HCP Laguna Creek CA, LP et al v. Sunrise Senior Living Management, Inc., No. 1:2009cv00824 - Document 407 (E.D. Va. 2010)
Court Description: MEMORANDUM OPINION (see Order for complete details). Signed by District Judge Gerald Bruce Lee on 8/30/10. (tfitz, )
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HCP Laguna Creek CA, LP et al v. Sunrise Senior Living Management, Inc. IN THE UNITED STATES DISTRICT EASTERN DISTRICT OF ALEXANDRIA HCP LAGUNA CREEK CA, DARTMOUTH MA, MD, LP, LP, LP, HCP LP, COURT FOR THE VIRGINIA DIVISION ) HCP TOWSON HCP CAMARILLO CA, Doc. 407 ) AND HRA MANAGEMENT CORPORATION, ) ) Plaintiffs-Counter- ) Defendants, ) ) and ) ) HCP, INC., ) Counter-Defendant ) ) V. ) Case No. l:09cv824(GBL/TCB) ) SUNRISE SENIOR LIVING MANAGEMENT, ) INC., ) Defendant-Counterclaimant. ) MEMORANDUM OPINION THIS MATTER is before the Court on Plaintiffs' Defendants' Motion for Summary Judgment (Dkt. No. and Counter- 317) and Defendant-Counterclaimant's Motion for Summary Judgment No. 3 04). This case concerns the HCP Plaintiffs' that Sunrise Senior Living Management, Inc. (Dkt. allegations ("Sunrise") abused and neglected its management position in connection with the operation of four HCP-owned and HRA-leased senior living facilities. There are nine issues before the Court. issue is whether a genuine dispute of material The first fact exists that Sunrise violated the following provisions of the parties' Management Agreement, as alleged in Counts III-XIII: § 4.02 Dockets.Justia.com (Marketing Services); Activities); (Reports); § § 6.01 7.01 and Equipment); The 4.07 (Purchasing); (Annual Operating Budget); is I (Definitions of 4.09 (Ancillary - § 11.02 § 18 6.02 (Repairs Facility Expenses). whether a genuine dispute of material that Sunrise violated § Information) § (Accounting and Financial Records); and Article second issue exists § fact (Reports-Accounting the Owner Agreement as alleged in Count XII. The third issue is whether a fiduciary duty exists between the HCP Plaintiffs and Sunrise violations of grant of material the Management and Ownership Agreements warrant a summary judgment Count XIV. such that Sunrise's purported The fourth in favor of issue the HCP Plaintiffs as is whether a genuine to dispute of fact exists that Sunrise realized undisclosed profits and other income, and made improper expenditures the Management and Owner Agreements, in violation of as alleged in Count XV. The fifth issue is whether a genuine dispute of material fact exists that Sunrise retained funds from ancillary activities or withheld discounts and rebates on purchasing contracts, violation of the Management and Owner Agreements, Count in as alleged in XVI. The sixth issue is whether the HCP Plaintiffs are entitled to declaratory relief, as requested in Count that Sunrise breached the parties' Agreements. The seventh issue is I, based on claims Management and Owner whether the HCP Plaintiffs presented sufficient evidence of a likelihood of merits as to claims that Sunrise breached the Management and Ownership Agreements, to under Count II. of material fact exists I of Manager); § 7.01 The ninth issue HRA's that that (Annual the HCP Counterclaim. reputation, the § § 11.02 (Appointment of and § 10.03 and Equipment). Management Agreements, the tenth thwarted Sunrise's so as Sunrise as issue to Counts III of the HCP to harm Sunrise's business and in favor of the Counterclaim. summary judgment in favor of Sunrise as trier of fact could to find the Management Agreements' alleged by the HCP Plaintiffs. in favor of Sunrise as genuine dispute of material to warrant rights and interests under the IV and V of that Sunrise breached any of fact to Count whether to warrant granting summary judgment summary judgment as alleged in intentionally interfered with III-XIII because no reasonable provisions 2.01 (Repairs in favor of Finally, The Court grants Counts the HCP Plaintiffs violated the Plaintiffs Management Agreements Sunrise as is whether a genuine dispute Operating Budget); and relief is whether a genuine dispute of material performance under Plaintiffs injunctive the Management Agreements, granting summary judgment the issue Sunrise's Counterclaim: (Tenant's Obligations); exists justify granting The eighth following provisions of Count success on the The Court grants to Count XIV because no fact exists as to whether Sunrise breached the parties' The Court grants Counts that II, because the HCP Plaintiffs likely succeed on the merits Finally, the Court grants as I declaratory relief Count as no such duty exists. summary judgment in favor of Sunrise as XV and XVI they will fiduciary duties, because summary judgment is of cannot to show their claims. in favor of improper where Sunrise Sunrise did not breach the Management Agreements and Ownership Agreements, and was improperly terminated as manager of the Camarillo Facility. As to Sunrise's Counterclaims, judgment in favor of reasonable trier of alleged violations Agreements grants Count the Court grants the HCP Plaintiffs as to Count fact could find that of summary I because no the HCP Plaintiffs' the Management Agreements and Ownership caused actual damage to Sunrise. The Court summary judgment in favor of the HCP Plaintiffs III because no reasonable the HCP Plaintiffs trier of as to Counts evidence as to fact could find that intentionally interfered with HRA's obligations to Sunrise under the Management Agreements. the Court grants also summary judgment in favor of IV and V because Sunrise presents to show that Lastly, the HCP Plaintiffs insufficient the HCP Plaintiffs willfully and maliciously injured Sunrise's business or reputation. I. A. BACKGROUND Parties In 2003, ("Sunrise"), Sunrise Senior Living Management, a Virginia Senior Living, Inc., Inc. incorporated subsidiary of began managing a collection of Sunrise senior living facilities owned by CNL Retirement Properties, ("CNL"). Over time, Sunrise became the manager of a large number of CNL-owned facilities, properties, which are facilities: Laguna Creek CA, LP; Inc. J. H 1; Am. ("HCP") including the MAI portfolio comprised of and Camarillo CA, Summ. Inc. LP (the Countercl. is a real estate LP; four senior living Dartmouth MA, "Facilities"). LP; (Def.'s Mem. and Third-Party Compl. investment trust Towson MD, Hi.) Supp. HCP, incorporated in Maryland that owns various assisted living community properties throughout the United States, Corporation ("HRA"), 111 10 & 11.) which it leases a Delaware- to HRA Management incorporated company. The relationship between HCP and HRA, (Compl. therefore, is one of landlord-tenant. In 2006, CNL and HCP entered into a merger agreement, valued at over $5 billion, including the Facilities. Countercl. wherein HCP would acquire CNL assets, (Def.'s Mem. and Third-Party Compl. the owner of the Facilities, % Supp. 14.) Summ. 1 2; Am. Although HCP became it leased them to HRA, entrusted the operation and management of J. the who Facilities to Sunrise, pursuant ("MAs"). (Compl. HCP nonetheless to four identical 1M 13 & 17-21.) receives from the Facilities' Along with HRA, ("OAs") certain rights operation, is While not a party to the MA, and benefits as their owner. also a party to (Compl. HCP's Attempt Before the CNL-HCP merger, operation and HCP approached Sunrise contractual and relationship with CNL by rather than manage the Facilities. and Third-Party Compl. the f 16.) to Restructure the Management Agreements having Sunrise lease proposal, (Compl. flow HH 13 & 23.) proposed to alter Sunrise's Countercl. that four Owner Agreements with Sunrise that govern the Facilities' revenues. B. HCP Management Agreements f 15.) (Am. Sunrise rejected HCP's substance of which would have caused Sunrise to take on the economic risks of ownership beyond simply managing the Facilities. In a move that (Am. Sunrise Countercl. and Third-Party Compl. insists was an attempt into renegotiating the MAs, fl to pressure 15.) it HCP retained a forensic auditing firm to inspect Sunrise's books and records just days after the CNL-HCP merger. The audit, (Am. however, Countercl. and Third-Party Compl. 