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Sodexo Operations, LLC v. Not-For-Profit Hospital Corp.

United States District Court, District of Columbia

September 11, 2017



          COLLEEN KOLLAR-KOTELLY United States District Judge.

         Plaintiff Sodexo Operations, LLC (“Plaintiff” or “Sodexo”) brings this breach of contract action against Defendant Not-For-Profit Hospital Corporation (“Defendant” or “NFP”), the alleged successor-in-interest to the hospital operated by Capital Medical Center (“CMC”). Plaintiff seeks damages based on allegations of breach of contract between Sodexo and CMC. See generally Pl.'s First Am. Compl, ECF No. [35]. Plaintiff's initial complaint was dismissed without prejudice for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6), and Plaintiff subsequently requested leave to file an amended complaint, which was granted by this Court. See Sodexo Operations, LLC. v. Not-For-Profit Hospital Corporation, 210 F.Supp.3d 138 (D.D.C. 2016). On September 28, 2016, Plaintiff filed its First Amended Complaint, which includes additional facts in support of its claims of successor liability against NFP. Currently pending before this Court is Defendant's [36] Motion to Dismiss Plaintiff's First Amended Complaint for failure to state a claim upon which relief can be granted. Upon consideration of the parties' submissions, [1] the relevant legal authorities, and the record as a whole, the Court DENIES without prejudice Defendant's [36] Motion to Dismiss Plaintiff's First Amended Complaint.

         I. BACKGROUND

         The following facts are drawn from Sodexo's First Amended Complaint and are not based on any findings of fact made by the Court. On a motion to dismiss, a court must accept as true all well-pleaded factual allegations set forth in the complaint. Swierkiewicz v. Sorema N.A., 534 U.S. 506, 508 n. 1 (2002). The parties acknowledge that the exhibits and authority accompanying NFP's Motion to Dismiss and Sodexo's Opposition are matters of which the Court can take judicial notice, or are matters of public record; and therefore, this Court may properly consider them without converting the motion to dismiss into a motion for summary judgment. See Marshall Cty. Health Care Auth. v. Shalala, 988 F.2d 1221, 1222 (D.C. Cir. 1993) (“The district court may, however, examine matters of public record in ruling on a Rule 12(b)(6) motion.”); Duma v. J.P. Morgan Chase, 828 F.Supp.2d 83, 85 n.3 (D.D.C. 2011) (noting that courts may take judicial notice of matters of a general public nature without converting a motion to dismiss into one for summary judgment).

         A. Sodexo's Relationship with CMC

         In October 2007, the District of Columbia (‘D.C.” or “the District”) permitted Specialty Hospitals of America (“SHA”), the parent company of Specialty Hospitals of Washington (“SHW”), to acquire the Greater Southeast Community Hospital (“Southeast”), which was later renamed the United Medical Center. See Pl.'s First Am. Compl. ¶¶ 7, 8, 10. SHA created two wholly-owned subsidiaries of SHW - Capital Medical Center (“CMC”) and Capital Medical Center Realty (“CMCR”) - which owned, controlled, and operated the Southeast hospital assets acquired by SHA. Id. ¶¶ 8, 9. On April 30, 2008, Sodexo and CMC, doing business as Southeast, entered into a three year management agreement (“Southeast Management Agreement”), commencing on July 28, 2008, whereby the parties agreed that Sodexo had “the exclusive right to manage and operate Services for [CMC's] patients, residents, employees, visitors and guests at the Premises[, ]” where “Services” were defined as “Nutrition Services” and the “Premises” was defined as the facility located at 1310 Southern Avenue, SE, Washington, D.C. Id. ¶¶ 13, 16, 17, 18. See also Pl.'s First Am. Compl., Ex. A (4/30/2008 Southeast Management Agreement) at Articles 1.1, 2.5, 2.6, and 3.1(A).[2]

