Preview
FILED
DALLAS COUNTY
3/11/2014 4:39:54 PM
GARY FITZSIMMONS
DISTRICT CLERK
CAUSE NO. DC-12-12887
MUGDOCK TAVERN INVESTMENTS § IN THE DISTRICT COURT OF
and DUFFY I, LP, §
§
Plaintiffs, §
§
v. §
§
CAT SEATTLE, LLC, ASCEND §
HEALTH CORPORATION, and §
RICHARD KRESCH, Individually, §
§ DALLAS COUNTY, TEXAS
Defendants and Counter- §
Plaintiffs, §
§
v. §
§
Duffy I, LP and JAMES P. GRAHAM §
§
Counter-Defendants. §
§
§ 134TH JUDICIAL DISTRICT
____________________________________________________________________________
DEFENDANTS/COUNTER-PLAINTIFFS’ AMENDED MOTION FOR SUMMARY
JUDGMENT AND NO-EVIDENCE MOTION FOR SUMMARY JUDGMENT
_____________________________________________________________________________
Victor D. Vital
Texas State Bar No. 00794798
vitalv@gtlaw.com
Nicholas A. Sarokhanian
Texas State Bar No. 24075020
sarokhaniann@gtlaw.com
GREENBERG TRAURIG, LLP
2200 Ross Avenue, Suite 5200
Dallas, Texas 75201
214-665-3600 - Telephone
214-665-3601- Facsimile
ATTORNEYS FOR
DEFENDANTS AND
COUNTER-PLAINTIFFS
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TABLE OF CONTENTS
I. INTRODUCTION ...............................................................................................................4
II. SUMMARY JUDGMENT EVIDENCE .............................................................................5
III. SUMMARY JUDGMENT STANDARD ...........................................................................5
IV. SUMMARY JUDGMENT FACTS .....................................................................................6
A. The Agreement between Duffy I and CAT Seattle for the Purchase of
Schick Shadel Hospital ............................................................................................7
1. The Creation of a Schick Shadel Service .....................................................7
2. No Material Deviation from Protocol ..........................................................9
3. Provisions Relating to Employees ...............................................................9
4. All Suits to Be Brought in Delaware Federal Court ..................................10
B. Defendants Created a Chemical Aversion Service at Mayhill Hospital. ...............11
C. Plaintiffs Filed This Lawsuit in Dallas County District Court. .............................13
V. SUMMARY JUDGMENT GROUNDS ............................................................................14
A. Rule 166a(c) Summary Judgment ..........................................................................14
1. Plaintiffs’ Breach of Contract Claim .........................................................14
2. Plaintiffs’ Conspiracy Claim......................................................................14
3. Ascend Defendants’ Breach of Contract Claim .........................................15
B. Rule 166(i) Summary Judgment ............................................................................15
1. Breach of Contract: There is no evidence that Defendants Kresch
or Ascend were parties to a contract, and there is no evidence that
any of the Ascend Defendants breached the Agreement or that
damage resulted to Plaintiffs......................................................................15
2. Promissory Fraud/Fraudulent Inducement: There is no evidence of
any knowingly false representation, including any promise that
was false and known to be false when made, of any reliance on
such representation by Plaintiffs, or of any injury suffered because
of any such reliance. ..................................................................................15
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3. Conspiracy: There is no evidence of any confederation or
combination of two or persons, of any underlying unlawful act, or
of any resulting actual damages. ................................................................15
VI. ARGUMENT AND AUTHORITIES ................................................................................15
A. Summary Judgment is Appropriate on Plaintiffs’ Breach of Contract
Claim Relating to Section 16.1. .............................................................................15
1. The Ascend Defendants Satisfied Section 16.1. ........................................16
2. Section 16.2 Governs the Future Obligations of the Parties. .....................17
3. The “Service Failure Fee” is an Unenforceable Penalty. ...........................18
4. Section 5.2 of the APA and Section 2(d) of the Amendment
Provide No Grounds for Recovery in Favor of Plaintiffs. .........................20
B. Summary Judgment is Appropriate on Plaintiffs’ Conspiracy Claims. .................21
C. Summary Judgment is Appropriate on Counter-Defendants’ Breach of the
Agreement’s Forum-Selection Provisions. ............................................................22
D. Summary Judgment on All Plaintiffs’ Claims is Appropriate Because
There Is No Evidence Supporting the Elements of Their Claims. .........................24
1. There is No Evidence of Breach of Contract by the Ascend
Defendants. ................................................................................................24
2. There is No Evidence of Promissory Fraud and Fraudulent
Inducement. ................................................................................................25
3. There is No Evidence of Conspiracy. ........................................................26
VII. CONCLUSION ..................................................................................................................27
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TO THE HONORABLE JUDGE OF SAID COURT:
Pursuant to Rule 166a of the Texas Rules of Civil Procedure, Defendants/Counter-
Plaintiffs Ascend Health Corporation (“Ascend”), CAT Seattle, LLC (“CAT Seattle”), and
Richard Kresch (collectively, the “Ascend Defendants”), through their counsel of record, hereby
submit this Motion for Partial Summary Judgment and No-Evidence Motion for Summary
Judgment (the “Motion for Summary Judgment”), and would respectfully show the Court as
follows:
I. INTRODUCTION
The driving force behind Plaintiffs’ claims is simple: seller’s remorse. James P. Graham,
as the representative and controlling partner of Plaintiff Duffy I, LP (“Duffy I”), entered into an
agreement to sell the Schick Shadel Hospital in Seattle to Ascend. The parties agreed that CAT
Seattle, Ascend’s subsidiary management entity, would open a new Schick Shadel service in
Texas within a year of the closing of the agreement—which is exactly what CAT Seattle did,
opening a Schick Shadel unit at Mayhill Hospital on July 9, 2012. Despite having pocketed a
large sum of money as compensation for the sale of his interest in Schick Shadel, Mr. Graham
was unwilling to give up control of the hospital. Mr. Graham became displeased with the
integration of Schick Shadel Hospital into the larger corporate structure of Ascend, and he
insisted on attempting to micromanage the implementation of the chemical aversion treatment
therapy at Mayhill Hospital. When he did not get his way, he sued.
Like other emotionally-driven decisions, this lawsuit does not make a lot of sense.
Plaintiffs brought allegations based on second- and third-hand information that Mr. Graham
received after a long game of “telephone.” Without any evidence, they have made contract
claims that twist the agreement between CAT Seattle and Duffy I; contract claims for which they
ASCEND DEFENDANTS’ AMENDED MOTION FOR SUMMARY JUDGMENT – Page 4
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have no remedy; conspiracy claims against a single entity (Ascend, its subsidiary, and its
president); and fraud claims. Rather than comply with the agreement’s forum selection clause,
which required lawsuits to the filed in Delaware, Plaintiffs brought this lawsuit in Dallas and
then took action to ensure the suit could not be transferred to Delaware.