18.) did not reveal any breach of contractual obligations of other Sunrise-managed facilities. Countercl. 1 and Third-Party Compl. K 19.) (Am. In February 2007, agreement to restructure limited number of would change. 5; Am. Sunrise and HCP reached a the MAs, the MAs and (Keyes Decl. Countercl. the Ex. Countercl. HCP would buy out structure 10; buy out Sunrise's Countercl. the scope of interest U 28.) f 29.) signed a non-binding Summary of Terms, However, Terms Countercl. 2009, and Third-Party Compl. (Am. The parties met in (Am. After Sunrise sent a default, and HCP the parties suspended its ^U 30 & 31.) terms of the HCP recommenced the audit. K 32.) not alleged that the audit revealed a breach of obligation by Sunrise. the MAs and records. and Third-Party Compl. ended in April ^ Thereafter, for breach of when negotiations over the definitive Summary of (Am. Countercl. J. However, in certain properties. and Third-Party Compl. (Am. Summ. the audit and HCP's proposal to letter to HCP refuting allegations of audit. Supp. UH 21 & 22.) Sunrise's books and Third-Party Compl. Virginia to discuss the remaining MAs % 21.) HCP served Sunrise with notices of default Countercl. a no binding agreement culminated. and Third-Party Compl. and sought another audit of of Def.'s Mem. and Third-Party Compl. despite months of negotiation, (Am. whereby tentative To date, HCP has contractual C. Alleged Violations of According to HCP, misappropriated funds CNL-HCP merger. the Management and Owner Agreements Sunrise has mismanaged and that rightfully belong to HCP, HCP's contention that Sunrise given the abused and neglected its management position pertains mainly to allegations that Sunrise: (1) violated facility health and safety requirements, leading to the revocation of the Medicare certification for the Camarillo facility; (2) took for itself rebates and so-called "administrative fees" and hidden rebates/kickbacks) purchased for the (3) charged HCP for "dividends" as a result of material facilities; [Sunrise]'s own headquarters' costs by allocating those costs facilities under the guise of (4) ([], to the MAI "shared services"; engaged in self-dealing by purchasing goods and services from a[] [Sunrise] affiliate at inflated prices and with double-dipping surcharges; (5) and attempted to hide these activities by refusing to provide financial performance reports by frustrating audits and by misrepresenting its to HCP. practices (Pis.' 1. Mem. Supp. J. 1-2.) Medicare Certification In 2007, ("CMS") Summ. the Centers for Medicare & Medicaid Services inspected the Camarillo Facility and discovered a number of deficiencies in the standards and quality of care available to its residents. Consequently, CMS revoked the (Nickelsburg Decl. certification, (Nickelsburg Decl. Exs. however, Exs. 19-22.) Facility's Medicare certification. 20 & 23.) Despite losing its the Facility still remained licensed by the State of California and continued its Decl. has Exs. 30-37.) In an effort operations. (Keyes to become re-certified, Sunrise since hired a new consultant and Executive Director to implement and oversee Facility. the necessary changes (Keyes Decl. Ex. 29 at 221:5-16, to the Camarillo 223:5-224:14, & 225:15-20.) 2. Retaining Rebates and Administrative Fees Sunrise operates a national purchasing program whereby it purchases supplies on behalf of (Nickelsburg Decl. Ex. 20% for itself Ex. it manages. Under this program, administrative fees, When a rebate is given, and allocates (Nickelsburg Decl. facilities 3 0 at 251:6-12.) Sunrise receives rebates, from various vendors. the and dividends Sunrise retains 80% to the Facilities. 33 at 257:2-10.)1 As to the administrative fee that Sunrise charges vendors to participate in the purchasing program, (Nickelsburg Decl. 3. Ex. Sunrise retains 30 at 224:7 Allocating Corporate Costs HCP alleges Facilities' Sunrise to 34 at 253:7-254:1.) the Facilities improperly allocated the corporate costs that HCP already pays management fee. processing, that & Ex. 100% of the fees. These costs include, among other, for under the payroll which HCP contends are not covered by the MAs and Beginning in 2010, Sunrise agrees to allocate 100% of all rebates it receives to the Facilities. (Def.'s Opp'n Pis.' Mot. Summ. J. at 5 & 14.) should be absorbed by Sunrise. (Pis.' Mem. Supp. Summ. J. 7, 18-20.) 4. Self-dealing According to HCP, of its subsidiaries, furniture, Supp. J. Facilities' 7-8, Ex. Ex. 48 at 5. 45 at right, 203:4-204:16 Financial business it to inspect however, for a Ex. ("MCI"), (Pis.' a Mem. Rather than purchase the through a competitive & 49 Sunrise allegedly 12% procurement then passed to the 46:12-47:24, HCP alleges Inc. to ensure the lowest price, which Sunrise Decl. self-dealing with one including furniture, purchased them from MCI fee, in fixtures and equipment. 20-22.) supplies, selection process engaged Martha Child Interiors, provider of Summ. Sunrise fee and 10% Facilities. 2187:21-219:12, at 73:2-13, Ex. (Nickelsburg Exs. 51 design at 46 & 47 , 68:17-67:2.) Reports is entitled in the ordinary course of the Facilities' books and records. was allegedly obstructed by Sunrise, to cooperate on a number of occasions when HCP This who refused requested information concerning the rebates Sunrise received. (Nickelsburg Decl. Ex. 28 & 29.) to inspect the Facilities' Notice of Default regarding Ex. 69.) However, the Sunrise finally permitted HCP books and records after HCP issued a the Facilities. (Nickelsburg Decl. inspection provided limited information to allow HCP to reach any conclusions with regard to the 10 accuracy of Under duties, Sunrise's the MAs, Sunrise is compliance which cover HRA and Sunrise's responsible Facilities and for overseeing H 17.) with the MA. for the daily operations their financial (Article of Agreement I); (Article and Rights of Manager and Collections, of affairs. the (Compl. II); Management Fees (Article (Article V); Annual Operating Budget (Article VIII); Appointment of Manager and Primary Goal and Procedure Operating Capital IV); (Article Repairs, Damage, Financial Records (Article VII); Maintenance and Replacements of Agreement Actions, Force Majeure (Article XIII); Governing Law, (Article XV); Environmental Matters (Article (Article XI); Insurance, Termination (Article XIV); Intellectual Property (Article XVIII). (Compl. the OA outlines, obligations as (Article X); (Article XII); Defaults General Legal (Article (Article XVII); (Mgmt. Agmt. i- the OA's material terms are nearly identical between the Facilities. sections, IX); Liability of Manager and Indemnity and Miscellaneous Provisions Like the MA, Credits (Article VI); Regulatory and Contractual Requirements Proprietary Marks, Duties for Handling Receipts and Other Financial Matters Condemnation, III); Operating Profits, Covenants and Tenant and Manager Obligations iii.) and Each of the MAs are divided into eighteen sections: Definitions XVI); rights H 24.) Divided into twenty-two among other things, landlord to HRA and as owner of 11 HCP's rights and the Facilities. D. Procedural History The parties' along with HRA dispute culminated in HCP and its (the Delaware Court of "HCP Plaintiffs"), Chancery alleging, suit H 33.) the MA. (Am. relief); III I The HCP Plaintiffs then filed (declaratory judgment); (breach of contract - - II budget approval process); contract contract - repairs and maintenance expenditures); contract - payroll outsourcing costs); ancillary activities); VII expenses); purchasing); X IX (breach of VIII (breach of contract (breach of contract licenses); XII V - dues); VI (breach of XI - fiduciary duties); XV (constructive trust). In response, financial reporting); facility (breach of contract XIV (equitable accounting); (Compl. Sunrise M XIII (breach of and XVI 122-204.) filed a Counterclaim and Third-Party Complaint against the HCP Plaintiffs, alleging the following five Counts: II I (breach of contract); 12 - (breach of (breach of contract - marketing services); (breach of contract IV (breach of contract accounting systems and reporting software); - in (injunctive (breach of contract that Countercl. in