary interest, he fails to exercise

reasonable care in communicating false information to others and causes

pecuniary loss by their justifiable reliance upon the information. Rand v. Bath

Iron Works Corp., 200.3 ME 122 (Me. 200.3).

Because fraud and negligent misrepresentation claims both require proof

of actual reliance, these counts were not certified as to the plaintiff class, and can

only be asserted by individual plaintiffs. See Order Granting Class Certification,

Richman, et al. v. Possibzlities Counseling Services, Inc., et al., Docket No. BCD-CV-

10-5.3, 4 (Me. Super. Ct., Jul. 12, 2011).

Moreover, both causes of action reqmre some showing that AFI or its

representatives made some representation or communication to the Plaintiff

class. The evidence IS undisputed that no individual affiliated with AFI ever

made any relevant representations to any named Plaintiff or class member. The

AFI defendants' motion for summary judgment on these counts is granted.

V. Negligence (Count VII)

The AFI Defendants also move for summary judgment on Plaintiffs

negligence claim. Plaintiffs do not directly oppose the motion for summary

judgment on this specific count. Moreover, the record does not contain facts,

disputed or otherwise, sufficient to establish that the AFI Defendants owed any

duty of care to Plaintiffs. Brawn v. Oral Surgery Assocs., 200.3 ME 11, ~ 17, 819

17 A.2d 1014 ("whether a party owes a particular duty of care to another IS a

question oflaw"). Summary judgment is therefore granted on Count VII.

Conclusion

Based on the foregoing analysis the court concludes and orders:

The AFI Defendants' Motion for Summary Judgment is GRANTED.

Pursuant toM. R. Civ. P. 79(a), the clerk is hereby directed to incorporate

this Order by reference in the docket.

Dated: 18 July 2012 orton Justice, Business & Consumer Court

Ent~red th~ on I' Do<:ket: z.O/Jt. Y j Cop1es sent v1a Mall_ El c!ronica!ly

18 I STATE OF MAINE BUSINESS AND CONSUMER COURT Cumberland, ss.

NICOLE RICHMAN, JULIE HOWARD, JOHN THIBODEAU, and MARYANN CARROLL, on behalf of themselves and others similarly situated,

V. Docket No. BCD-CV-10-53

POSSIBILITIES COUNSELING SERVICES, INC., WENDY L. BERGERON, AFFILIATE FUNDING, INC., EMILE L. CLAVET, KEVIN DEAN, AND FOSTER CARE BILLING, LLC d/b/a PROVIDER FINANCIAL

ORDER ON PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT AND PCS DEFENDANTS' CROSS MOTION FOR SUMMARY JUDGMENT

Before the court is the Plaintiffs' Motion For Partial Summary Judgment

against Defendants PCS and Wendy Bergeron, known as the "PCS Defendants."

The PCS Defendants have opposed Plaintiffs motion, and have also filed a cross

motion for summary judgment. For the reasons stated below, both motions are

granted in part, and otherwise denied.

In 2005, Defendant Wendy Bergeron started the mental counseling

agency Possibilities Counseling Services, Inc. ("PCS"). (PCS S. Add'l M.F. ~ 1.)

PCS entered into service agreements with numerous mental health service providers, including members of plaintiff class, pursuant to which PCS would

administer the providers' billing. (Pl. S.M.F. ~ 1.) There are two types of claims

under the terms of these service agreements: 1) those billable to MaineCare

primary and 2) those billable to other third party or private insurers. (Id.) The

latter are known as Explanation of Benefits ("EOB") claims. Under the service

agreements, PCS would pay the clinician the amount due on a MaineCare claim

within two weeks of receipt of the billing and it would remit payment on the

EOB claims fifteen days after PCS received payment from the third party payer.

(Id.)

This billing arrangement was mutually advantageous because the State

was paying significantly lower rates to providers who did not bill through an

agency; thus, the providers received precisely the same amount for each claim

that they would have received had they independently performed their

MaineCare billing, however by contracting with Possibilities they received the

payment much faster. (See PCS S. Add'l M.F. ~ 2.) In turn, PCS would receive

compensation for its services on account of the State's policy of paying higher

reimbursement rates for claims submitted through an agency.