Because Plaintiffs’ claims are unsupported by law and evidence and misconstrue the
terms of the operative agreement between the parties, the Ascend Defendants bring this Motion
for Summary Judgment to ask the Court to dismiss Plaintiffs’ claims, grant judgment in favor of
the Ascend Defendants on Duffy I’s breach of contract, and narrow the issues for trial.
II. SUMMARY JUDGMENT EVIDENCE
In support of this Motion, the Ascend Defendants hereby incorporate Defendants’
Summary Judgment Evidence Appendix (the “Appendix”) and Supplemental Appendix (the
“Supplemental Appendix” on file with the Court. The Ascend Defendants accordingly provide
notice that they intend to rely on the evidence contained therein, and the Ascend Defendants will
cite to the Appendix by its respective page numbers beginning with the prefix “APP” or “S.
APP”. In addition, the Ascend Defendants provide notice that they intend to rely on documents
designated as Confidential/Restricted under the August 30, 2013 Agreed Protective Order in this
case, including PLA 1201 and UHS_ASCEND 0000046-145.
III. SUMMARY JUDGMENT STANDARD
Rule 166a of the Texas Rules of Civil Procedure allows a party seeking to recover upon a
claim, counterclaim, or cross-claim, or to obtain declaratory judgment, to move for summary
judgment in his favor at any time. TEX. R. CIV. P. 166a(a). Summary judgment should be
granted where the record shows that “there are no disputed issues of material fact and the moving
party is entitled to judgment as a matter of law.” M.O. Dental Lab v. Rape, 139 S.W.3d 671, 675
ASCEND DEFENDANTS’ AMENDED MOTION FOR SUMMARY JUDGMENT – Page 5
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(Tex. 2004); Life Ins. Co. of the Southwest v. Verex Assurance, Inc., 810 S.W.2d 416, 417 (Tex.
App.—Dallas 1991, no writ) (citing TEX. R. CIV. P. 166a(c)). The burden in summary judgment
is on the movant, and this burden is met when the movant conclusively proves its claim.
Walstad v. Dallas Cnty. Bail Bond Bd., 996 S.W.2d 314, 315 (Tex. App.—Dallas 1999, no pet.);
Int’l Union United Auto. Aerospace & Agric. Implement v. Johnson Controls, Inc., 813 S.W.2d
558, 563 (Tex. App.—Dallas 1991, writ denied). “An issue is conclusively established when the
evidence is such that there is no room for ordinary minds to differ as to the conclusion to be
drawn from it.” Triton Oil & Gas Corp. v. Marine Contractors, 644 S.W.2d 443, 446 (Tex.
1982); Zep Mfg. Co. v. Harthcock, 824 S.W.2d 654, 657-58 (Tex. App.—Dallas 1992, no writ.)
“Once the movant establishes its right to summary judgment, the burden then shifts to the
nonmovant to present issues that preclude summary judgment.” Ward v. Emmett, 37 S.W.3d
500, 502 (Tex. App.—San Antonio 2001, no pet.).
In addition, after an adequate time for discovery has passed, a party without the burden of
proof at trial may move for summary judgment on the ground that the nonmoving party lacks
supporting evidence for one or more essential elements of its claim. TEX. R. CIV. P. 166a(i);
Bever Props., L.L.C. v. Jerry Huffman Custom Builder, L.L.C., 355 S.W.3d 878, 888 (Tex.
App.—Dallas 2011, no pet.). The motion must state the elements as to which there is no
evidence. Id. Once a proper motion is filed, the burden shifts to the nonmoving party to present
evidence raising any issues of material fact. Murray v. Ford Motor Co., 97 S.W.3d 888, 890–91
(Tex. App.—Dallas 2003, no pet.).
IV. SUMMARY JUDGMENT FACTS
Schick Shadel Hospital is a freestanding clinic in Seattle, Washington that provides
inpatient detoxification and chemical aversion therapy treatment for alcohol and drug abuse and
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addiction. [APP 002.] In 2011, Ascend Health Corporation became interested in purchasing
Schick Shadel Hospital from Duffy I. [APP 002.] The parties negotiated an agreement for the
sale of the hospital as set forth below.
A. The Agreement between Duffy I and CAT Seattle for the Purchase of Schick Shadel
Hospital
On August 3, 2011, CAT Seattle (a wholly-owned subsidiary of Ascend prior to August
3, 2011) and Duffy I entered into an Asset Purchase Agreement (the “APA”) involving the sale
of Schick Shadel Hospital from Duffy I to CAT Seattle. [APP 002.] Under the APA, Duffy I
received a five percent equity interest in CAT Seattle in exchange for a capital contribution.
[APP 012.] The closing date of the APA was August 16, 2011. [APP 003.] At all relevant times
until October 10, 2012, Richard Kresch was the president of Ascend and the managing member
of CAT Seattle. [APP 002.]
On August 23, 2012, CAT Seattle and Duffy I executed an amendment to the APA (the
“Amendment”). The Amendment modified the obligations set forth in the APA relating to CAT
Seattle’s purchase from Mugdock Tavern Investments of the five percent interest originally
retained by Duffy I in connection with the APA. [APP 250.] The Amendment referenced the
June 3, 2012 Merger Agreement between Ascend and Universal Health Services, Inc. (“UHS”),
which closed on or about October 10, 2012. [APP 003; APP 167; APP 250.]
The August 3, 2011 APA and the August 23, 2012 Amendment to APA (collectively, the
“Agreement”) comprise a contract between CAT Seattle and Duffy I that contains certain
obligations by the parties.
1. The Creation of a Schick Shadel Service
Section 2.2 of the APA required that CAT Seattle’s business would consist solely of (1)
managing Schick Shadel Hospital in Seattle; and (2) managing Texas Schick Shadel Facilities
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and Texas Schick Shadel Units. [APP 012.] A “Texas Schick Shadel Facility” is defined as
[A] facility located in Texas that is owned by Ascend or an affiliate of Ascend
that is fully dedicated to the provision of chemical aversion therapy services
(“Schick Shadel Services”).
Id. A “Texas Schick Shadel Unit” is similarly defined as
[A] unit operated by Ascend or an affiliate of Ascend located within a facility
owned or operated by Ascend or an affiliate of Ascend in Texas, other than a
Texas Schick Facility, that provides Schick Shadel Services.
Id. Section 2.2 contemplated, but did not require, that CAT Seattle would locate a Texas Schick
Shadel Unit within Mayhill Hospital, a facility owned by Ascend in Denton, Texas. Id.