this Court alleging the following sixteen Counts their Complaint: - in the among other things, Sunrise breached various provisions of and Third-Party Compl. filing suit Facilities, (breach of implied covenant of good faith and fair dealing);2 III interference with contractual conspiracy to harm business to harm business 500). (Am. relations); VI (tortious {common law and reputation); and V (conspiracy and reputation under Virginia Code Countercl. and Third-Party Compl. According to Sunrise, its refusal § 18.2-499 - 1M 50-74.) to agree to a restructuring plan led to retaliatory acts by HCP and HRA. Specifically, Sunrise insists Sunrise's ability to manage that HCP and HRA obstructed the Portfolio Facilities by refusing to approve or disapprove proposed budgets for the 2009 cycles, in good faith over the terms (Am. of and by refusing to negotiate the proposed budgets, Countercl. Facilities Countercl. Before f 34.) the proposed budgets to suffer due the Court now are 2008 the MA and OA. allegedly caused funds. (Am. U 43.) Cross-Motions for Summary Judgment and Sunrise. II. STANDARD Under Federal Rule of Civil summary judgment if OF REVIEW Procedure 56, the Court must the moving party demonstrates that 2 The Court dismissed Count II of Sunrise's Counterclaim and Third-Party Complaint on November 6, 2009. (Dkt. and This refusal to has to insufficient and Third-Party Compl. by the HCP Plaintiffs grant required under and Third-Party Compl. approve or disapprove the as 2007, No. 13 45.) there is no genuine issue as to any material fact, and that moving party is entitled to judgment as a matter of Civ. P. 56 (c). Court views the (1986). Fed. In reviewing a motion for summary judgment, moving party. 255 law. facts in a light most Anderson v. favorable Liberty Lobby, Inc., Once a motion for summary judgment and supported, the opposing party has the Matsushita Elec. Radio Corp., 587 U.S. 574, (1986). R. the the non- 477 U.S. 242, is properly made burden of a genuine dispute exists. 475 to the Indus. showing Co. "[T]he mere v. that Zenith existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; requirement is Anderson, A of 477 that there be no genuine issue of material U.S. "material a party's Ventures, at fact" case. Inc., 247-48 264 is a Id. at affect law, fact 248; F.3d 459, fact is considered to be substantive (emphasis and the outcome of affect JKC Holding Co. (4th Cir. "material" U.S. at 248; Hooven-Lewis v. Cir. 2001). A 2001). Sports Whether a is determined by the that might summary judgment." Caldera, issue 249 265 "material" (4th fact to allow a reasonable in the nonmoving party's 14 Anderson, F.3d 259, concerning a arises when the evidence is sufficient jury to return a verdict Wash. suit under the governing law will properly preclude the entry of "genuine" the outcome v. "[o]nly disputes over facts the fact." added). that might 465 the favor. All Anderson, All U.S. at 248. Rule 56(e) requires party to go beyond the pleadings and by by the depositions, on file, genuine 317, designate issue 324 for answers specific trial. HCP i. facts Celotex Corp. Plaintiffs' Counts Catrett, is a 477 U.S. ANALYSIS summary judgment III-XIII because no reasonable in trier of defendant and to plaintiff. George, (1) Filak v. (4) to fact could find alleged by the existence of a contract; to perform under the the breach caused actual damage 594 The principles governing contract unambiguous, as failed to perform under the contract or breached the agreement; established: Sunrise In order to recover for a breach of contract performance or offers by plaintiff (3) favor of the MA provisions a plaintiff must allege: contract; S.E.2d 610, 614 (Va. 2004). interpretation are well- "when the terms of a contract are clear and a court must give Pocahontas Mining Ltd. 556 there III-XIII HCP Plaintiffs. (2) v. that and admissions Claims that Sunrise breached any of claim, showing or (1986) . The Court grants Counts own affidavits, to interrogatories, Ill. A. its the nonmoving S.E.2d 769, 771 them their plain meaning." Liability Co. (Va. 2002) v. Jewell Ridge (citations 15 omitted). Coal Corp., Courts must look to "the the words parties Meade intention of they have used, intended what v. the parties Wallen, 311 and [] as expressed by them in are bound to say that the the written instrument plainly declares." S.E.2d 103, 104 (Va. 1984). At dispute is whether Sunrise failed to perform under certain provisions of the MA. a. § 7.01 (Annual Section 7.01 of [Sunrise] . . . in relevant part: deliver to [HRA] for [HRA's] a draft operations budget year for the budget the MA states, shall approval, Operating Budget) Facilit[ies], .... and a for the next final operations The budget as proposed, shall be considered by [HRA] and, in consultation between [HRA] [Sunrise], the budget for the Facilit[ies] for the ensuing fiscal year will be prepared by [Sunrise] with and the final contents of mutually by Budget"). [Sunrise] If there the budget and [HRA] "Annual Operating is a delay in the finalization of a new Annual Operating Budget, to approve to be determined (the or if [HRA] the newly proposed budget, shall [Sunrise] fail shall operate under the expired Annual Operating Budget, increased by the greater of (i) 3 M% or (ii) the in the Index from the first day of the new increase year compared to previous year, consensus the Index on the first day of the until a new budget is approved. cannot be If reached between the parties the Annual Operating Budget within sixty (60) as to days of [HRA's] receipt of the proposed budget, [Sunrise] and [HRA] shall submit the proposed budget to an [e]xpert pursuant to Paragraph 18.8 below for a determination as to any items contained in the Budget which remain in dispute. (Mgmt. process Agmt. § 7.01.) Thus, § 7.01 sets forth a three-step that Sunrise must comply with after it proposes an operating budget. Moreover, where the MA "calls 16 for a matter to be referred to arbitration or an Expert specifically stated to the contrary, be the such, exclusive remedy . . . ." . . [u]nless the use of (Mgmt. expert resolution is HRA's, . Agmt. and hence, exclusive remedy for any dispute about the § Expert shall 18.18(a).) As the HCP Plaintiffs' a proposed operating budget. The HCP Plaintiffs contend that Sunrise's proposed budgets for 2007, 2008, and 2009 lacked the by the MA, which prevented them approval. Specifically, attempted to pass (Compl. f 138.) requisite details from proper consideration and Sunrise allegedly increased expenses or through certain expenses to the In regard to the 2007 budget, Facilities. the HCP Plaintiffs did not respond to approve or disapprove Decl. Ex. 17, Ex. contravention of expert, despite 50 at 61:17-62:22; § 7.01, §7.01. again, J. Plaintiffs' Because U 4); and in submitted to an Although in they did not comply with the requirement of In both instances, 4.) (Keyes the 2009 proposed budget the disputed proposed budgets were not submitted to an expert for review. Summ. it inability to agree on it. the HCP Plaintiffs disapproved of its entirety, Dorrien Decl. the budget was not the parties' required (Pis.' submission to an expert Opp'n Def.'s Mot. is the HCP sole remedy for any dispute about a proposed budget, Sunrise cannot be said to have breached § 17 7.01 of the MAs. b. § 4.09 (Ancillary Activities) Section 4.09 provides in pertinent part: [Sunrise] and/or its Affiliates, shall have the right, [HRA's] prior written approval or as part of with the Approved Budget, to utilize the Facilit[ies] ancillary activities, not be (Mgmt. included in Gross Revenues Agmt. § 4.09.) for the revenues from which will .... According to the HCP Plaintiffs, Sunrise is a party to side-agreements with some ancillary service providers, through which Sunrise received revenues that are not included in the Facilities' gross revenues. These ancillary service providers allegedly utilized the Facilities' equipment, However, supplies and utilities. as stated, § 4.09 is (Compl. U1I 143 & 144.) implicated only if "Sunrise and/or its Affiliates" provide ancillary services, not when parties provide ancillary