PCS entered into a purchase agreement with Defendant Affiliate

Funding, Inc. ("AFI") in April 2006, under which AFI would purchase PCS's

accounts receivable that were less than 60 days old. 1 As a result of this

agreement, it was possible for PCS to obtain a funding source with which it could

1 The original purchase agreement was with AFI's predecessor, FRI. (PCS S. Add.'l M.F. ~ 6.)

The details of this agreement are more fully outlined in the court's previous order on the AFI Defendants' Motion for Summary Judgment.

2 timely pay the clinicians on a weekly basis. (Pl. S.M.F. ~ 6.) In September 2010,

AFI sued PCS for breach of the purchase agreement, and in response PCS

asserted various counterclaims against AFI. (Pl. S.M.F. ~~7-8.) In the

meantime, individuals with an ownership interest in AFI founded a new mental

health agency, Health Affiliates of Maine ("HAM") that would essentially

perform the same functions as PCS. Because HAM was not able to secure a

license until November 1, 2010, AFI agreed to continue its relationship with PCS

for the month of October, and in November 2010 AFI advanced funds to the

clinicians sufficient to reimburse them for their October MaineCare billings.

This advance came in the form of a direct payment from HAM to the individual

clinicians totaling $550,275.

The litigation between PCS and AFI resulted in a settlement agreement

between the parties in December 2010. (Pl. S.M.F. ~ 11.) The settlement

agreement and corresponding service agreement obligated PCS to work with

AFI in good faith in order to process all of the clinicians' pending unpaid claims

with service dates between November 1, 2009 and October .'31, 2010. (Pl. S.M.F.

~~ 1.'3, 16.) AFI would perform all of the billing for PCS pursuant to the service

agreement. (Pl. S.M.F. ~ 28.)

The court appointed John Fidrych as Referee to oversee the billing and

reconciliation process. (Pl. S.M. F. ~ 25.) The funds in the Referee's account were

supplemented when the State of Maine chose to deposit MaineCare

reimbursements directly into the account, even though the State presumably

3 could have directed those payments to one or more of the Defendants. See Order

Permitting Release of Funds, Richman, et al. v. Possibilities Counseling Services, Inc.,

et al., Docket No. BCD-CV-10-53, 2 (Me. Super. Ct., Apr. 14, 2011).

Under the terms of the service agreement, AFI first processed all claims

for MaineCare reimbursement and collected a total of $1,674,373, of which

$757,137 was paid over to the clinicians, resulting in the reimbursement of 100%

of their MaineCare claims. (PCS' s S. Add.'l M.F. ~ 41.) After all claims for

MaineCare reimbursement were completed, at the direction of the Referee AFI

turned its attention to processing EOB claims. Many of the EOB claims had

expired or become "stale," and as a result only a small amount has been received

for reimbursement of EOB claims. (PCS's S. Add'l M.F. ~43.) AFI and PCS

agreed with the Referee that clinicians should be paid the full value of their EOB

claims from funds held by the Referee that had been received from MaineCare

but had not been used to reimburse the MaineCare claims. The Referee then

released a total of $293,971 to clinicians for their EOB claims. (!d.) In total,

class members have received $1,051,108.00 from the Referee's account for EOB

and MaineCare disbursements. (Pl. S.M. F. ~ 46.) AFI has received $430,237.76

in distributions from the Referee's account and PCS has received $74,950. (Pl.

S.M.F. ~~41-42.)

Currently, although not all EOB claims have been formally processed

between AFI and the third party payers, the clinicians have been compensated

from other available funds to the same extent that they would have if the EOB

4 claims been processed through the third party payers, though plaintiffs dispute

whether AFI and PCS should be "credited" with the disbursement that was

provided from HAM in regard to the October billings.

In July 2011, the court certified a class that included the following:

All social service providers licensed in Maine with written agreements as independent contractor affiliates of Possibilities Counseling Services, Inc. in effect any time from November 1, 2009 through October S 1, 2010 ("the Class Period"), whose claims are limited to damages for unpaid claims for payment submitted by the provider (including any claim that no processing fee should be deducted from the face amount of the claim), interest and costs. Any providers whose claims for damages extend beyond the just- stated limitation are hereby excluded from the class because their claims are not typical of those of the Class.