Section 16.1 of the APA required CAT Seattle (defined therein as “Purchaser”) to create
either a Texas Schick Shadel Facility or Texas Schick Shadel Unit providing chemical therapy
services within one year of the closing date of the APA. It also included a $1,000,000 “Service
Failure Fee” payable to Duffy I (defined therein as “Seller”) if CAT Seattle did not meet this
deadline. [APP 044.] The section reads as follows:
16.1 Additional Operation. On or before the first anniversary of the Closing
Date, Purchaser shall cause to be created a Schick Shadel service to be operated
by Purchaser or an affiliate of Ascend Health Corporation to provide chemical
aversion therapy in a location other than in Seattle, Washington. If Purchaser
fails to cause such service to be created on or before the first anniversary of the
Closing Date, then Purchaser shall pay to Seller liquidated damages in the amount
of One Million Dollars ($1,000,000.00) in lieu of any other rights in law or in
equity to which Seller may be entitled (the “Service Failure Fee”). The Parties
agree that the Service Failure Fee is a reasonable forecast of just compensation for
anticipated and actual harm incurred by Seller and that the actual harm incurred
by Seller as a result of Purchaser’s failure to cause the creation of such service
within such period cannot be estimated with certainty and without difficulty. The
Service Failure Fee shall be paid by Purchaser within ninety (90) days after such
first anniversary of the Closing Date.
Id. Because the APA closed on August 16, 2011, the deadline for CAT Seattle to comply with
section 16.1 and avoid the “Service Failure Fee” was August 16, 2012.
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2. No Material Deviation from Protocol
Section 16.2 of the APA, as amended by Section 1(a) of the Amendment, requires that
CAT Seattle not materially deviate from certain chemical aversion therapy protocols. [APP 250-
51.] The pertinent section of the Agreement reads as follows:
Except as required for regulatory or licensure compliance purposes, Purchaser
shall not materially deviate from the chemical aversion therapy protocols
developed by Seller (the “Protocols”), a copy of which was provided to Purchaser
prior to the Effective Date, in the provision of chemical aversion therapy by
Purchaser without the prior consent of James P. Graham or his designee, which
consent shall not be unreasonably withheld and which such consent, or
notification that such consent is being withheld, shall be received by Purchaser
not later than 10 days following receipt of written notification by Purchaser to
James P. Graham of such material deviation or upon James P. Graham obtaining
actual knowledge (other than through notification by Purchaser) that there has
been a material deviation in the Protocols. During such 10-day period, James P.
Graham or his designee shall have the right (at reasonable times and upon
reasonable notice) to discuss the proposed changes with the professional staff of
the Seattle Schick Shadel Hospital. In addition, James P. Graham shall be
permitted, no more than once weekly, to request that he and the Chief Executive
Officer of each of the Seattle Schick Shadel Hospital and/or Mayhill Hospital
have a telephonic conference to discuss the chemical aversion therapy protocols
or other concerns.
[APP 250.] Section 16.2, as amended, does not refer to the obligations set forth in section 16.1,
including the “Service Failure Fee.” Id.
3. Provisions Relating to Employees
Certain provisions of the Agreement relate to certain employees formerly employed by
Duffy I. Section 5.2 of the APA provides the following, in part:
At the Closing, Purchaser shall employee the individuals listed on Schedule 5.2(b)
to this Agreement (“Retained Employees”) and shall not terminate the
employment of such individuals other than “for cause”, as determined by
Purchaser, in its reasonable discretion, for a period of one (1) year after the
Closing Date. If Purchaser terminates any of the individuals listed on Schedule
5.2(b)(ii) other than for cause prior to the one (1) year anniversary of the Closing
Date, then Purchaser shall pay such terminated individual the amount set forth in
Schedule 5.2(b)(ii) to this Agreement as severance pay.
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[APP 027.] Based on the August 16, 2011 closing date for the APA, this obligation expired on
August 16, 2012.
In addition, section 2(d) of the Amendment to the APA, making reference to the June 3
Merger Agreement between Ascend and UHS, provides, in part, that:
Purchaser hereby agrees that no current employee of the Seattle Schick Shadel
Hospital shall be terminated by the Purchaser in its reasonable discretion prior to
the earlier of (x) the consummation of the Merger (as defined in the Merger
Agreement) or (y) the termination of the Merger Agreement pursuant to its terms
prior to the consummation of the Merger.
[APP 251-52.] The Merger Agreement closed on or about October 10, 2012, and thus section
2(d) of the Amendment expired on that date.
Notwithstanding these provisions, section 35 of the APA states as follows:
“No Third Party Beneficiaries. Nothing in this Agreement is intended to create
any rights or entitlements in any individuals or entities other than Purchaser and
Seller.”
[APP 049.]
4. All Suits to Be Brought in Delaware Federal Court
Finally, section 25 of the APA (entitled “Governing Law: Jurisdiction”) stipulates:
“Any disputes that arise under this Agreement shall be adjudicated in the United
States District Court in Wilmington, Delaware.”
[APP 047.] Section 26 of the APA separately deals with “Consent to Jurisdiction,” and
mandates the filing of suits in connection with the Agreement in “the United States District
Court for the District of Delaware.” [APP 047-48.] Section 26 states, in pertinent part:
Each party . . . hereby agrees not to commence any such action [defined as “any
and all actions, suits or Proceedings arising in whole or in part out of, related to,
based upon or in connection with this Agreement of the subject matter hereof”]
other than before the above-named court nor to make any motion or take any
other action seeking or intending to cause the transfer or removal of any such
action to any court other than the above-named court whether on the grounds of
inconvenient forum or otherwise.
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Id. Thus, under the Agreement, the parties consented to federal jurisdiction in Delaware, agreed
to only bring claims relating to the Agreement in the Delaware federal forum, and agreed not to
take any action intended to cause the transfer of such action to any court other than United States
District Court for the District of Delaware.
B. Defendants Created a Chemical Aversion Service at Mayhill Hospital.
In the fall of 2011, Ascend began preparations to create a Schick Shadel service
providing chemical aversion therapy at Mayhill Hospital in Denton, Texas, in compliance with
section 16.1 of the APA. [APP 003.] These preparations continued into the spring, and included
the creating and updating of an integration checklist, which was periodically updated to outline
the internal tasks and anticipated timeline of opening, as well as the assembly of a startup team.
Id. The preparations also included the development of a “Business Development Action Plan”
for the roll-out of the Schick Shadel service in the North Texas region. Id. Items for this roll-out
included the creation of a national call center in Seattle to manage admissions for both Schick
Shadel Hospital in Seattle and Schick Shadel at Mayhill; educating the Mayhill medical staff
regarding the program; creating new signage for the Mayhill facility to show that the Schick
Shadel service would be offered there; and advertising the service, including press releases,
television/radio advertising, and print media. Id.
In the spring of 2012, Ascend renovated Mayhill Hospital to accommodate the Schick
Shadel Unit to be located there. [APP 004.] Ascend hired an architectural firm and constructed
and furnished a unit designed to replicate all aspects of the Schick Shadel inpatient chemical
aversion treatment, including the following:
• Treatment rooms for administration of chemical aversion treatment, including
specialized ventilation/duct work;
• Rehabilitation interview rooms;
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• Schick Shadel patient lounge area;
• Renovations to kitchen; and
• Installation of prominent signage on the exterior of the building indicating
“Schick Shadel Hospital.”
Id.
The startup team opening the Schick Shadel unit at Mayhill Hospital, including Ascend
corporate employees and Mayhill Hospital administrators, held a weekly preparation call
throughout the spring and continuing through the opening of Schick Shadel – North Texas.