services. Agmt. Here, any ancillary healthcare (Mgmt. 222:4-11.) third § 4.09.) services provided at the Facilities have been provided by third parties, Sunrise or an affiliate. space, (Keyes Decl. Ex. rather than 51 at 90:3-91:1 & The HCP Plaintiffs provide no evidence suggesting that Sunrise inappropriately retained ancillary services revenue (Keyes Decl. Ex. 52 at 205:21-206:19, Ex. 53 at 115:1-22) or that third party ancillary service providers failed to reimburse the Facilities for expenses services (Keyes Decl. Ex. incurred in the provision of such 52 at 213:22-214:6). there is no evidence the HCP Plaintiffs 18 Additionally, suffered damages resulting from the alleged loss of equipment, supplies, and utilities consumed by the alleged ancillary services claimed in Count IV. (Keyes Decl. Ex. 25 at 6.) Damage cannot be shown by simply stating that the Facilities have been damaged in the amount of rent not Def.'s Mot. Summ. collected from third parties. J. 14.) Thus, (Pis.' Opp'n Sunrise committed no breach of §4.09 where neither Sunrise nor its affiliates provided any ancillary services at the Facilities, and the HCP Plaintiffs cannot identify damages from the so-called ancillary services. (Keyes Decl. c. § Under § Ex. 52 at 11.02 205:21-206:4, Ex. 53 at 115:1-22.) (Repairs and Maintenance Expenditures) 11.02, the HCP Plaintiffs must create a furniture, fixture and equipment reserve account (the "FF&E Reserve") at a bank to cover the cost of repairs and equipment for maintaining the Facilities. Sunrise for each Facility, §§ 11.02(a), (b) & is obligated to fund the FF&E Reserve pursuant (e).) to a specific formula. (Mgmt. To do so: [Sunrise] shall prepare an estimate (the "Repairs and Equipment Estimate") of the expenditures necessary for . . . the ensuing Fiscal Year and shall submit such Repairs and Equipment Estimate to [HRA] at the same time it submits the Annual Operating Budget . . . . [Sunrise] will endeavor to follow the applicable Repairs and Equipment Estimate, but shall be entitled to depart therefrom, in its reasonable discretion, provided that: (A) such departures . . . result from circumstances which could not reasonably have been foreseen at the time of the submission (B) . such departures . . .... and result from circumstances 19 Agmt. which require prompt repair and/or replacement comply with Legal Requirements; has submitted to [HRA] and (C) to [Sunrise] a revised Repairs and Equipment Estimate setting forth and explaining such departures. (Mgmt. Agmt. reference to § 11.02(d).) "total aggregate amount," fixtures and equipment one. (Mgmt. When read in light of Agmt. § (FF&E) The HCP Plaintiffs' 11.02 are based on (1) 11.02(d)'s furniture, spending limit is an aggregate 11.02(c).) where expenditures depart § § 11.02(c)'s It necessarily limits instances from the estimate as a whole. allegations Sunrise's that Sunrise violated § substitution of two items on the Repairs and Equipment Estimate-patio furniture and a carpet extractor-and (2) Child's Interiors Sunrise's use of ("MCI"), (Def.'s Reply Supp. Summ. its design division, Martha to purchase FF&E for the Facilities. J. 5.) furniture and carpet extractor, With regard to the patio there is no provision in the MA granting the HCP Plaintiffs any approval rights with respect to the Repairs and Equipment Estimate presented by Sunrise, as there are sufficient funds in the FF&E Reserve. facts, so long On these Sunrise made the furniture and equipment substitutions for the safe and sound operation of the Facilities. The patio furniture had become wobbly and unsafe for residents (Keyes Decl. Ex. 110, Ex. 113 at 219:1-13), necessary to maintain the Facilities Decl. Ex. 114 at 205:21-206:8, Ex. 20 and the carpet extractor is in proper condition 115 at 203:7-11). (Keyes These substitutions amount to a variation within, the Repairs and Equipment Estimate, the language of Plaintiffs' § 11.02(c) supported by § and therefore comport with and do not prior approval. These to operate the condition. Furthermore, unapproved, there suffered damage even if require the HCP substitutions 11.02(d)'s requirement necessary expenditures rather than above, are also that Sunrise make Facilities the in first class the substitutions were is no evidence that the HCP Plaintiffs from the repair and maintenance of the Facilities. As to the MCI services, the HCP Plaintiffs that Sunrise paid inflated prices charged a 12% procurement design fee, & 7; from October 2006 Ex. to MCI, which to date, a 10% (Jeannault Decl. 45 at 203:4-205:9, Ex. UK 6 51 at 68:20- These allegations are contradicted by HCP's written agreement "that reasonable." 6.) and surcharges and other installation fees. Nickelsburg Decl. 69:1.) fee first allege [MCI] should get a procurement (Keyes Decl. Second, Ex. 28; Def.'s Mem. fee and 12% seems Supp. J. the HCP Plaintiffs allege that Sunrise breached its obligations to procure goods at a fair market value, competitive selection process. (Pis.' Mem. Supp. "comparison shop" for purchases or "competitive bid" from third parties—it merely requires 21 after a Summ. These allegations are unavailing for three reasons: contains no Summ. (l) J. 21.) the MA requirement" that expenditures first class for FF&E be reasonable Facility; evidentiary support competitive, (2) HCP website print-outs, are hearsay documents; and Sunrise did not (3) act the HCP Plaintiffs in the interest when it purchased MCI's goods. Pis.' Mot. Summ. without to show that MCI's prices are not offer no evidence that best and necessary to maintain a J. 21.) Thus, Facilities' (Def.'s Opp'n the HCP Plaintiffs' fail to show that Sunrise exceeded the reasonable discretion provided to it pursuant to reasonable § 11.02, juror to and there is insufficient evidence find that Sunrise breached § for a 11.02 of the MAS. d. § 6.01 (Payroll and Systems Accounting) Section 6.01 provides, [Sunrise] shall, at in relevant part: its own expense, establish and administer accounting procedures and controls and systems for the development, preparation and safekeeping of records and books of accounting relating to the business and financial affairs of the Facilit[ies], including payroll, and accounts payable (Mgmt. Agmt. § 6.01.) any expense that Expenses, accounts receivable .... However, Sunrise is not responsible for fall under the MAs' list of "Facility which include: [C]osts and expenses directly related to the operating costs and staffing of the Facilit[ies], . . . including, without Costs at limitation incurred by . . . [Sunrise] the Facilit[ies] . . . , for all personnel such costs 22 to employed include salary and wages, payroll taxes, compensation, payments, insurance, workers' compensation, bonus compensation, retirement plan expenses for example, life and other benefits health insurance, . . Costs incurred by [Sunrise] processing equipment, (Mgmt. Agmt. the 3 . continues for electronic data systems software or services Facilities] .... & 5.) The HCP Plaintiffs allege Facilities that Sunrise: to do so; software (2) for its 2007 and corporate-level expenses; (Compl. KH 72, 154, for the payroll processing costs and how Sunrise allocates 18-20.) (3) 157, The unapproved payroll expenses allegations concern the amount of money paid to Automated Data Processing J. and quarterly and annual financial reports in accordance with the MAs. & 177.) charged the charged unapproved accounting reporting failed to prepare monthly, 158 (1) for unapproved payroll expenses since and systems payable dental insurance and disability insurance) to such personnel used at hiring expenses, incentive travel (including, training programs, ADP's for the Facilities' those costs. services include: (Pis.' (1) recorded by facility-level employees Mem. ("ADP") employees Supp. Summ. processing labor hours in Sunrise's attendance system to calculate employee paychecks; time and (2) calculating paychecks issued to facility-level employees and the associated withholdings etc.); (3) statements (e.g., taxes, benefits, garnishments, generating and distributing paychecks and pay to employees; (4) providing payroll-related help-desk 23 service to