Order Granting Class Certification, Richman, et al. v. Possibilities Counseling Services, Inc., et al., Docket No. BCD-CV-10-5.'3, 1-2 (Me. Super. Ct., Jul. 12, 2011).

The plaintiff class has moved for partial summary judgment on PCS

Defendants' liability for breach of contract and unjust enrichment in regard to

their service agreements directly with PCS and as third party beneficiaries to the

settlement agreement between PCS and AFI. The PCS Defendants have opposed

plaintiffs motion for summary judgment, and have filed a cross motion for

summary judgment on all counts ofthe class complaint.

I. Standard of Review

Summary judgment should be granted if there is no genuine dispute as to

any material fact and a party is entitled to judgment as a matter of law. M.R.

Civ. P. 56( c). The court will consider "'only the portions of the record referred

5 to, and the material facts set forth in the [M.R. Civ. P. 56(h)J statements."' F.R.

Carroll, Inc. v. TD Bank, N.A., 2010 ME 115, ~ 8, 8 A.3d 646 (quoting Deutsche

Bank Nat'l Trust Co. v. Raggianz~ 2009 ME 120, ~ 5, 985 A.2d 1). "Summary

judgment is appropriate when review of the parties' statements of material facts

and the referenced record evidence, considered in the light most favorable to the

non-moving party, indicates that no genuine issue of material fact is in dispute."

Blue Star Corp. v. CKF Props. LLC, 2009 ME 101, ~ 23, 980 A.2d 1270.

To survive a motion for summary judgment on a claim as to which the

non-moving party has the burden of persuasion, the non-moving party must

make out a prima facie case on each element of the claim that the motion puts into

contention. See Quirion v. Geroux, 2008 ME 41, ~9, 942 A.2d 670, 673

(negligence claim); Reliance Nat'l Indem. v. Knowles Indus. Servs. Inc., 2005 ME 29,

~9, 868 A.2d 220 (subrogation); Rippett v. Bemis, supra, 672 A.2d at 84

(defamation). Here, the Plaintiffs have the burden ofproofon all oftheir claims.

II. The Collateral Source Issue

A threshold issue that ought to be addressed initially is whether, in light

of the collateral source rule, the PCS Defendants are entitled to a credit against

what would otherwise be their liability to Plaintiff class members for the funds

paid to the class by HAM.

Under the collateral source rule, collaterally provided benefits paid to or

on behalf of an injured plaintiff by a source independent of the defendant, such as

health or medical insurance payments or workers' compensation benefits, are not

6 subtracted from the plaintiffs recovery from the defendant, thus avoiding a

potential windfall to the party liable for the harm suffered. See Potvz'n v. Seven

Elms, Inc., 628 A.2d 115, 116 (Me. 1993). The same rule applies in non-tort

contexts, including actions for breach of contract. Id. The rule would be

inapplicable in regard to the HAM payment, however, because payments made by

an entity that is not jointly liable, such as HAM, will diminish the claim of the

injured person against others responsible for the same harm if the payments are

made in compensation of that claim. See Restatement (Second) of Torts § 885

As explained in the order on the AFI Defendants' motion for summary

judgment entered this day, the AFI Defendants are entitled to credit for the

HAM payment, in large measure because HAM and AFI are owned and

controlled by the same individuals. There is no such direct link between HAM

and the PCS Defendants, so the justification for crediting the HAM payment to

any liability on the part of the PCS Defendants is less clear. On the other hand,

the collateral source rule focuses on whether the source of payment is

"independent ofthe tortfeasor." Werner V Lane, 393 A.2d 1329, 1335 (Me. 1978).

Because the effect of the payment was to make the individual and class

member Plaintiffs whole as to all damages recoverable on the claims within the

scope of the class certification, the effect of the HAM payment, regardless of how

it was intended, was to preclude any further award of damages on class claims

against any ofthe Defendants.

7 III. Breach ofContract (Count I)

It is undisputed that there was a contract between PCS and plaintiff class

members in the form ofthe individual service agreements. (Pl. S.M.F. ~ 1.)

