Direct Supply, Inc. v. Specialty Hospitals of Am., LLC

878 F.Supp.2d 13

DIRECT SUPPLY, INC., Plaintiff,

v.SPECIALTY HOSPITALS OF AMERICA, LLC, et al., Defendants.

No. 1:11–CV–683.

United States District Court, District of Columbia.

July 18, 2012.

Douglas S. Crosno, Hogan Lovells U.S. LLP, Washington, DC, for Plaintiff.

Kenneth Hanson Rosenau, Rosenau & Rosenau, Emil Hirsch, Steven Andrew Pozefsky, Bradley Arant Boult Cummings LLP, Washington, DC, for Defendants.

OPINION & ORDER

[Resolving Doc. Nos. 3, 4, & 7]

JAMES S. GWIN, District Judge:

In this lawsuit for payment for delivered products and provided services, Plaintiff Direct Supply, Inc. (Direct Supply) sues Defendants Specialty Hospitals of America, LLC, Specialty Hospitals of Washington, LLC (together, Specialty Hospitals),¹ and Not–For–Profit Hospital Corporation (NFP) for breach of contract and quantum meruit. Specialty Hospitals moves to dismiss, arguing that Direct Supply failed to join a necessary party. [Docs. 3 & 4].² NFP also moves to dismiss, arguing that Direct Supply has failed to state a claim against NFP. [Doc. 7]. Direct Supply opposes these motions. [Docs. 13 & 14]. Additionally, Specialty Hospitals opposes NFP's motion to dismiss. [Doc. 12]. For the following reasons, the Court DENIES Specialty Hospitals's motions to dismiss and GRANTS IN PART and DENIES IN PART NFP's motion to dismiss.

I.

On November 7, 2007, the District of Columbia entered into a partnership with Specialty Hospitals for the acquisition and improvement of the Greater Southeast Community Hospital. See [Doc. 3–1, at 23–40]. The District of Columbia was the sole limited partner and owned ninety-nine percent of the partnership's interest. Id. at 28, § 1.6. Specialty Hospitals, as the general partner, owned one percent of the partnership's interest, id., and was responsible for the management, operation, and control of the partnership's business, id. at 33, § 5.2. Specialty Hospitals had no authority to “obligate, bind or commit [the District of Columbia] in any way for any obligation.” Id. at 30, § 4.2(a). Also, the District of Columbia was not liable to the partnership for any obligations, except its agreed capital contributions. Id. at 33, § 5.1.

Consistent with the agreement, Specialty Hospitals purchased the old Greater Southeast Community Hospital and began operations under the name United Medical Center. [Doc. 1, ¶ 8]. Plaintiff Direct Supply and Defendant Specialty Hospitals entered into two “Product and Services Agreements” under which Direct Supply, true to its name, agreed to supply “certain products and services to [United Medical Center] for the operation of the facility.” Id. ¶ 9. Although Direct Supply kept up its end of the agreement and has repeatedly demanded full payment, a balance of $462,055.17 (not including interest and costs) remains unpaid to Direct Supply. Id. ¶ 10. On August 21, 2009, and June 9, 2010, Specialty Hospitals's Regional Controller acknowledged Specialty Hospitals's obligation to pay this outstanding balance. Id. ¶ 11.

On July 9, 2010, the District of Columbia took control of United Medical Center. [Doc. 1, ¶ 12]. First, the District transferred the United Medical Center property to itself by a Substitute Trustee's Deed, see [Doc. 7–4], and formed NFP, [Doc. 1, ¶ 12]; see [Doc. 7–5]. Then, in a mayoral order (No. 10–117), the mayor of the District of Columbia transferred the rights and obligations of United Medical Center to the newly formed NFP. [Doc. 1, ¶ 12]; see [Doc. 7–6]. In response to the District's takeover, Specialty Hospitals provided the District of Columbia with notice, pursuant to D.C.Code § 12–309, that it planned to pursue legal remedies, see [Doc. 3–1, at 21], and has since filed a lawsuit challenging the takeover,³ [Doc. 1 at ¶ 12]; see also [Doc. 7–3, at 6].

After the District of Columbia took over United Medical Center, Specialty Hospitals continued to acknowledge its liability for payment to Direct Supply under the Products and Services Agreements and even made a payment towards the balance on July 30, 2010. [Doc. 1, ¶ 13]. But in a change of tune, on December 22, 2010, Specialty Hospitals notified Direct Supply that it believed NFP—not Specialty Hospitals—was now liable for the outstanding balance. Id. at ¶ 14.