personal facility-level employees; into the ADP processing platform; W-2s to facility-level employees. Facility. {Roder Decl. 1 4, a general and records, Mar. 30, financial reports. Under for the H 3, the plain language of § issuing f 4, Mar. services 2010.) to generate (Roder Dec. (6) Form 30, to each Sunrise does not, the costs of maintaining ledger system which Sunrise uses and for these allocate to the Facilities Peoplesoft, facility-level (Roder Decl. Sunrise allocates the costs however, inputting employee information received from Sunrise's employees 2010.) (5) Mar. 6.01, Facilities' books the Facilities' 30, 2010.) which governs Sunrise's responsibility in establishing and administering accounting procedures for the development and reporting of accounting books relating to the Facilities, Sunrise required to bear the payroll processing costs Facilities. (Mgmt. Agmt. § 6.01.) Sunrise to create and maintain payroll books expense, which it has records and is not for the is simply required and records at its own successfully done by bearing the costs of implementing and administering the PeopleSoft accounting system and generating relevant financial reports related to the Facilities. (Def.'s Mem. simply centralized the Supp. Summ. J. 7.) To do so, accounts payable processing Sunrise function to achieve efficiency in processing and in paying invoices received by all the facilities it manages. 24 (Roder Decl. t 3, Apr. 16, 2010.) In addition, accounting team, Sunrise bears the which is responsible full costs of the payroll for recording general ledger entries related to payroll activity and for reconciling payroll-related accounts. (Roder Dec. HH 3 & 6, Apr. 16, 2010.) Because Sunrise was not obligated to perform payroll processing duties at its own expense, hiring and compensating ADP As systems to allegations software, the Sunrise did not breach the MAs by for its payroll processing services. of unapproved accounting reporting and HCP Plaintiffs improperly charged the Facilities IT costs, insist for the desktop licensing software, other systems and software, amount of $15,736. (Compl. that Sunrise "AOD billings systems, time and attendance and and reporting expenses" K 75; Def.'s Mem. Supp. Sunrise also allegedly charged the Facilities including: office; support; Supp. (1) (3) and Summ. accounts payable processing; telecommunications services; (5) J. (4) Summ. These charges, (2) resident billing (Pis.' Supp. J. However, Mem. according to the HCP resulted in damages exceeding $260,000. 20.) 8.) registrar's Plaintiffs, Summ. J. for other expenses resident bill print and delivery. 18-20.) in the the HCP Plaintiffs, (Pis.' Mem. not Sunrise, are in fact responsible for the payroll processing costs and the cost of any accounting reporting systems software. The MAs' definition of Facility Expenses expressly includes costs for "electronic data processing," systems, 25 and services . . . ." (Mgmt. Agmt. 5.) The AOD Billing System, and desktop software licensing, time and attendance and IT costs constitute electronic data processing and systems software. These costs are directly associated with managing the Facilities' timekeeping and attendance appropriately billed as system. quarterly, such, that and annual "Sunrise failed to prepare financial reports with the requirements of Exhibit E of the such reports requires, [to] Plaintiffs." among other things, expenditure reports, the Facilities' (Mgmt. Agmt. E.) Decl. Ex. K 177.) and to provide Exhibit E that Sunrise provide capital and variance reports operations, regarding leasing and marketing. that quarterly or annual reports. Sunrise provided the HCP Plaintiffs the required financial reports. requests [MAs] in accordance Exhibit E lists no requirement Sunrise prepare monthly, to the allegations, (Compl. rent roll, finances, Ex. they were Facility Expenses. The HCP Plaintiffs allege monthly, As for reports before 61 at 78:8-21, Ex. Contrary all of Sunrise fully complied with all and after the CNL-HCP merger. 62 at 29:7-19, 33:11-20.) (Keyes Even HCP's CEO publicly praised the quality of Sunrise's reporting, telling investors that property level "the quality and the timeliness of the accounting information we get from Sunrise good as anybody else in our senior housing portfolio." Decl. Ex. 43 at 14.) Furthermore, 26 despite their claims are as (Keyes of damages, it is unclear what harm the HCP Plaintiffs suffered other than their inability to monitor capital expenditures and the Facilities' 313:6.) performance. Therefore, (Keyes Decl. Ex. no reasonable trier of 5 at fact could find that Sunrise breached the MAs by charging the Facilities unapproved payroll software, expenses and neglecting 312:2- for and accounting reporting and system to prepare the required financial reports. e. § 4.07 (Purchasing) Section 4.07 states, [Sunrise] shall use, in pertinent part: on behalf of the Facilit[ies], such purchasing systems and procedures developed by or otherwise available. . . . Any purchase by [Sunrise] made pursuant to or otherwise ancillary to this Agreement shall be made with [Sunrise] acting for and at the expense of the Facilit[ies] or [HRA] .... [Sunrise] shall fully disclose to [HRA] any material interest of [Sunrise] and/or Affiliate in any vendor and [Sunrise] shall establish to [HRA's] reasonable satisfaction that the purchase or contract was made after a competitive selection process and at a fair market price. In the event that [Sunrise] receives any competitive discounts and/or rebates due to its relationships with vendors, [Sunrise] covenants to allocate the fair and reasonable portion of any such discounts and/or rebates to the Facilit[ies] in order to reduce Facility Expenses. (Mgmt. Agmt. § 4.07.) The HCP Plaintiffs allege that Sunrise improperly retained 20% of the rebates received from vendors to offset the cost of administering the purchasing department. (Pis.' Mem. Supp. Summ. J. 6-7; Compl. 27 U 161.) However, § 4.07's "fair and reasonable portion" language does not require Sunrise to allocate 100% of the rebates or the amount remaining after Sunrise's (Mgmt. Agmt. cost of generating the § 4.07.) Indeed, 20% would not be unfair and unreasonable where the HCP Plaintiffs otherwise. rebates are covered. fail If the HCP Plaintiffs wanted Sunrise to turn over 100% of all discounts and rebates to the language to use in the MAs would not be a portion," "all." Facilities, Agmt. § 4.07.) the proper "fair and reasonable which necessarily means a part of (Mgmt. meaning, to indicate the whole, but In interpreting the MAs' plain the Court cannot read § 4.07 to require that Sunrise disclose any more than a "portion" of any discounts or rebates obtained. Additionally, HCP, when asked, evidence shows that Sunrise was candid with regarding its accounting for the rebates. savings and its method of (Krummel Decl. % 11.) During a meeting with HCP's Vice-President of Asset Management, Sunrise's representative answered questions about how Sunrise receives rebates and administrative fees. (Krummel Decl. HH 11-13.) The mere fact that Sunrise secured more than $6,000 in surplus in 2008 for the management of approximately 400 facilities is insubstantial evidence that it improperly withheld money from the HCP Plaintiffs. 28 Moreover, rebates is the retention of consistent with the discounts or language providing that purchases "shall be made with [Sunrise] the Facilities] [HRA] ." or a portion of acting for and at (Mgmt. Agmt. § the expense of 4.07.) Thus, the HCP Plaintiffs have not shown that Sunrise acted contrary to an express application of f. § 4.07 as written. Facility Expenses As discussed, travel costs are allocated to the Facilities under the definition of Facility Expenses, Costs at incurred by the [Sunrise] Facilit[ies] ... for all personnel employed or the regional business manager or such additional personnel at the Facilit[ies] owned by Tenant, personnel expenses (Mgmt. Agmt. . . . such costs share of to include costs . . of . such travel .... 