PCS's responsibilities included processing MaineCare reimbursement, providing

billing services on EOB claims, making payment to clinicians two weeks after

MaineCare services were rendered, and making payments within 15 days of

receipt offunds on EOB claims. (Pl. S.M.F. ~ 1.) The contract also required that

PCS provide 90 days notice of terminating the service agreements. (Pl. S.M.F. ~

5.)

Plaintiffs allege that PCS breached the contract when it failed to timely

process claims and failed to provide 90 days notice prior to termination of its

services to the plaintiff class. The plaintiffs have moved for summary judgment

on the issues of the existence of the contract and the breach of the contract, and

request a subsequent hearing on damages. The PCS Defendants oppose

Plaintiffs' motion and have moved for summary judgment on the breach of

contract claims. The central disputes pertain to PCS's alleged material breach of

the service agreements and the resulting damages alleged to have been suffered

by members of the class.

A. Failure to Timely Process Claims

The Plaintiff class contends that "PCS admits that it breached the

PCS/Plaintiff Class Agreement in that it failed to timely process claims, whether

primary or secondary payors, for the members of the Plaintiff Class." (Pl. S.M.F.

8 ~ 4, as qualified by PCS S. Opp'n M.F. ~ 4.) The PCS Defendants appear to

dispute whether there has been a formal admission 2 , but the undisputed facts

make it clear that PCS failed to remit payment to the Plaintiff provider class for

certified class MaineCare claims within the time frame required by the contract

between PCS and the providers. The evidence ofbreach is less clear as to the

EOB claims because payment was due only after PCS itself received payment, but

the undisputed fact that some of the EOB claims of the Plaintiff class have gone

stale is evidence that PCS failed to process EOB claims as well in a timely

manner. Therefore, the Plaintiff class has shown it is entitled to prevail on the

issue ofwhether PCS breached the contract as to all providers who submitted

MaineCare claims, and breached the contract as to stale EOB claims as well.

However, the PCS Defendants assert that proof of a breach of contract is

not enough to justify obtaining judgment on a breach of contract claim-there

must also be proof of damage or loss resulting from the breach.

Actual injury or damage is an essential element of a breach of contract

claim. In re Hannaford Bros. Co. Customer Data Sec. Breach Litig., 2010 ME 93, ~

8, 4 A.sd 492 (opinion in response to certified question from Federal District

Court for the District of Maine). The PCS Defendants argue that, because the

2 Plaintiffs assert that PCS, through Wendy Bergeron, has admitted that PCS made late payments in violation ofits contractual duties. (Pl. S.M.F. ~ 4.) In support of this statement, plaintiffs cite the transcript of the Rule SO(b)(6) deposition ofWendy Bergeron in her capacity as designee for PCS. See PCS Depo. Tr. 119:5-18; 368:7-12.) In the Plaintiffs' statement of additional material facts offered in opposition to the PCS Defendants' cross motion, Plaintiffs add another citation to Bergeron's deposition, which supposedly serves as an admission that PCS failed to timely process claims. (See Pl. S. Add'l M.F. ~ 48, citing PCS Depo. Tr. ISS: 1S- 2S.) The cited deposition transcripts stand for the proposition that late payments would be a breach, but do not go so far as to include an admission that any particular payment was late.

9 class members' recovery is limited to the value ofunpaid claims, and because all

claims have been fully paid, the class cannot sustain an action for breach of

contract. (PCS Opp'n 8) (citing authority that damages are an essential element

of a breach of contract claim). Under PCS's theory ofthe case, even ifthere is no

genuine issue of material fact as to the existence of the contract and PCS's breach

of one of its contractual duties, it is still entitled to judgment as a matter oflaw

because plaintiffs cannot satisfy their burden of proving any damages resulting

from the breach.

That may be true now, but it was not true as of the commencement of the

litigation. Thus, this case raises the interesting question of whether a party that

had provable damages for a valid breach of contract claim loses its ability to

obtain judgment as a result of being made whole during the pendency of the

action. In this case, that question is relevant mainly to the issues ofinterest and

costs.