[APP 004.] Additionally, Ascend recruited, hired, and trained a medical director, nurses, and
counselors to staff the unit. Id. The training included sending the Mayhill Schick Shadel staff
on visits to Schick Shadel Hospital in Seattle for training, as well as bringing Seattle Schick
Shadel staff to Mayhill Hospital to conduct onsite training with admitted patients. Id. Ascend
adapted the Schick Shadel protocols to comply with Texas and Joint Commission regulations,
and a full set of Schick Shadel protocols for Mayhill Hospital were in place by July 6, 2012. Id.
By July 9, 2012—well before the first anniversary of the August 16, 2011 Closing Date
of the APA—the Schick Shadel unit at Mayhill Hospital was open, fully functional, admitting
patients, and providing Schick Shadel-based chemical aversion therapy. [APP 005.] Such
chemical aversion therapy included:
• Counter-conditioning treatment in which the patient is administered an
emetic such as ipecac syrup, then exposed to alcohol or another substance
during the onset of nausea so that an aversion is formed, then closely
monitored afterwards;
• Rehabilitation interviews in which the patient is provided minor sedation,
interviewed regarding her drinking or substance use history, motivation
for sobriety, and problem areas, and given positive suggestions and
encouragement; and
• Relaxation therapy and counseling.
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[APP 004-05.]
After the first patients were admitted, it quickly became apparent that Schick Shadel at
Mayhill Hospital was successfully using the chemical aversion treatment. On July 13, 2012 the
administrator of Mayhill Hospital reported to the medical director that “Treatments and
Confirmations are going well, our first 3 patients really like it here.” [APP 258.] The Ascend
Call Center Coordinator reported on July 17, 2012 that a patient participating in the Schick
Shadel program at Mayhill Hospital called her on the last day of his treatment and said itwas
“the best decision I’ve made.” [APP 259.] And on July 31, 2012 another patient, who had
discharged from Schick Shadel at Mayhill Hospital the day before, reported that he “feels like a
whole new person and wanted to thank everyone for their part in allowing for him to ‘change his
life.’” [APP 261.]
C. Plaintiffs Filed This Lawsuit in Dallas County District Court.
On November 1, 2012, Plaintiffs filed this lawsuit in Dallas County. At the time of
filing, complete diversity of citizenship existed between the parties. Kresch is a Connecticut
citizen, and Ascend and CAT Seattle are corporations organized under the laws of the State of
Delaware. [APP 002.] None of the members of Mugdock Tavern or Duffy I held Connecticut or
Delaware citizenship on November 12, 2012. [APP 297-98.] The lone member of Duffy I who
held Delaware citizenship prior to the lawsuit was the Frawley Corporation. [APP 310.]
However, the Frawley Corporation’s Delaware citizenship expired for jurisdictional purposes on
March 2, 2012, three years after the corporation ceased to exist in Delaware for non-payment of
taxes. Id.
After filing this lawsuit, and in order to avoid being dismissed from this Court based on
the forum-selection clauses of the Agreement, Plaintiffs paid the outstanding amount owed by
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the Frawley Corporation to the State of Delaware. [APP 312.] This action revived the Frawley
Corporation’s Delaware citizenship and thus caused a lack of diversity to exist between the
parties.
V. SUMMARY JUDGMENT GROUNDS
The Ascend Defendants hereby move the Court for entry of summary judgment on the
following grounds:
A. Rule 166a(c) Summary Judgment
1. Plaintiffs’ Breach of Contract Claim
The Ascend Defendants request that the Court enter judgment on Plaintiffs’ breach of
contract claims as follows:
(a) Based on the summary judgment evidence, the Ascend Defendants complied
with section 16.1 of the APA;
(b) Therefore, the Ascend Defendants have no liability under the $1,000,000.00
“Service Failure Fee” clause contained in section 16.1;
(c) In any event, the purported $1,000,000.00 “Service Failure Fee” clause
contained in section 16.1 is an unenforceable penalty and is thus not
recoverable; and
(d) Section 5.2 of the APA and section 2(d) of the Amendment provide no
grounds of recovery in favor of Plaintiffs.
2. Plaintiffs’ Conspiracy Claim
The Ascend Defendants further request that the Court enter judgment dismissing
Plaintiffs’ conspiracy claims as a matter of law. CAT Seattle was a wholly-owned subsidiary of
Ascend prior to August 3, 2011, and was jointly owned by Ascend (95 percent) and Duffy I (five
percent) from August 3, 2011 until August 23, 2012. Further, Kresch was an officer of both
Ascend and CAT Seattle and acted in that capacity at all relevant times. Accordingly,
Defendants cannot have formed a combination of two or more persons.
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3. Ascend Defendants’ Breach of Contract Claim
The Ascend Defendants further request that the Court enter judgment finding that,
because Plaintiffs could have brought this lawsuit in the United States District Court for the
District of Delaware at the time it was filed, Counter-Defendants Duffy I, LP and James Graham
are liable for damages resulting from their breach of their obligations under sections 25 and 26 of
the Agreement.
B. Rule 166(i) Summary Judgment
The Ascend Defendants further request that the Court enter an order dismissing all of
Plaintiffs’ claims because there is no evidence of one or more essential elements of each
Plaintiffs’ claims as follows:
1. Breach of Contract: There is no evidence that Defendants Kresch or Ascend were
parties to a contract, and there is no evidence that any of the Ascend Defendants
breached the Agreement or that damage resulted to Plaintiffs.
2. Promissory Fraud/Fraudulent Inducement: There is no evidence of any
knowingly false representation, including any promise that was false and known
to be false when made, of any reliance on such representation by Plaintiffs, or of
any injury suffered because of any such reliance.
3. Conspiracy: There is no evidence of any confederation or combination of two or
persons, of any underlying unlawful act, or of any resulting actual damages.
VI. ARGUMENT AND AUTHORITIES
A. Summary Judgment is Appropriate on Plaintiffs’ Breach of Contract Claim
Relating to Section 16.1.
Plaintiffs’ breach of contract claims fail as a matter of law. The evidence demonstrates
that (1) the Ascend Defendants satisfied section 16.1 by establishing a Schick Shadel unit or
facility in Texas by the deadline therein; (2) as a result, only section 16.2 controls the future
obligations of the parties; (3) in any event, the Service Failure Fee is an unenforceable penalty;
and (4) section 5.2 of the APA and section 2(d) of the Amendment provide no grounds for
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Plaintiffs’ recovery.