5.) Additionally, "quality assurance" Facilities. employed in part and in part at other facilities not a reasonable , which includes: {Mgmt. Exhibit B of the MA lists as an expense to be allocated to the Agmt. Ex. B.) The HCP Plaintiffs argue that Sunrise improperly charged the Facilities for two corporate-level travel expenses related to two Quality Services Review Services Review and Nursing. ensure (Compl. (2) ("QSR") (l) Quality Quality Services Review for Skilled U 164.) Both programs are run by Sunrise to that each Facility meets resident care. programs: (Keyes Decl. its national Ex. 58 at 29 standards 84:2-85:5.) for HCP also seeks damages employees for charges incurred by Sunrise's to attend retreats held at resorts. Def.'s Mot. Summ. J. 21.) corporate (Pis.' The HCP Plaintiffs Mem. Opp'n further allege that Sunrise charged the Facilities for Sunrise's and its employees' dues and due-like subscriptions Living Federation of America. However, there (Compl. f 167.) is no evidence that the unnecessary to the proper maintenance of the travel expenses to to the Assisted for those programs the were the Assisted Living two QSR programs are Facilities billed to the Facilities. As memberships, they are maintained in the name of Sunrise communities. Sunrise. The As manager of Federation of America the Facilities, Sunrise the MA, to operate and maintain the fit. Because these dues are issue exists the MA's g. the of the Facility Expenses. HCP Plaintiffs for trial fail is permitted, Facilities as it sees Facilit [ies], (Mgmt. Agmt. to show that they were at 3.) a genuine regarding Sunrise's alleged violation of Facility Expenses provision. §12,06 not "costs and expenses directly related to the operating costs" Consequently, individual Facilities hold the membership, under properly charged as or that (Licensure Issues) 30 Section 12.06(a) requires Sunrise and HRA to commercially reasonable hundred twenty (120) license that Agmt. 12.06)(a).) § program. rather, . . . during the period of to the Facilities' Medicare is a federal it creates an entitlement Ex. Supp. 79 at 12-13.) operation. J. 10-11.) license or permit; to certain reimbursements. Thus, Medicare certification is Under the applicable under applicable See 42 U.S.C. {"A skilled nursing facility must be licensed State and local The HCP Plaintiffs allege the loss of (Def.'s statute, licensing is a predicate to certification. § 1395i-3(d)(2)(A) (Mgmt. reimbursement to operate an assisted living facility. Summ. one to reinstate a withdrawn or revoked Medicare certification is not a not a license proper days" is material (Keyes Decl. Mem. efforts "use all law.") that Sunrise improperly caused the Camarillo Facility's Medicare certification in 2008, in violation of 13.) However, § 12.06. (Pis.' Mem. nothing in the MA requires Supp. Summ. J. 9- Sunrise to obtain or maintain Medicare certification at the Camarillo Facility. Even after losing its certification in 2008, the Camarillo Facility continued to operate and maintained its license, thereby allowing it to operate and maintain a skilled nursing facility. (Keyes Decl. of operation, Exs. 30-37.) In fact, during its first three years the Facility was without Medicare certification and received no complaints from HCP. 31 (Keyes Decl. Ex. 60 at 161:2-11.) As HCP's confirmed, Medicare good marketing tool license. (Keyes 16.) President of Asset Management certification is . Decl. Furthermore, failed to act former Vice . . Ex. ," but 60 for eight months. it lost the (Keyes Decl. Decl. 23.) termination of the (b), letter to (Compl. (d).) (Nickelsburg loss of Medicare certification was Camarillo Facility's MA, record do the HCP Plaintiffs suffered. 100 at 32:12- While the remedy sought by the HCP Plaintiffs for the Camarillo Facility's 1M Ex. HCP is unclear that HCP equated the loss to Sunrise's the standard of care under the MAs. the or certification, breach of Ex. can be a 25-162:1.) When HCP finally complained by sending a Sunrise, It is not a requirement at when Sunrise "an option. 1M 132, identify the 135(v), nowhere actual damages Relief Requested (pp. in the they 53-54) Because certification is not a requirement under the MA and there is no precise showing of damages, the HCP Plaintiffs cannot prevail under their breach of contract claim as to § h. 12.06. §4.02 (Marketing Services) Section 4.02 of the MA states that Sunrise shall: (a) Prepare marketing plan and marketing strategy for the Facilit[ies], Budget") and a budget (the for such plan and strategy. "Marketing The Marketing Budget shall be revised annually at the time of the submission of the Annual Operating Budget. (b) Direct the marketing efforts for the Facilit [ies] 32 (c) Plan and implement community outreach, relations and special (Mgmt. Agmt. § 4.02.) The HCP Plaintiffs argue that Sunrise required to provide HRA with a marketing plan, strategy, 91 The express Sunrise to prepare, language of not provide, § 4.02, them. (Compl. however, (Mgmt. is a marketing and a marketing budget on an annual basis. & 174.) There public events programs. HU requires Agmt. § 4.02.) is no dispute that Sunrise prepared marketing plans, strategies, and proposed budgets (Keyes Decl. Ex. 38, Ex. for 2007, 51 at 119:9-120:10 2008, and 2009. & 122:1-127:6.) The marketing budgets identified by category the marketing techniques that Sunrise planned to employ at each Facility and the resources Sunrise (Keyes Decl. Ex. 51 at expected to devote 122:1-127:6.) to each technique. Although not required, Sunrise also included in its annual marketing budgets, flash reports, reviews. monthly focus reports, (Keyes Decl. Exs. 39-41.) and competitive business Thus, any argument that Sunrise failed to provide an annual marketing plan, and budget, claims, are unfounded. the HCP Plaintiffs strategy, Like their other breach of contract failed to identify any damages resulting from Sunrise's alleged violation of § 4.02. reasons, no reasonable trier of fact could find that alleged violations of various provisions breach of weekly contract. 33 For these Sunrise's in the MAs amount to a ii. Count XIV The Court holds exists as (Breach of Fiduciary Duties) that no genuine dispute of material to whether Sunrise breached the parties' duties because no such duties exist as relationship exists where a party vests to fact fiduciary Sunrise. A fiduciary the other party with significant discretion in the management of affairs on its behalf. Oden v. Salch, 379 S.E.2d 346, unlike an agency relationship, Inc., (Va. 1989). This is where the principal controls the manner in which the agent undertakes Holiday Inn, 351 219 S.E.2d 874, its duties. 876 (Va. Murphy v. 1975)(stating that the existence of agency relationship depends on whether the agreement gave the alleged principal control the methods Wells v. Whitaker, Lindstrom, [the] or details of doing the work." 151 S.E.2d 422, 379 S.E.2d 450, claim for breach of "control or 454 429 (Va. (Va. 1989). right to (quoting 1966)); Allen v. A party may bring a fiduciary duty only where the duty breached is a common law duty and "not one existing between the parties solely by virtue of Mason, the contract." 