Failure to Provide 90 days Notice Prior to Cancellation ofServices

In their motion for summary judgment, Plaintiffs contend that PCS

breached its service agreements with the providers by failing to provide 90-day

notice of its termination of the agreements. (Pl. Mot. Summ. J. 3.) According to

PCS Defendants, such a claim is not before the court because it was not contained

in the complaint nor has it been certified as a class claim pursuant to Rule 2.'3.

Additionally, PCS Defendants argue that this claim could not be presented as a

class claim because many of the providers, including three of the class

10 representatives, resigned from PCS and therefore did not fall victim to PCS's

cancellation. (See PCS S. Add'l M.F. ~ ~ 25-28, .'31, .'32.)

The court agrees that a breach of contract claim relying on PCS's failure

to provide 90-day notice of cancellation is not properly before the court in the

present class action suit.

B. The Settlement and Service Agreements of December 1, 2010 between PCS and AFI

In February 2012 the Plaintiffs supplemented their Amended Consolidated

Class Action Complaint to include a breach of contract claim arising from PCS's

and AFI's alleged failure to timely process EOB claims in violation of the Service

Agreement between PCS and AFI executed on December 1, 2010. Plaintiffs

allege that they were third party beneficiaries to this agreement and that the

agreement required PCS to work together with AFI to timely process claims and

maximize the amount of money recovered from the viable claims belonging to

the plaintiff class. (Pl. Mot. Summ. J. 12-13.) In a separate order, the court has

determined that the AFI Defendants are not liable for any failure to process EOB

claims in a timely manner.

As to PCS, the Plaintiff class asserts that PCS breached its contract with

class members when it failed to perform its "role" and "ceased any efforts" in

gathering money from MaineCare and third-party payers. (Pl. Mot. Summ. J.

13.) The PCS Defendants argue that "PCS fully complied with its contractual

obligations under the Settlement Agreement with AFI (and the incorporated

11 service agreement), fully cooperating with AFI and the Referee." (PCS Cross

Mot. Summ. J. 9.)

PCS's contracts with providers at least implicitly required PCS to process

providers' EOB claims in a reasonably timely manner, there being no explicit

deadline or timeframe for PCS's submittal of EOB claims to the insurers

involved. The fact that PCS contracted with AFI to perform PCS's duties with

regard to processing EOB claims does not relieve PCS of liability under its

contracts with Plaintiff class members.

On the other hand, nothing in the PCS contract with providers appears to

prohibit PCS from assigning or, in effect, subcontracting, its claim processing

responsibilities. PCS is entitled to summary judgment on this issue.

IV. Unjust Enrichment (Count IX)

In the alternative, Plaintiffs assert that PCS has been unjustly enriched

under the Service Agreement executed on December 1, 2010. PCS has received

$74,950 in disbursements from the Referee's account, and plaintiffs argue that

this disbursement was unjustly made to PCS where that entity had not fulfilled

its duty to assist in the timely processing of claims.

The elements of an unjust enrichment claim are (1) that the plaintiff

conferred a benefit on the defendant; (2) that the defendant appreciated or had

knowledge of the benefit; and (3) that defendant's acceptance or retention of the

benefit was under such circumstances as to make it inequitable for defendant to

retain the benefit without payment of its value. According to plaintiffs, PCS's

12 receipt of the $74,950 was inequitable because "it was performing little, if any, of

its promised work to facilitate claims." (Pl. Mot. Summ. J. 14.)

Most importantly, however, plaintiffs have failed to raise a question offact

regarding whether they ever conferred a benefit upon the PCS Defendants.

Though the PCS Defendants received funds from the Referee's account, there is

no indication that the Plaintiff class had any legal right or interest in the funds

that were disbursed to any of the Defendants. In fact, the court limited

disbursements from the Referee account specifically to assure that sufficient

funds remained to cover any cognizable claims of the class.

V. "Equitable" Claims

Plaintiffs also allege Accountings (Count V), Money had and Received 4

(Count VIII), Conversion (Count X), and Constructive Trust (Count XI). All of

these claims share the common requirement that PCS defendants must have been

in possession of funds or property to which the plaintiffs hold title or some other

ownership interest. See Ketch v. Smith, 161 A . .'300, .'300 (Me. 19.'32) (money had

and received); Baizley v. Baizley, 1999 ME 115, ~ 6 7.'34 A.2d 1117 (constructive

trust); Withers v. Hackett, 1998 ME 164, ~ 7, 714 A.2d 791 (conversion).

