Encore Preakness, Inc. v. Chestnut Health and Rehabilitation Group, Inc.
N17C-03-1677 AML
| Del. Super. Ct. | Nov 1, 2017Background
- Encore Preakness (Plaintiff) contracted with 14 long-term care facilities (the Facilities) to provide therapy services under Therapy Services Agreements (TSAs) and billed $670,156.32 for February 2016 services.
- Facilities were separately managed by Kane Financial and Airamid entities (Moving Defendants) under preexisting Financial Consulting Agreements (FCAs); Plaintiff had no contractual privity with Moving Defendants.
- The Facilities were sold in March 2016; Facilities stopped paying Plaintiff for the February invoices, and Plaintiff alleges Moving Defendants collected third-party payor funds (Medicare/Medicaid) and withheld payment to Plaintiff.
- Plaintiff sued Facilities and Moving Defendants asserting breach of contract, unjust enrichment, tortious interference, conversion, and veil piercing; conversion and veil-piercing claims were withdrawn; Facilities did not answer and default proceedings are pending.
- Moving Defendants moved to dismiss for failure to state claims; the court considered whether unjust enrichment and third-party beneficiary breach claims were barred by existing contracts and whether tortious interference survived.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Availability of unjust enrichment against Moving Defendants | Encore: no privity to FCAs, so unjust enrichment is available against Moving Defendants who allegedly kept payor funds | Moving Defs: contracts (TSAs and FCAs) govern relationships; unjust enrichment unavailable to circumvent privity | Dismissed: unjust enrichment barred because operative contracts govern parties' relationships and Plaintiff must look to the contracting party (Facilities) |
| Breach of FCAs via third-party beneficiary status | Encore: FCAs required Moving Defs to forward payor payments to vendors; Encore intended beneficiary of FCAs | Moving Defs: Encore is not a signatory and at best an incidental beneficiary; no preexisting obligation or material purpose to benefit Encore | Dismissed: Encore not an intended third-party beneficiary (no preexisting duty, benefit not a material purpose) |
| Tortious interference with TSAs | Encore: Moving Defs intentionally withheld payments, a significant factor causing breach of TSAs, without justification | Moving Defs: performance of their FCAs justified conduct; cannot be liable if acting consistently with FCAs | Survived: complaint plausibly alleges Moving Defs interfered and acted inconsistently with FCAs; claim not dismissed |
| Applicability of Kuroda rule barring tort when defendant is party/agent | Encore: Moving Defs are independent, unaffiliated entities susceptible to tort claim | Moving Defs: analogize to Kuroda to bar tort claims against contract participants/agents | Court: Kuroda distinguishable—Moving Defs are not agents/affiliated with Facilities, so tort claim may proceed |
Key Cases Cited
- Holmes v. D'Elia, 129 A.3d 881 (Del. 2015) (pleading standard for motions to dismiss)
- Nemec v. Shrader, 991 A.2d 1120 (Del. 2010) (elements of unjust enrichment)
- Vichi v. Koninklijke Philips Electronics N.V., 62 A.3d 26 (Del. Ch. 2012) (unjust enrichment cannot circumvent contract/privity rules)
- Kuroda v. SPJS Holdings, LLC, 971 A.2d 872 (Del. Ch. 2009) (limits on tort claims against contracting parties and their agents)
- Lipson v. Anesthesia Services, P.A., 790 A.2d 1261 (Del. 2001) (elements of tortious interference)
- Fish Eng'g Corp. v. Hutchinson, 162 A.2d 722 (Del. 1960) (standard for dismissal when no set of facts could entitle plaintiff to relief)