1. The Ascend Defend
Preview
FILED DALLAS COUNTY 3/11/2014 4:39:54 PM GARY FITZSIMMONS DISTRICT CLERK CAUSE NO. DC-12-12887 MUGDOCK TAVERN INVESTMENTS § IN THE DISTRICT COURT OF and DUFFY I, LP, § § Plaintiffs, § § v. § § CAT SEATTLE, LLC, ASCEND § HEALTH CORPORATION, and § RICHARD KRESCH, Individually, § § DALLAS COUNTY, TEXAS Defendants and Counter- § Plaintiffs, § § v. § § Duffy I, LP and JAMES P. GRAHAM § § Counter-Defendants. § § § 134TH JUDICIAL DISTRICT ____________________________________________________________________________ DEFENDANTS/COUNTER-PLAINTIFFS’ AMENDED MOTION FOR SUMMARY JUDGMENT AND NO-EVIDENCE MOTION FOR SUMMARY JUDGMENT _____________________________________________________________________________ Victor D. Vital Texas State Bar No. 00794798 vitalv@gtlaw.com Nicholas A. Sarokhanian Texas State Bar No. 24075020 sarokhaniann@gtlaw.com GREENBERG TRAURIG, LLP 2200 Ross Avenue, Suite 5200 Dallas, Texas 75201 214-665-3600 - Telephone 214-665-3601- Facsimile ATTORNEYS FOR DEFENDANTS AND COUNTER-PLAINTIFFS ASCEND DEFENDANTS’ AMENDED MOTION FOR SUMMARY JUDGMENT – Page 1 DAL 79285178v4 PAGE 01 TABLE OF CONTENTS I. INTRODUCTION ...............................................................................................................4 II. SUMMARY JUDGMENT EVIDENCE .............................................................................5 III. SUMMARY JUDGMENT STANDARD ...........................................................................5 IV. SUMMARY JUDGMENT FACTS .....................................................................................6 A. The Agreement between Duffy I and CAT Seattle for the Purchase of Schick Shadel Hospital ............................................................................................7 1. The Creation of a Schick Shadel Service .....................................................7 2. No Material Deviation from Protocol ..........................................................9 3. Provisions Relating to Employees ...............................................................9 4. All Suits to Be Brought in Delaware Federal Court ..................................10 B. Defendants Created a Chemical Aversion Service at Mayhill Hospital. ...............11 C. Plaintiffs Filed This Lawsuit in Dallas County District Court. .............................13 V. SUMMARY JUDGMENT GROUNDS ............................................................................14 A. Rule 166a(c) Summary Judgment ..........................................................................14 1. Plaintiffs’ Breach of Contract Claim .........................................................14 2. Plaintiffs’ Conspiracy Claim......................................................................14 3. Ascend Defendants’ Breach of Contract Claim .........................................15 B. Rule 166(i) Summary Judgment ............................................................................15 1. Breach of Contract: There is no evidence that Defendants Kresch or Ascend were parties to a contract, and there is no evidence that any of the Ascend Defendants breached the Agreement or that damage resulted to Plaintiffs......................................................................15 2. Promissory Fraud/Fraudulent Inducement: There is no evidence of any knowingly false representation, including any promise that was false and known to be false when made, of any reliance on such representation by Plaintiffs, or of any injury suffered because of any such reliance. ..................................................................................15 ASCEND DEFENDANTS’ AMENDED MOTION FOR SUMMARY JUDGMENT – Page 2 DAL 79285178v4 PAGE 02 3. Conspiracy: There is no evidence of any confederation or combination of two or persons, of any underlying unlawful act, or of any resulting actual damages. ................................................................15 VI. ARGUMENT AND AUTHORITIES ................................................................................15 A. Summary Judgment is Appropriate on Plaintiffs’ Breach of Contract Claim Relating to Section 16.1. .............................................................................15 1. The Ascend Defendants Satisfied Section 16.1. ........................................16 2. Section 16.2 Governs the Future Obligations of the Parties. .....................17 3. The “Service Failure Fee” is an Unenforceable Penalty. ...........................18 4. Section 5.2 of the APA and Section 2(d) of the Amendment Provide No Grounds for Recovery in Favor of Plaintiffs. .........................20 B. Summary Judgment is Appropriate on Plaintiffs’ Conspiracy Claims. .................21 C. Summary Judgment is Appropriate on Counter-Defendants’ Breach of the Agreement’s Forum-Selection Provisions. ............................................................22 D. Summary Judgment on All Plaintiffs’ Claims is Appropriate Because There Is No Evidence Supporting the Elements of Their Claims. .........................24 1. There is No Evidence of Breach of Contract by the Ascend Defendants. ................................................................................................24 2. There is No Evidence of Promissory Fraud and Fraudulent Inducement. ................................................................................................25 3. There is No Evidence of Conspiracy. ........................................................26 VII. CONCLUSION ..................................................................................................................27 ASCEND DEFENDANTS’ AMENDED MOTION FOR SUMMARY JUDGMENT – Page 3 DAL 79285178v4 PAGE 03 TO THE HONORABLE JUDGE OF SAID COURT: Pursuant to Rule 166a of the Texas Rules of Civil Procedure, Defendants/Counter- Plaintiffs Ascend Health Corporation (“Ascend”), CAT Seattle, LLC (“CAT Seattle”), and Richard Kresch (collectively, the “Ascend Defendants”), through their counsel of record, hereby submit this Motion for Partial Summary Judgment and No-Evidence Motion for Summary Judgment (the “Motion for Summary Judgment”), and would respectfully show the Court as follows: I. INTRODUCTION The driving force behind Plaintiffs’ claims is simple: seller’s remorse. James P. Graham, as the representative and controlling partner of Plaintiff Duffy I, LP (“Duffy I”), entered into an agreement to sell the Schick Shadel Hospital in Seattle to Ascend. The parties agreed that CAT Seattle, Ascend’s subsidiary management entity, would open a new Schick Shadel service in Texas within a year of the closing of the agreement—which is exactly what CAT Seattle did, opening a Schick Shadel unit at Mayhill Hospital on July 9, 2012. Despite having pocketed a large sum of money as compensation for the sale of his interest in Schick Shadel, Mr. Graham was unwilling to give up control of the hospital. Mr. Graham became displeased with the integration of Schick Shadel Hospital into the larger corporate structure of Ascend, and he insisted on attempting to micromanage the implementation of the chemical aversion treatment therapy at Mayhill Hospital. When he did not get his way, he sued. Like other emotionally-driven decisions, this lawsuit does not make a lot of sense. Plaintiffs brought allegations based on second- and third-hand information that Mr. Graham received after a long game of “telephone.” Without any evidence, they have made contract claims that twist the agreement between CAT Seattle and Duffy I; contract claims for which they ASCEND DEFENDANTS’ AMENDED MOTION FOR