Arrow Child & Family Ministries v. Rite of Passage, Inc.

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ARROW CHILD & FAMILY MINISTRIES, Plaintiff, v. RITE OF PASSAGE, INC., Defendant.

No. 2:23-CV-017-Z-BR

United States District Court, N.D. Texas, Amarillo Division

June 25, 2024

MEMORANDUM OPINION AND ORDER

MATTHEW J. KACSMARYK, UNITED STATES DISTRICT JUDGE

Before the Court is Defendant's Motion for Summary Judgment (“Motion”) (ECF No. 27), filed February 2, 2024. Plaintiff filed its Response (“Response”) (ECF No. 34), on February 23, 2024, and then filed an Amended Response (“Amended Response”) (ECF No. 44), on March 11, 2024. Having reviewed the briefing and law, the Court GRANTS the Motion IN PART.

Background

This is a contracts case. Plaintiff Arrow Child & Family Ministries (“Arrow”), as landlord, and Defendant Rite of Passage, Inc., (“ROP”), as tenant entered a lease (the “Lease”) for Defendant to operate a residential treatment center (“RTC”) for foster children on the premises. ECF No. 28 at 4. The children would be referred to Defendant by single source continuum contractors (“SSCCs”) - entities that contract with the Texas Department of Family and Protective Services to provide services to foster children.^[1] ECF No. 44 at 7. As such, there existed (1) a Lease between Plaintiff and Defendant, and (2) several “Provider Service Agreements” between Defendant and the SSCCs.

Plaintiff alleges that Defendant (1) breached its SSCC Provider Service Agreements; (2) breached its Lease with Plaintiff; and (3) is using the former to justify the latter. ECF No. 44 at 15. Plaintiff further argues that its Lease prohibits early termination unless all the SSCC Provider Service Agreements are terminated, and - in its view - Defendant still had some in place when it purported to terminate the Lease. Id. at 17. Lastly, Plaintiff avers that Texas law (here, the Prevention Doctrine) prevents Defendant from “taking advantage of its own breach.” Id. at 15. Defendant responds that Plaintiff is attempting to change this case from a Lease dispute into “a ‘case within a case' involving alleged breaches of contracts by and between Defendant and nonparty SSCCs.” ECF No. 48 at 1. In Defendant's view, (1) the Prevention Doctrine does not apply to commercial disputes involving sophisticated parties; (2) Plaintiff cannot establish the Prevention Doctrine even if it applied; and (3) the SSCCs terminated the entire integrated Provider Agreements, not just part of them. Id. at 2-8.

Legal Standards

Summary judgment is appropriate if the movant shows there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. FED. R. Civ. P 56(a). The movant meets its initial burden by showing that the “evidence in the record would not permit the nonmovant to carry its burden of proof at trial.” Smith v. Brenoettsy, 158 F.3d 908 911 (5th Cir. 1998). Facts are considered “material” only if they “might affect the outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “In determining whether a genuine issue as to any material fact exists, [this Court] must view the evidence in the light most favorable to the nonmoving party.” Fahim v. Marriott HotelServs., Inc., 551 F.3d 344, 348-49 (5th Cir. 2008); Roton v. Peveto Fin. Grp., LLC, 649 F.Supp.3d 300, 313 (N.D. Tex. 2022).

Analysis

I. A genuine issue of material fact exists as to whether Defendant breached Section 4 of its Lease.

Plaintiff argues that Defendant (1) breached its Provider Agreements with the SSCCs and (2) breached Section 4 of its Lease. ECF No. 44 at 5, 15-16. Section 4 states that the premises “are to be used and occupied by Tenant solely as [a] residential treatment center for housing and rehabilitation of children in state conservatorship and the programs and services related thereto, and for no other purpose or use without the prior written consent of Landlord.” Id. at 5. RTCs, per the Texas Administrative Code, “are general residential operations that provide treatment services to children with emotional disorders.”^[2] 26 TEX. ADMIN. CODE § 748.5; id. at 6. Such children - deemed “high acuity”^[3]- often demonstrate behaviors that “aren't conducive to being in the home environment” and therefore need the “more intense therapeutic environment” provided by an RTC. ECF No. 44 at 6.

But according to Plaintiff, Defendant “did not operate [the facility] as a[n] RTC.” Id. at 10. On the contrary, Defendant “was only equipped to receive children classified as basic and moderate - children . . . placed in or transferred among ordinary foster homes on a daily basis.” Id. (emphasis added). It was “unable to admit children the SSCCs were appropriately referring” despite promising that it “would have appropriate staff and accept more than half of all referrals[.]” Id. at 8. It had “inexperienced staff, staffing issues, problems leading to law enforcement involvement with the youth under [the RTC's] care, and unsuccessful discharges.” Id. at 10. And it “only had capacity to take children who did not have high acuity needs - meaning [Defendant] could not take RTC placements.” Id. at 11.