On January 26, 2011, Direct Supply sent letters to NFP and to Specialty Hospitals's attorney again demanding payment. Id. at ¶¶ 15–16. When neither responded, Direct Supply brought this breach-of-contract and quantum-meruit action against Specialty Hospitals and, in the alternative, against NFP. See [Doc. 1].⁴

Specialty Hospitals moves to dismiss on the theory that the District of Columbia is a necessary party required to be joined under Federal Rule of Civil Procedure 19. [Docs. 3 & 4]. NFP also moves to dismiss, on the theory that Direct Supply has not and cannot state a claim against NFP because Mayoral Order 10–117 transferred Specialty Hospitals's assets to NFP but did not transfer any of Specialty Hospitals's liabilities to NFP. [Doc. 7].⁵

The Court considers the two motions in turn.

II.

NFP moves to dismiss for failure to state a claim upon which relief can be granted. SeeFed.R.Civ.P. 12(b)(6). For Direct Supply to defeat this motion, its complaint must have “facial plausibility,” requiring that the pleading possess “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). When evaluating a Rule 12(b)(6) motion, the Court must construe the complaint “in favor of the plaintiff, who must be granted the benefit of all inferences that can be derived from the facts alleged.” Schuler v. United States, 617 F.2d 605, 608 (D.C.Cir.1979). Although factual allegations are assumed to be true, those allegations must still be sufficient to “raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Additionally, the Court need not “accept legal conclusions cast in [the complaint] as factual allegations.” Kowal v. MCI Commc'ns Corp., 16 F.3d 1271, 1276 (D.C.Cir.1994).

NFP argues that, as a matter of law, Direct Supply's breach-of-contract and quantum-meruit claims against it should be dismissed because Mayoral Order 10–117 did not transfer any of Specialty Hospitals's liabilities to NFP; the order transferred only Specialty Hospitals's assets.⁶Accordingly, NFP says it cannot be held liable for money owed on any of the products or services that Direct Supply provided.

A. Count III—Direct Supply Sues NFP for Breach of Contract

Direct Supply asserted its breach-of-contract claim against NFP as an alternative to its breach-of-contract claim against Specialty Hospitals to the extent “that any [of Specialty Hospitals's] obligations arising under the Products and Services Agreements were transferred to NFP pursuant to Mayoral Order 10–117.” [Doc. 1, ¶ 31].⁷ Under D.C. law,⁸ Specialty Hospitals's contractual liabilities could have transferred to NFP in one of two ways. First, if the mayoral order assigned ⁹ Specialty Hospitals's contracts to NFP, then, as the assignee of those contracts, NFP “stands in the shoes of [Specialty Hospitals] and acquires the same rights and liabilities as if [NFP] had been an original party to the contract.” Manganaro Corp. v. Jefferson at Penn Quarter, L.P., No. Civ. A. 04–2133 GK, 2005 WL 3273979, at *3 (D.D.C. Aug. 9, 2005). Second, even if the mayoral order did not assign Specialty Hospitals's contracts to NFP, the mayor's transfer of Specialty Hospitals's assets to NFP may have also—by operation of D.C. common law—transferred Specialty Hospitals's liabilities. Nevertheless, Direct Supply has not alleged facts sufficient to “raise a right to relief [under either contract theory] above the speculative level.” Twombly, 550 U.S. at 555, 127 S.Ct. 1955.

First, Mayoral Order 10–117 never assigned Specialty Hospitals's contracts with Direct Supply to NFP. It transferred only “[t]he Hospital Property and all other existing rights and obligations,”which had been conveyed to the District of Columbia by the Substitute Trustee's Deed. [Doc. 7–6, at 1].¹⁰ The Substitute Trustee's Deed, in turn, had conveyed only the hospital's “land and premises, together with the improvements, easements, and appurtenances ... and all furniture, furnishings, fixtures, goods, equipment, inventory or personal property.” Id. Neither the mayoral order nor the deed mention any assignment of Specialty Hospitals's contracts. Nor has Direct Supply pleaded any other fact giving rise to an inference that NFP ever assumed Specialty Hospitals's obligations to NFP. Accordingly, Direct Supply has failed to state a breach-of-contract claim against NFP under this theory.

Second, Specialty Hospitals's liabilities did not—by operation of D.C. common law—pass to NFP when Mayoral Order 10–117 conveyed Specialty Hospitals's assets. D.C. common law provides, as a general rule, that when a business entity acquires the assets of another business, the successor is not liable for the predecessor's debts or liabilities. Bingham v. Goldberg, Marchesano, Kohlman, Inc., 637 A.2d 81, 89 (D.C.1994). To be sure, this is not an absolute rule; four established exceptions place liability for a predecessor's debts upon the entity acquiring the assets. Specifically, when:

(1) the buyer expressly or impliedly agrees to assume such debts; or

(2) the transaction amounts to a de facto merger of the buyer and seller; or

(3) the buying corporation is a “mere continuation” of the selling corporation; or

(4) the transaction is entered into fraudulently in order to escape liability for such debts.

Id. at 89–90. But Direct Supply does not even argue that any of these exceptions apply, much less set forth facts in its complaint that, if true, might establish NFP's contractual liability under any of these exceptions to the general rule.

First, the mayoral order did not transfer...