SUMMARY JUDGMENT – Page 4 DAL 79285178v4 PAGE 04 have no remedy; conspiracy claims against a single entity (Ascend, its subsidiary, and its president); and fraud claims. Rather than comply with the agreement’s forum selection clause, which required lawsuits to the filed in Delaware, Plaintiffs brought this lawsuit in Dallas and then took action to ensure the suit could not be transferred to Delaware. Because Plaintiffs’ claims are unsupported by law and evidence and misconstrue the terms of the operative agreement between the parties, the Ascend Defendants bring this Motion for Summary Judgment to ask the Court to dismiss Plaintiffs’ claims, grant judgment in favor of the Ascend Defendants on Duffy I’s breach of contract, and narrow the issues for trial. II. SUMMARY JUDGMENT EVIDENCE In support of this Motion, the Ascend Defendants hereby incorporate Defendants’ Summary Judgment Evidence Appendix (the “Appendix”) and Supplemental Appendix (the “Supplemental Appendix” on file with the Court. The Ascend Defendants accordingly provide notice that they intend to rely on the evidence contained therein, and the Ascend Defendants will cite to the Appendix by its respective page numbers beginning with the prefix “APP” or “S. APP”. In addition, the Ascend Defendants provide notice that they intend to rely on documents designated as Confidential/Restricted under the August 30, 2013 Agreed Protective Order in this case, including PLA 1201 and UHS_ASCEND 0000046-145. III. SUMMARY JUDGMENT STANDARD Rule 166a of the Texas Rules of Civil Procedure allows a party seeking to recover upon a claim, counterclaim, or cross-claim, or to obtain declaratory judgment, to move for summary judgment in his favor at any time. TEX. R. CIV. P. 166a(a). Summary judgment should be granted where the record shows that “there are no disputed issues of material fact and the moving party is entitled to judgment as a matter of law.” M.O. Dental Lab v. Rape, 139 S.W.3d 671, 675 ASCEND DEFENDANTS’ AMENDED MOTION FOR SUMMARY JUDGMENT – Page 5 DAL 79285178v4 PAGE 05 (Tex. 2004); Life Ins. Co. of the Southwest v. Verex Assurance, Inc., 810 S.W.2d 416, 417 (Tex. App.—Dallas 1991, no writ) (citing TEX. R. CIV. P. 166a(c)). The burden in summary judgment is on the movant, and this burden is met when the movant conclusively proves its claim. Walstad v. Dallas Cnty. Bail Bond Bd., 996 S.W.2d 314, 315 (Tex. App.—Dallas 1999, no pet.); Int’l Union United Auto. Aerospace & Agric. Implement v. Johnson Controls, Inc., 813 S.W.2d 558, 563 (Tex. App.—Dallas 1991, writ denied). “An issue is conclusively established when the evidence is such that there is no room for ordinary minds to differ as to the conclusion to be drawn from it.” Triton Oil & Gas Corp. v. Marine Contractors, 644 S.W.2d 443, 446 (Tex. 1982); Zep Mfg. Co. v. Harthcock, 824 S.W.2d 654, 657-58 (Tex. App.—Dallas 1992, no writ.) “Once the movant establishes its right to summary judgment, the burden then shifts to the nonmovant to present issues that preclude summary judgment.” Ward v. Emmett, 37 S.W.3d 500, 502 (Tex. App.—San Antonio 2001, no pet.). In addition, after an adequate time for discovery has passed, a party without the burden of proof at trial may move for summary judgment on the ground that the nonmoving party lacks supporting evidence for one or more essential elements of its claim. TEX. R. CIV. P. 166a(i); Bever Props., L.L.C. v. Jerry Huffman Custom Builder, L.L.C., 355 S.W.3d 878, 888 (Tex. App.—Dallas 2011, no pet.). The motion must state the elements as to which there is no evidence. Id. Once a proper motion is filed, the burden shifts to the nonmoving party to present evidence raising any issues of material fact. Murray v. Ford Motor Co., 97 S.W.3d 888, 890–91 (Tex. App.—Dallas 2003, no pet.). IV. SUMMARY JUDGMENT FACTS Schick Shadel Hospital is a freestanding clinic in Seattle, Washington that provides inpatient detoxification and chemical aversion therapy treatment for alcohol and drug abuse and ASCEND DEFENDANTS’ AMENDED MOTION FOR SUMMARY JUDGMENT – Page 6 DAL 79285178v4 PAGE 06 addiction. [APP 002.] In 2011, Ascend Health Corporation became interested in purchasing Schick Shadel Hospital from Duffy I. [APP 002.] The parties negotiated an agreement for the sale of the hospital as set forth below. A. The Agreement between Duffy I and CAT Seattle for the Purchase of Schick Shadel Hospital On August 3, 2011, CAT Seattle (a wholly-owned subsidiary of Ascend prior to August 3, 2011) and Duffy I entered into an Asset Purchase Agreement (the “APA”) involving the sale of Schick Shadel Hospital from Duffy I to CAT Seattle. [APP 002.] Under the APA, Duffy I received a five percent equity interest in CAT Seattle in exchange for a capital contribution. [APP 012.] The closing date of the APA was August 16, 2011. [APP 003.] At all relevant times until October 10, 2012, Richard Kresch was the president of Ascend and the managing member of CAT Seattle. [APP 002.] On August 23, 2012, CAT Seattle and Duffy I executed an amendment to the APA (the “Amendment”). The Amendment modified the obligations set forth in the APA relating to CAT Seattle’s purchase from Mugdock Tavern Investments of the five percent interest originally retained by Duffy I in connection with the APA. [APP 250.] The Amendment referenced the June 3, 2012 Merger Agreement between Ascend and Universal Health Services, Inc. (“UHS”), which closed on or about October 10, 2012. [APP 003; APP 167; APP 250.] The August 3, 2011 APA and the August 23, 2012 Amendment to APA (collectively, the “Agreement”) comprise a contract between CAT Seattle and Duffy I that contains certain obligations by the parties. 1. The Creation of a Schick Shadel Service Section 2.2 of the APA required that CAT Seattle’s business would consist solely of (1) managing Schick Shadel Hospital in Seattle; and (2) managing Texas Schick Shadel Facilities ASCEND DEFENDANTS’ AMENDED MOTION FOR SUMMARY JUDGMENT – Page 7 DAL 79285178v4 PAGE 07 and Texas Schick Shadel Units. [APP 012.] A “Texas Schick Shadel Facility” is defined as [A] facility located in Texas that is owned by Ascend or an affiliate of Ascend that is fully dedicated to the provision of chemical aversion therapy services (“Schick Shadel Services”). Id. A “Texas Schick Shadel Unit” is similarly defined as [A] unit operated by Ascend or an affiliate of Ascend located within a facility owned or operated by Ascend or an affiliate of Ascend in Texas, other than a Texas Schick Facility, that provides Schick Shadel Services. Id. Section 2.2 contemplated, but did not require, that CAT Seattle would locate a Texas Schick Shadel Unit within Mayhill Hospital, a facility owned by Ascend in Denton, Texas. Id. Section 16.1 of the APA required CAT Seattle (defined therein as “Purchaser”) to create either a Texas Schick Shadel Facility or Texas Schick Shadel Unit providing chemical therapy services within one year of the closing date of the APA. It also included a $1,000,000 “Service Failure Fee” payable to Duffy I (defined therein as “Seller”) if CAT Seattle did not meet this deadline. [APP 044.] The section reads as follows: 16.1 Additional Operation. On or before the first anniversary of the Closing Date, Purchaser shall cause to be created a Schick Shadel service to be operated by Purchaser or an affiliate of Ascend Health Corporation to provide chemical aversion therapy in a location other than in Seattle, Washington. If Purchaser fails to cause such service to be created on or before the first anniversary of the Closing Date, then Purchaser shall pay to Seller liquidated damages in the amount of One