Defendant responds that its performance under the Provider Agreements is not at issue because (1) all four SSCCs terminated the Provider Agreements “without cause under Section 7.2, not for an alleged breach under Section 7.3,” and, in any event, (2) Plaintiff is not “a party to those contracts, a third-party beneficiary to those contracts, []or an assignee of the SSCCs' . . . rights.” ECF No. 48 at 1,6 (emphasis in original). Both arguments fail.

First, Defendant's claim that the SSCCs “terminated [the Provider Agreements] without cause” is a stretch. Id. at 6. True, each SSCC terminated its Provider Agreement pursuant to Section 7.2 (“Termination with Notice”), not Section 7.3 (“Termination upon Breach”). See ECF No. 401 at 137 (TFI's Letter); Id. at 138 (ACH's Letter); Id. at 139 (Saint Francis's Letter); Id. at 140 (Belong's Letter). But in doing so, they provided meaningful context. For example, Saint Francis confirmed that “[termination is due to failure to follow the terms of the contract.” Id. at 139 (emphasis added). And in TFI's termination letter, it cited “multiple issues surrounding [Defendant's facility].” Id. at 140.

Second, it is true that Plaintiff is not a “party” to the Provider Agreements. Indeed, all four Provider Agreements say as much:

No Third-Party Rights. Except for DFPS, which shall be deemed to be a third-party beneficiary to this Agreement, this Agreement is intended solely for the benefit of the parties hereto and shall not be deemed to create any rights in any other person or entity.

See ECF No. 40-1 at 51 (Defendant's Provider Agreement with Belong); Id. at 80 (Defendant's Provider Agreement with Saint Francis); Id. at 107 (Defendant's Provider Agreement with TFI); Id. at 132 (Defendant's Provider Agreement with ACH). But Plaintiff is a party to its Lease with Defendant - and as discussed supra, that Lease required Defendant to operate as an RTC.

ECF No. 44 at 5. Accordingly, alleged breaches by Defendant of its Provider Agreements may be relevant evidence as to whether it breached Section 4 of the Lease.

As to that central question, Defendant argues that its performance is not at issue. See ECF No. 48 at 1 (“[Plaintiffs] attempt to inject a dispute that does not exist (i.e., the SSCCs vs. [Defendant]) is a red herringf.]”). Nevertheless, Defendant argues that Plaintiff “provides no evidence [Defendant] did not accept the majority of referrals, which could be a breach, as opposed to all referrals, which is not.” Id. at 7 (emphasis in original). True, the Provider Agreements require that Defendant accept the majority - not ail - of the SSCC-referred youth:

In support of this Compensation Amendment, BELONG expects that Rite of Passage will accept the majority of SSCC-referred youth.

ECF No. 40-1 at 58 (Defendant's Provider Agreement with Belong).

In support of this Agreement, SSCC/SAINT FRANCIS expects that Provider will accept the majority of SSCC-referred youth.

Id. at 69 (Defendant's Provider Agreement with Saint Francis).

In support of this Compensation Amendment, TFI expects that Rite of Passage will accept the majority of SSCC-referred youth.

Id. at 108 (Defendant's Provider Agreement with TFI).

In support of this Agreement, SSCC/ACH expects that Provider will accept the majority of SSCC-referred youth.

Id. at 122 (Defendant's Provider Agreement with ACH).

But Defendant's response addresses only one of Plaintiffs arguments and the small minority of its evidence. For example, Plaintiff argues and evidences that (1) Defendant advertised as an RTC but “was only equipped to receive children classified as basic and moderate;” (2) the SSCCs complained that “we still have 0 kids placed with them” and “[Defendant] turn[s] down every referral sent” to it; (3) even as late as April 18, 2022, Defendant “was still trying to get the required staff to accept children;” (4) between March 18, 2022, and April 8, 2022, Defendant was unable to take any children; and (5) Defendant had “inexperienced staff, staffing issues, problems leading to law enforcement involvement with the youth under [the RTC's| care, and unsuccessful discharges.” ECF No. 44 at 11-13. Plaintiff provides ACH's statement that:

We provided significant funding for the start up of this program yet were never able to place children as agreed upon due to your refusals to take children we referred and inability to maintain good standing with state licensing. Despite numerous attempts on our part, we were denied access to the guaranteed beds we were promised.

Id. (emphasis added).

Consequently this Court cannot say that the “evidence in the record would not permit the nonmovant to carry its burden of proof at trial.”...