645 S.E.2d 290, 293, 295 Augusta Mut. (Va. 2007) Ins. Co. v. (citations omitted) ("Any fiduciary duty allegedly breached in this case existed solely because of the Mutual and Lee-Curtis, Therefore, contractual relationship between Augusta and in turn, its employee, we hold that Augusta Mutual 34 Jones. failed to assert a valid claim for breach of "typical business fiduciary duties."). relationship" parties "intended to create a may not create one. (E.D. Va. Vicente there without evidence is a that the fiduciary relationship," v. Obenauer, 736 F. the court Supp. 679, 695 1990). Section 18.14 of the MAs states: The relationship between shall not be one of of Where [HRA] [HRA] general and agency, [Sunrise] but . . shall be that with an independent contractor; that with respect . provided however, to those specific and limited circumstances in which (a) [Sunrise] is holding funds for the account of [HRA] or (b) [Sunrise] is required to act as authorized representative for [HRA] with respect to agreements with residents pursuant to licenses or Legal Requirements, the relationship of [Sunrise] to [HRA] shall be that of authorized representative (with limited agency). Neither this Agreement nor any agreements, instruments, documents or transactions contemplated hereby shall in any respect be interpreted, construed as making with [Sunrise] or entity, [HRA] or as creating any similar relationship and each party agrees that any contrary assertion, contention, counterclaim in any action, proceeding involving (Mgmt. Agmt. § 18.14.) fiduciary duty. deemed or a partner or joint venturer it will not make claim or suit or other legal the other. The MAs makes no reference to a It expressly limits Sunrise's relationship to the HCP Plaintiffs as one of an independent contractor and not one of agency. Any genuine dispute of material fact that Sunrise owed a fiduciary duty to the HCP Plaintiffs must arise from the contractual relationship between the parties. Guaranty Sav. & Loan Ass'n v. Ultimate Sav. 35 Bank, 737 See F. Supp. 366, 371 (W.D. Va. 1990) (explaining that provided that party would service contractor" and contained no relationship and thus no the Service Agreement loan as an reference to a "independent fiduciary fiduciary duty existed). Court look to the MAs, there can be no finding of a fiduciary duty and the HCP of therefore, fail the parties as the must Plaintiffs, intention of As expressed in the to assert a valid claim fiduciary duties. iii. The Counts Counts II, Court grants II, XV & XVI (Injunctive Relief summary judgment XV and XVI because that they will in favor of Sunrise as the HCP Plaintiffs likely to succeed on the merits cannot of A plaintiff seeking a preliminary injunction must he for breach is likely to succeed on the merits; (2) show their claims. show that: equities tips in his is in the public interest. Fed. Election Comm'n, (citing Winter v. 365, (2008)). 374 In Count II, 575 issue an injunction to: and (4) F.3d 342, Def. Plaintiffs (1) 346-47 (4th Cir. Counsel, request Inc., that (3) an injunction The Real Truth About Obama, Natural Res. the HCP favor; (1) he is likely to suffer irreparable harm in absence of preliminary relief; the balance of to Inc. v. 2009) 129 S.Ct. the Court prevent Sunrise from making further unauthorized withdrawals and expenditures 36 from the Portfolio Facilities' accounts; (2) require Sunrise to vacate Portfolio Facilities; (3) require Sunrise to transfer the Portfolio Facilities pursuant (4) require Sunrise Facilities' vacate (Compl. that Sunrise income and (2) accounts. {Compl. made and H 195.) and 13.02 to the (5) (6) 1 135.) (1) require Sunrise In Count XV, §§ to to 10.01 and 13.02 the HCP Plaintiffs realized undisclosed profits and other improper expenditures 1M 191-193.) Similarly, its fiduciary duties, the MA; Portfolio from the Facilities' The HCP Plaintiffs seek an in accordance with the MA. Count XVI sets forth allegations suggesting that Sunrise received and retained funds of of require Sunrise Facility pursuant to injunction to adjust the accounts (Compl. 10.01 account books and records; the Camarillo Facility; of the MA. §§ to grant HCP access transfer the Camarillo allege to the including: undisclosed and improper charges, (1) fees, in violation funds obtained through and allocations; (2) funds obtained from the unauthorized provision of ancillary activities at the Facilities by third-party ancillary service providers; and (3) funds obtained by withholding amounts due to the Facilities under the MA. (Compl. fl 198.) The HCP Plaintiffs seek an injunction requiring Sunrise and its affiliates to hold these funds HCP Plaintiff's benefit. Plaintiffs' in a constructive trust (Compl. H 204.) for the A grant of the HCP requests on these Counts depends on whether Sunrise 37 breached the MAs and OAs, because no reasonable which, trier of as discussed above, fact could violated the aforementioned provisions. Plaintiffs merits cannot for the judgment show that reasons in favor of I Count The Court grants Sunrise the HCP the Court II, grants Camarillo Facility, from the XV and XVI. summary judgment is MAs favor of Sunrise improper where Sunrise did not and was such that in improperly terminated from the the HCP Plaintiffs and obtain further access cannot be to the records beyond what Sunrise has provided. Declaratory Judgment Act, the summary (Declaratory Judgment) breach the MAs and OAs, "may declare 28 U.S.C. rights and other § 2201(a), Under the a federal court legal relations of any interested party seeking such declaration, whether or not further relief U.S.C. is or could be Declaratory relief is relations in issue, Supp. 2d 479, 482 the 28 relief sought § 2201(a). (1) will in clarifying and settling the legal and from the uncertainty, sought." awarded if serve a useful purpose the proceeding. not they would likely succeed on the discussed above, because declaratory relief Facilities' that Because Sunrise as to Counts iv. released find it has (2) will terminate and afford relief insecurity and controversy giving Dourous v. (E.D. Va. State Farm Fire 2007) 38 & Cas. Co., rise 508 to F. (internal citation omitted). Here, that: the HCP Plaintiffs (1) request a judicial declaration Sunrise breached the MA and OA through the commission of various monetary and non-monetary defaults; Plaintiffs may terminate Sunrise as manager of the the MAs; (3) (2) the HCP HRA properly terminated the Camarillo Facility under § 12.06 of Camarillo MA for failure to obtain proper Medicare certification; and (4) that independent auditors access records. (Compl. Plaintiffs' trier of Sunrise grant the HCP Plaintiff's to the Facilities' 1M 130-133.) account book and The Court denies the HCP first request because as discussed, fact could find that alleged by the HCP no reasonable Sunrise violated the MAs and OAs Plaintiffs. The Court also denies Plaintiffs' second request Court that Sunrise did not breach the MAs or OAs, finds for the same reasons. the HCP Plaintiffs may not invoke its right The Court further denies the request Because the the HCP to terminate the MAs or OAs. that HRA be permitted to terminate Sunrise from the Camarillo Facility because Medicare certification is not a license to operate an assisted living facility. As discussed, nothing in the MAs requires Sunrise to obtain or maintain Medicare certification at the Camarillo Facility. Finally, the Court denies the HCP Plaintiffs' that Sunrise grant the HCP Plaintiffs' access to the Facilities' independent auditors account book and records. successfully introduced evidence that contradicts 39 request Sunrise has any dispute of material Court fact finds that that it violated the MAs Sunrise declaratory relief summary judgment B. Sunrise's is in and OAs. Because the did not breach the MAs and OAs, improper. favor of Therefore, Sunrise as the Court grants to Count II. Counterclaim i. Count I (Breach of Contract) The Court grants summary judgment in favor of the HCP Plaintiffs as to Count I because no reasonable trier of could find that MAs and OAs the HCP Plaintiffs' caused actual damage whether the HCP Plaintiffs' to Sunrise. As stated in the MAs, shall be considered by and [Sunrise], [HRA] the budget and, contents of the budget and . . . ." to be (Mgmt. is Sunrise's "the budget as proposed, in consultation between [Sunrise] § 7.01.) [HRA] for the ensuing with the final determined mutually by Agmt. the caused financial for the Facilities] fiscal year will be prepared by [HRA] Facilities of At dispute alleged obstruction of ability to effectively manage the harm to Sunrise. alleged violations fact [Sunrise] Sunrise must also prepare a Repairs and Equipment Estimate of the Facilities' expenditures and submit it along with the Annual Operating Budget. 11.02(d).) (Mgmt. requirements, Agmt. § Sunrise has Aside from these "complete and full control and discretion in the operation, direction, 40 management and supervision of As party to the Facilities] the MAs, HRA applicable provisions of obligation[s]" set . "agrees . . ." (Mgmt. Agmt. to comply with all of [the MA] § 2.01.) the and to perform all forth therein. (Mgmt. Agmt. § 10.03.) Sunrise asserts that the HCP Plaintiffs engaged in various bad faith conduct in an effort to force Sunrise to restructure the Facilities' MAs. Specifically, to approve budgets and engage Sunrise regarding the budgets. Compl. 