Million Dollars ($1,000,000.00) in lieu of any other rights in law or in equity to which Seller may be entitled (the “Service Failure Fee”). The Parties agree that the Service Failure Fee is a reasonable forecast of just compensation for anticipated and actual harm incurred by Seller and that the actual harm incurred by Seller as a result of Purchaser’s failure to cause the creation of such service within such period cannot be estimated with certainty and without difficulty. The Service Failure Fee shall be paid by Purchaser within ninety (90) days after such first anniversary of the Closing Date. Id. Because the APA closed on August 16, 2011, the deadline for CAT Seattle to comply with section 16.1 and avoid the “Service Failure Fee” was August 16, 2012. ASCEND DEFENDANTS’ AMENDED MOTION FOR SUMMARY JUDGMENT – Page 8 DAL 79285178v4 PAGE 08 2. No Material Deviation from Protocol Section 16.2 of the APA, as amended by Section 1(a) of the Amendment, requires that CAT Seattle not materially deviate from certain chemical aversion therapy protocols. [APP 250- 51.] The pertinent section of the Agreement reads as follows: Except as required for regulatory or licensure compliance purposes, Purchaser shall not materially deviate from the chemical aversion therapy protocols developed by Seller (the “Protocols”), a copy of which was provided to Purchaser prior to the Effective Date, in the provision of chemical aversion therapy by Purchaser without the prior consent of James P. Graham or his designee, which consent shall not be unreasonably withheld and which such consent, or notification that such consent is being withheld, shall be received by Purchaser not later than 10 days following receipt of written notification by Purchaser to James P. Graham of such material deviation or upon James P. Graham obtaining actual knowledge (other than through notification by Purchaser) that there has been a material deviation in the Protocols. During such 10-day period, James P. Graham or his designee shall have the right (at reasonable times and upon reasonable notice) to discuss the proposed changes with the professional staff of the Seattle Schick Shadel Hospital. In addition, James P. Graham shall be permitted, no more than once weekly, to request that he and the Chief Executive Officer of each of the Seattle Schick Shadel Hospital and/or Mayhill Hospital have a telephonic conference to discuss the chemical aversion therapy protocols or other concerns. [APP 250.] Section 16.2, as amended, does not refer to the obligations set forth in section 16.1, including the “Service Failure Fee.” Id. 3. Provisions Relating to Employees Certain provisions of the Agreement relate to certain employees formerly employed by Duffy I. Section 5.2 of the APA provides the following, in part: At the Closing, Purchaser shall employee the individuals listed on Schedule 5.2(b) to this Agreement (“Retained Employees”) and shall not terminate the employment of such individuals other than “for cause”, as determined by Purchaser, in its reasonable discretion, for a period of one (1) year after the Closing Date. If Purchaser terminates any of the individuals listed on Schedule 5.2(b)(ii) other than for cause prior to the one (1) year anniversary of the Closing Date, then Purchaser shall pay such terminated individual the amount set forth in Schedule 5.2(b)(ii) to this Agreement as severance pay. ASCEND DEFENDANTS’ AMENDED MOTION FOR SUMMARY JUDGMENT – Page 9 DAL 79285178v4 PAGE 09 [APP 027.] Based on the August 16, 2011 closing date for the APA, this obligation expired on August 16, 2012. In addition, section 2(d) of the Amendment to the APA, making reference to the June 3 Merger Agreement between Ascend and UHS, provides, in part, that: Purchaser hereby agrees that no current employee of the Seattle Schick Shadel Hospital shall be terminated by the Purchaser in its reasonable discretion prior to the earlier of (x) the consummation of the Merger (as defined in the Merger Agreement) or (y) the termination of the Merger Agreement pursuant to its terms prior to the consummation of the Merger. [APP 251-52.] The Merger Agreement closed on or about October 10, 2012, and thus section 2(d) of the Amendment expired on that date. Notwithstanding these provisions, section 35 of the APA states as follows: “No Third Party Beneficiaries. Nothing in this Agreement is intended to create any rights or entitlements in any individuals or entities other than Purchaser and Seller.” [APP 049.] 4. All Suits to Be Brought in Delaware Federal Court Finally, section 25 of the APA (entitled “Governing Law: Jurisdiction”) stipulates: “Any disputes that arise under this Agreement shall be adjudicated in the United States District Court in Wilmington, Delaware.” [APP 047.] Section 26 of the APA separately deals with “Consent to Jurisdiction,” and mandates the filing of suits in connection with the Agreement in “the United States District Court for the District of Delaware.” [APP 047-48.] Section 26 states, in pertinent part: Each party . . . hereby agrees not to commence any such action [defined as “any and all actions, suits or Proceedings arising in whole or in part out of, related to, based upon or in connection with this Agreement of the subject matter hereof”] other than before the above-named court nor to make any motion or take any other action seeking or intending to cause the transfer or removal of any such action to any court other than the above-named court whether on the grounds of inconvenient forum or otherwise. ASCEND DEFENDANTS’ AMENDED MOTION FOR SUMMARY JUDGMENT – Page 10 DAL 79285178v4 PAGE 10 Id. Thus, under the Agreement, the parties consented to federal jurisdiction in Delaware, agreed to only bring claims relating to the Agreement in the Delaware federal forum, and agreed not to take any action intended to cause the transfer of such action to any court other than United States District Court for the District of Delaware. B. Defendants Created a Chemical Aversion Service at Mayhill Hospital. In the fall of 2011, Ascend began preparations to create a Schick Shadel service providing chemical aversion therapy at Mayhill Hospital in Denton, Texas, in compliance with section 16.1 of the APA. [APP 003.] These preparations continued into the spring, and included the creating and updating of an integration checklist, which was periodically updated to outline the internal tasks and anticipated timeline of opening, as well as the assembly of a startup team. Id. The preparations also included the development of a “Business Development Action Plan” for the roll-out of the Schick Shadel service in the North Texas region. Id. Items for this roll-out included the creation of a national call center in Seattle to manage admissions for both Schick Shadel Hospital in Seattle and Schick Shadel at Mayhill; educating the Mayhill medical staff regarding the program; creating new signage for the Mayhill facility to show that the Schick Shadel service would be offered there; and advertising the service, including press releases, television/radio advertising, and print media. Id. In the spring of 2012, Ascend renovated Mayhill Hospital to accommodate the Schick Shadel Unit to be located there. [APP 004.] Ascend hired an architectural firm and constructed and furnished a unit designed to replicate all aspects of the Schick Shadel inpatient chemical aversion treatment, including the following: • Treatment rooms for administration of chemical aversion treatment, including specialized ventilation/duct work; • Rehabilitation interview rooms; ASCEND DEFENDANTS’ AMENDED MOTION FOR