REID HOSPITAL & HEALTH CARE SERVICES, INC. v. CONIFER HEALTH SOLUTIONS, LLC
1:17-cv-01422
| S.D. Ind. | Apr 8, 2020Background:
- Reid Hospital contracted with Conifer (by assignment of a Master Services Agreement) for revenue-cycle outsourcing (coding, billing, preregistration) beginning in 2012.
- The Agreement expressly limited damages: barred indirect/consequential damages (including lost revenue) except for willful misconduct, and capped direct damages at amounts paid to Conifer.
- Conifer encountered staffing and collection problems, lost money on the account, cut expenses, and proposed a restructured deal; Reid terminated the Agreement in 2014 and sued for breach.
- Reid sought four categories of damages: (1) net revenue not collected, (2) CDM pricing/charge-capture underbilling, (3) increased length-of-stay costs, and (4) outsourcing/cleanup fees paid to third parties.
- Conifer moved for summary judgment arguing the Agreement bars the claimed damages; Reid argued the damages were direct (recoverable) and alternatively that Conifer’s willful misconduct removes the limitation.
- The court granted Conifer’s motion and denied Reid’s: all asserted damages were barred by the contract’s consequential-damages exclusion and Reid failed to present evidence of willful misconduct.
Issues:
| Issue | Plaintiff's Argument (Reid) | Defendant's Argument (Conifer) | Held |
|---|---|---|---|
| Recoverability of lost revenue (Net Revenue & CDM/charge-capture) | Lost revenue here was a foreseeable, direct result of breach and thus recoverable | Agreement precludes recovery for lost revenue as consequential damages regardless of foreseeability | Court: Agreement classifies lost revenue as consequential and bars recovery; Reid cannot recover these damages |
| Recoverability of increased length-of-stay costs | Length-of-stay damages are tied to Conifer’s obligations and thus direct | Any change in length of stay is indirect (physicians control discharge); therefore consequential | Court: Length-of-stay costs are consequential and barred |
| Recoverability of outsourcing/cleanup fees | Fees paid to third-party consultants were reasonable mitigation/cleanup costs flowing from breach | Such third-party fees are indirect and outside the Agreement’s contemplated direct damages | Court: Outsourcing fees are consequential and barred |
| Willful misconduct exception to damages limitation | Conifer intentionally understaffed, cut costs without regard to Reid, and hid problems — so limitation should not apply | Evidence does not show intentional deviation or knowledge of likely injury; actions reflect business/financial decisions, not willful misconduct | Court: Evidence insufficient to show willful misconduct; exception does not apply |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment burden and standard)
- Haegert v. Univ. of Evansville, 977 N.E.2d 924 (breach of contract requires damages)
- International Bus. Machines Corp. v. Indiana, 51 N.E.3d 150 (freedom to contract overrides common-law defaults)
- Rheem Mfg. Co. v. Phelps Heating & Air Conditioning, 746 N.E.2d 941 (lost profits/revenue may be direct or consequential)
- Rexnord Corp. v. DeWolff Boberg & Assocs., 286 F.3d 1001 (foreseeability distinction between direct and consequential damages)
- Hershberger v. Booker, 421 N.E.2d 672 (willful misconduct requires intentional deviation or deliberate disregard)
- Penncro Assocs., Inc. v. Sprint Spectrum, L.P., 499 F.3d 1151 (parties may define contractual damage allocations)