As just noted, there is no indication that the PCS Defendants have

received funds to which the plaintiffs had any ownership interest. Plaintiffs' only

assertion is that it would be unfair for PCS to receive funds where PCS failed to

-~"Accounting" is more appropriately characterized as an equitable remedy for a potential unjust enrichment claim. +The court notes that an action of assumpsit for money had and received arises in law, though it is "equitable in spirit and purpose." Greenlaw v. Rodick, 158 Me. 440, 446, 185 A.2d 895, 898 (Me. 1962).

13 fully process all claims under the settlement agreement. There are no facts in the

summary judgment record to indicate how this perceived injustice has affected

plaintiffs' legal rights. Accordingly, an accounting is not appropriate and the

PCS Defendants are entitled to summary judgment on Counts V, VIII, X, and

XI.

VI. Fraud (Count IV) and Negligent Misrepresentation (Count VI)

The elements of fraud include (1) that one party made a false

representation; (2) of a material fact; (.'3) with knowledge of its falsity or in

reckless disregard of whether it is true or false; (4) for the purpose of inducing

another party to act in reliance upon it; and (5) the other party justifiably relied

upon the representation as true and acted upon it to its damage. Flaherty v.

Muther, 2011 ME .'32, ~ 45, 17 A ..'3d 640 (citation omitted).

The record establishes that the individual Plaintiffs do not have any viable

fraud claim against the PCS Defendants, especially given the clear and

convincing standard of proof applicable to claims of fraud. One may be found

liable for negligent misrepresentation if, in the course of any transaction in which

he has a pecuniary interest, he fails to exercise reasonable care in communicating

false information to others and causes pecuniary loss by their justifiable reliance

upon the information. Rand v. Bath Iron Works Corp., 200.'3 ME 122 (Me. 200.'3).

On this claim, as well, the record does not support the Plaintiff class. Summary

judgment is granted for the PCS defendants on Counts IV and VP

s Because the fraud and negligent misrepresentation claims contain the essential element of reliance, these counts are only brought by the four individual named plaintiffs and do not

14 Conclusion

Plaintiffs' Motion for Partial Summary Judgment is granted in part, as to

the issue of breach of contract for purposes of Count I, and is otherwise denied.

The PCS Defendants' Cross-Motion to Enter Summary Judgment is granted as

to all counts of the Consolidated Amended Class Action Complaint except for

Count I, as to which the cross-motion is denied.

Pursuant to M.R. Civ. P. 79(a), the clerk is hereby directed to incorporate

14Jt!J1/df: this order by reference in the docket.

Dated 18 July 2012

A.M. Horton Justice, Business & Consumer Court

Entered on the DocketIJ'zo( ~ l -/ Copies sent via Mail _ Electronically.~

pertain to the class as a whole. See Order Granting Class Certification, Richman, et al. v. Possibilitzes Counseling Services, Inc., et al., Docket No. BCD-CV-10-53, 4 (Me. Super. Ct., Jul. 12, 2011 ).

15 BCD-CV-10-53

Nicole Richman., et al

Plaintiff( s) v.

Possibilities Counseling., et al

Defendant(s)

Attorneys:

For Plaintiff: Randall B. Weill, Esq. Gregory P. Hansel, Esq. Preti Flaherty Adam S. Taylor, Esq. Gregg R. Frame, Esq. Taylor McCormak & Frame, LLC.

Affiliate Funding: Melissa Hewey, Esq. Drummond Woodsum

Foster Care Billing, LLC: Melissa Hewey, Esq. Drummond Woodsum

Emile L. Clavet: Melissa Hewey, Esq. Drummond Woodsum

Kevin Dean: Melissa Hewey, Esq. Drummond Woodsum

Possibilities Counseling Services, In: Russell Pierce, Esq.

Wendy Bergeron: Russell Pierce, Esq. Norman Hansen & Detory