SUMMARY JUDGMENT – Page 11 DAL 79285178v4 PAGE 11 • Schick Shadel patient lounge area; • Renovations to kitchen; and • Installation of prominent signage on the exterior of the building indicating “Schick Shadel Hospital.” Id. The startup team opening the Schick Shadel unit at Mayhill Hospital, including Ascend corporate employees and Mayhill Hospital administrators, held a weekly preparation call throughout the spring and continuing through the opening of Schick Shadel – North Texas. [APP 004.] Additionally, Ascend recruited, hired, and trained a medical director, nurses, and counselors to staff the unit. Id. The training included sending the Mayhill Schick Shadel staff on visits to Schick Shadel Hospital in Seattle for training, as well as bringing Seattle Schick Shadel staff to Mayhill Hospital to conduct onsite training with admitted patients. Id. Ascend adapted the Schick Shadel protocols to comply with Texas and Joint Commission regulations, and a full set of Schick Shadel protocols for Mayhill Hospital were in place by July 6, 2012. Id. By July 9, 2012—well before the first anniversary of the August 16, 2011 Closing Date of the APA—the Schick Shadel unit at Mayhill Hospital was open, fully functional, admitting patients, and providing Schick Shadel-based chemical aversion therapy. [APP 005.] Such chemical aversion therapy included: • Counter-conditioning treatment in which the patient is administered an emetic such as ipecac syrup, then exposed to alcohol or another substance during the onset of nausea so that an aversion is formed, then closely monitored afterwards; • Rehabilitation interviews in which the patient is provided minor sedation, interviewed regarding her drinking or substance use history, motivation for sobriety, and problem areas, and given positive suggestions and encouragement; and • Relaxation therapy and counseling. ASCEND DEFENDANTS’ AMENDED MOTION FOR SUMMARY JUDGMENT – Page 12 DAL 79285178v4 PAGE 12 [APP 004-05.] After the first patients were admitted, it quickly became apparent that Schick Shadel at Mayhill Hospital was successfully using the chemical aversion treatment. On July 13, 2012 the administrator of Mayhill Hospital reported to the medical director that “Treatments and Confirmations are going well, our first 3 patients really like it here.” [APP 258.] The Ascend Call Center Coordinator reported on July 17, 2012 that a patient participating in the Schick Shadel program at Mayhill Hospital called her on the last day of his treatment and said itwas “the best decision I’ve made.” [APP 259.] And on July 31, 2012 another patient, who had discharged from Schick Shadel at Mayhill Hospital the day before, reported that he “feels like a whole new person and wanted to thank everyone for their part in allowing for him to ‘change his life.’” [APP 261.] C. Plaintiffs Filed This Lawsuit in Dallas County District Court. On November 1, 2012, Plaintiffs filed this lawsuit in Dallas County. At the time of filing, complete diversity of citizenship existed between the parties. Kresch is a Connecticut citizen, and Ascend and CAT Seattle are corporations organized under the laws of the State of Delaware. [APP 002.] None of the members of Mugdock Tavern or Duffy I held Connecticut or Delaware citizenship on November 12, 2012. [APP 297-98.] The lone member of Duffy I who held Delaware citizenship prior to the lawsuit was the Frawley Corporation. [APP 310.] However, the Frawley Corporation’s Delaware citizenship expired for jurisdictional purposes on March 2, 2012, three years after the corporation ceased to exist in Delaware for non-payment of taxes. Id. After filing this lawsuit, and in order to avoid being dismissed from this Court based on the forum-selection clauses of the Agreement, Plaintiffs paid the outstanding amount owed by ASCEND DEFENDANTS’ AMENDED MOTION FOR SUMMARY JUDGMENT – Page 13 DAL 79285178v4 PAGE 13 the Frawley Corporation to the State of Delaware. [APP 312.] This action revived the Frawley Corporation’s Delaware citizenship and thus caused a lack of diversity to exist between the parties. V. SUMMARY JUDGMENT GROUNDS The Ascend Defendants hereby move the Court for entry of summary judgment on the following grounds: A. Rule 166a(c) Summary Judgment 1. Plaintiffs’ Breach of Contract Claim The Ascend Defendants request that the Court enter judgment on Plaintiffs’ breach of contract claims as follows: (a) Based on the summary judgment evidence, the Ascend Defendants complied with section 16.1 of the APA; (b) Therefore, the Ascend Defendants have no liability under the $1,000,000.00 “Service Failure Fee” clause contained in section 16.1; (c) In any event, the purported $1,000,000.00 “Service Failure Fee” clause contained in section 16.1 is an unenforceable penalty and is thus not recoverable; and (d) Section 5.2 of the APA and section 2(d) of the Amendment provide no grounds of recovery in favor of Plaintiffs. 2. Plaintiffs’ Conspiracy Claim The Ascend Defendants further request that the Court enter judgment dismissing Plaintiffs’ conspiracy claims as a matter of law. CAT Seattle was a wholly-owned subsidiary of Ascend prior to August 3, 2011, and was jointly owned by Ascend (95 percent) and Duffy I (five percent) from August 3, 2011 until August 23, 2012. Further, Kresch was an officer of both Ascend and CAT Seattle and acted in that capacity at all relevant times. Accordingly, Defendants cannot have formed a combination of two or more persons. ASCEND DEFENDANTS’ AMENDED MOTION FOR SUMMARY JUDGMENT – Page 14 DAL 79285178v4 PAGE 14 3. Ascend Defendants’ Breach of Contract Claim The Ascend Defendants further request that the Court enter judgment finding that, because Plaintiffs could have brought this lawsuit in the United States District Court for the District of Delaware at the time it was filed, Counter-Defendants Duffy I, LP and James Graham are liable for damages resulting from their breach of their obligations under sections 25 and 26 of the Agreement. B. Rule 166(i) Summary Judgment The Ascend Defendants further request that the Court enter an order dismissing all of Plaintiffs’ claims because there is no evidence of one or more essential elements of each Plaintiffs’ claims as follows: 1. Breach of Contract: There is no evidence that Defendants Kresch or Ascend were parties to a contract, and there is no evidence that any of the Ascend Defendants breached the Agreement or that damage resulted to Plaintiffs. 2. Promissory Fraud/Fraudulent Inducement: There is no evidence of any knowingly false representation, including any promise that was false and known to be false when made, of any reliance on such representation by Plaintiffs, or of any injury suffered because of any such reliance. 3. Conspiracy: There is no evidence of any confederation or combination of two or persons, of any underlying unlawful act, or of any resulting actual damages. VI. ARGUMENT AND AUTHORITIES A. Summary Judgment is Appropriate on Plaintiffs’ Breach of Contract Claim Relating to Section 16.1. Plaintiffs’ breach of contract claims fail as a matter of law. The evidence demonstrates that (1) the Ascend Defendants satisfied section 16.1 by establishing a Schick Shadel unit or facility in Texas by the deadline therein; (2) as a result, only section 16.2 controls the future obligations of the parties; (3) in any event, the Service Failure Fee is an unenforceable penalty; and (4) section 5.2 of the APA and section 2(d) of the Amendment provide no grounds for ASCEND DEFENDANTS’ AMENDED MOTION FOR SUMMARY JUDGMENT – Page 15 DAL 79285178v4 PAGE 15 Plaintiffs’ recovery. 1. The Ascend Defend