11 3 6.) the HCP Plaintiffs refused in meaningful (Am. According to Sunrise, negotiation with Countercl. and Third-Party the HCP Plaintiffs also obstructed capital expenditures at the Facilities by refusing to advance sufficient Party Compl. funds to Sunrise. UU 41 & 43.) (Am. Countercl. Sunrise further insists that the HCP Plaintiffs made bad faith demands by requesting: regarding the Facilities' and Third- licensing;, (2) (1) information all reports filed by the Facilities with any agency in connection with any legal requirement; (3) marketing and financial data; and (4) proof that the prices Sunrise paid for services are reasonable and competitively priced. (Am. Countercl. and Third-Party Compl. % 45.) While Sunrise has sufficiently shown that no disputed material fact exists concerning the HCP Plaintiffs' failure to perform under the MAs, it has not shown that the alleged breach caused actual damage. Sunrise claims that 41 its share of the Facilities revenue was faith conduct. 44.) {Am. Specifically, $191,000 due also points statements Countercl. the HCP {Def.'s Opp'n Pis.' it however, do not Mot. Summ. Ex. 93 at J. 27.) KH 43- its 29.) Sunrise stock. These show how Sunrise Counterclaim and Third-Party Comp. Summ. j. corporate representative, (Nickelsburg Decl. bad to approve capital to a diminution in the value of alone, Plaintiffs' suffered a loss of indicated that Sunrise's parent company harm." Mot. that alleged failure actual damage when its Weil, to and Third-Party Compl. Sunrise claims to HCP's expenditures. depressed due Mr. Eugene "suffered the 96:20-99:5; UH 43-44; suffered Am. Def.'s Opp'n Pis.' Sunrise provides no evidence to suggest that a trickle down effect caused financial damage to its ability to manage the Facilities. Rather, Sunrise recognizes corporate entities are separate and distinct, does not bear the damage that suggesting that it suffered by its parent company; and Sunrise offers no facts that would allow the Court to pierce corporate veil to find the necessary damages. Summ. J. 26-28. Because Sunrise fails such, the Court grants (Def.'s Opp'n to establish a genuine issue of material fact with respect to damages, to satisfy all elements it thereby fails for a breach of contract claim. summary judgment in favor of Plaintiffs on Count I of the Counterclaim. 42 the As the HCP ii. Count III (Tortious Interference with Contractual Relations The Court grants summary judgment in Plaintiffs because no reasonable trier of the HCP Plaintiffs favor of HCP fact could find that intentionally interfered with HRA's obligations to Sunrise under the MA. The elements of tortious interference with contractual relations include: contractual relationship or business expectancy; of the (1) (2) a valid knowledge the relationship or expectancy on the part of the interferor; (3) intentional interference inducing or causing a breach or termination of the relationship or expectancy; and (4) resultant damage to the party whose relationship or expectancy has been disrupted. Chaves v. Johnson, 335 S.E.2d 97, 102 (Va. 1985) (citation omitted). Sunrise alleges that the HCP Plaintiffs conspired with HRA to cause HRA to breach its contractual obligations and Third-Party Compl. (Am. Countercl. that the HCP Plaintiffs had a plan to threaten Sunrise with terminating the MA if (Def.'s Opp'n Pis.' 11.) However, the Mot. H 63.) to Sunrise. Sunrise argues latter refused to restructure the MAs. Summ. J. 29-30; Keyes Decl. Exs. 9 & it is unclear from the record how HCP intentionally induced or caused a breach or termination of the relationship between Sunrise and HRA. 80:7-81:15 & 94:5-96:21.) Moreover, 43 (Keyes Decl. Ex. 100 at while Sunrise asserts that its share of the Facilities revenue has been depressed, it is unclear under what theory and how Sunrise, rather than its parent actually damaged. Countercl. company, Party Compl. is tH 43-44; Def.'s Opp'n Pis.' Court grants iii. (Am. Nickelsburg Decl. 93 at 96:4-99:5; Summ. J. 25-28.) Consequently, summary judgment in favor of the HCP Plaintiffs. Counts Mot. Ex. and Third- IV & V the (Conspiracy to Harm Business and Reputation The Court grants summary judgment in favor of the HCP Plaintiffs as to Sunrise's conspiracy claims because no reasonable trier of fact could find the HCP Plaintiffs willfully and maliciously injured Sunrise's business or reputation. common law conspiracy consists of to accomplish, "two or more persons combined by some concerted action, unlawful purpose or some some criminal or lawful purpose by a criminal or unlawful means." Commercial Bus. Sys., Inc. Servs., S.E.2d 261, (Va. 1995). Inc., 453 A 267 v. Bellsouth The damage caused by the acts committed in furtherance of the conspiracy is the foundation of a civil claim of conspiracy. omitted). attempts Similarly, to procure Id (citations Virginia law provides that any person who the participation of others in an attempt to willfully and maliciously injure another in his reputation, trade, business or profession can be liable for statutory conspiracy. See Va. Code Ann. § 18.2-4 99. 44 A plaintiff proceeding under this statute must prove his evidence. See Va. malice, i.e., Code Ann. the statute that . . . 18.2-500. Instead of "merely requires[s] acted intentionally, lawful justification." at § case by clear and convincing proof legal malice, purposely, Commercial Bus. Sys., actual and without Inc., 453 S.E.2d 267. From the record, it is unclear how the HCP Plaintiffs willfully and maliciously injured Sunrise's business or reputation by attempting to get Sunrise to alter its contractual relationship with HCP before and after the CNL-HCP merger. It is also unclear how HCP joined forces with HRA to drive Sunrise out of business. The mere fact that HCP wishes to have Sunrise lease rather than manage the Facilities, amount to unlawful intent, without more, where Sunrise acknowledges does not that the parties engaged in discussions at length regarding possible restructuring of the MAs. Compl. H 15.) (Am. Countercl. and Third-Party Sunrise concedes it agreed to the discussions and reached a tentative agreement with HCP, whereby HCP would buy out a limited number of the MAs and the structure of the remaining MAs would change. The parties' (Def.'s Mem. Supp. Summ. J. K 5.) failure to come to an agreement is not clear and convincing evidence that HCP conspired with HRA to harm Sunrise. (Am. Countercl. and Third-Party Compl. Additionally, ^ 21 & 22.) Sunrise's contention that HCP audited 45 Sunrise's books and records renegotiating the MAs is in an attempt weakened by the was within its rights under Party Compl. 1111 18 & 19.) the MAs. to pressure fact (Am. it that HCP's Countercl. into conduct and Third- As owner of numerous senior living facilities worth millions, it changes to its relationship with various parties, contractual let alone Sunrise, to benefit so as reasonable increase its that HCP consider revenues. HCP stands financially from Sunrise's successful management of the Facilities, which could only be support and cooperation. suffer to is from a defect Thus, strengthened by HCP's Sunrise's similar to its other conspiracy claims claims—absence of evidence showing Sunrise suffered damage—which in this concerns financial loss or harm to business reputation. Countercl. and Third-Party Compl. therefore, grants summary judgment Plaintiffs as to Counts For these reasons, Sunrise as Complaint. - in favor of The Court, the HCP the CONCLUSION Court grants summary judgment in to Counts I - XVI of the HCP Plaintiffs' As to Sunrise's Counterclaim, summary judgment III HH 43-44.) (Am. IV and V. IV. favor of instance in favor of the Court grants the HCP Plaintiffs as to Counts V. 46 I, The Clerk is directed to forward a copy of the Memorandum Opinion to counsel. Entered this Alexandria, Virginia s day of August, 2010. /s/ Gerald Bruce Lee United Slates District Judge 47
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