         The terms of the Southeast Management Agreement provided in relevant part that if there was a breach of a material provision, such as failure to make payment when due, the nonbreaching party was to notify the breaching party, who then had ten days to remedy the breach. See Pl.'s First Am. Compl. ¶¶ 19, 20; Ex. A at Article 3.1(B). If the breach [non-payment] was not rectified within the ten days, the non-breaching party had the right to terminate the Agreement, with the effect that “all outstanding amounts [would] become due and payable” and, if any action or proceeding was brought to enforce the Agreement, the non-breaching party was also entitled to reasonable attorneys' fees. Id. ¶¶ 21-23; Ex. A at Articles 3.2 (A), 6.16. On January 26, 2010, Sodexo notified CMC that it owed Sodexo $349, 333.81 for work performed under the Southeast Management Agreement, and furthermore, Sodexo intended to proceed with litigation to recover the amount past due, all accruing interest, and the attorneys' fees and costs related to such recovery. Id. ¶¶ 38, 43; see also Pl.'s First Am. Compl., Ex. D (1/26/2010 letter to CMC from Sodexo) at 1. CMC did not dispute that Sodexo was not paid the past due amount of $349, 333.81. Id. ¶ 44.

         B. Sodexo's Relationship with NFP

         In July 2010, the District of Columbia purchased United Medical Center for twenty million dollars at a foreclosure sale, and further to the foreclosure, the District created the Not-For-Profit Hospital Corporation (“NFP”) to run the foreclosed-upon assets. Id. ¶¶ 52, 53, 63; see Def.'s Mot. Ex. 1 (July 7, 2010 Not-for-Profit Hospital Corporation Establishment Act). On July 9, 2010, Defendant NFP took over the ownership and operation of the hospital assets that had been owned and controlled by CMC. Id. ¶ 12. DC transferred the property to NFP via a mayoral order. Id. ¶64; see Def.'s Mot. Ex. 2 (July 9, 2010 Mayoral Order).

         Prior to the foreclosure, the District “owned 99% of the hospital and all of the working capital funds to operate the hospital had been advanced . . . by DC, ” and “DC exercised tight fiscal control and DC insisted on a third party management company to supervise” the hospital. Id. ¶¶ 55, 57; see Pl.'s First Am. Compl., Ex. E (James Rappaport Affidavit) ¶¶ 15, 17.[3] After the foreclosure, DC owned 100% of the building and operations of the hospital. Pl.'s First Am. Compl. ¶ 69. In connection with the takeover, the District: 1) maintained the same employees, including the CEO and CRFO, and the same accounts receivable and checking accounts; 2) retained the name “United Medical Center” at the same physical address, and the same goods and equipment; and 3) engaged in an identical business and operated with D.C. funds. Id. ¶¶ 65, 66, 69.

         In its First Amended Complaint, Sodexo seeks damages from NFP for breach of its contract with CMC, under the theory that NFP is nothing more than a mere continuation of the operations of CMC, and NFP knew it was assuming CMC's financial obligations when it took over operation of the hospital. NFP filed its Motion to Dismiss Sodexo's breach of contract claim, pursuant to Fed.R.Civ.P. 12(b)(6), which is opposed by Sodexo, fully briefed and ripe for decision.


         Under the Federal Rules of Civil Procedure, a party may move to dismiss a complaint on grounds that it “fail[s] to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). A complaint must contain sufficient factual allegations that, if accepted as true “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570. A claim is facially plausible when “the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The plausibility standard does not require probability but instead “asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (citing Twombly, 550 U.S. at 556). A complaint may survive even if “recovery is very remote and unlikely” or the veracity of the claims are “doubtful in fact” if the factual matter alleged in the complaint is “enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555-56 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).

         “In evaluating a 12(b)(6) motion to dismiss for failure to state a claim, the court must construe the complaint ‘in favor of the plaintiff, who must be granted the benefit of all inferences that can be derived from the facts alleged.'” Hettinga v. United States, 677 F.3d 471, 476 (D.C. Cir. 2012) (quoting Schuler v United States, 617 F.2d 605, 608 (D.C. Cir. 1979)). However, the court “need not accept inferences drawn by the plaintiff[ ] if such inferences are unsupported by the facts set out in the complaint.” Kowal v. MCI Commc'ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994). Nor is the court bound to accept the legal conclusions of the non-moving party. See Taylor v. FDIC, 132 F.3d 753, 762 (D.C. Cir. 1997). In deciding a Rule 12(b)(6) motion, a court may consider “the facts alleged in the complaint, documents attached as exhibits or incorporated by reference in the complaint, ” or “documents upon which the plaintiff's complaint necessarily relies even if the document is produced not by the plaintiff in the complaint but by the defendant in a motion to dismiss.” Ward v. District of Columbia Dep't of Youth Rehab Servs., 768 F.Supp.2d 117, 119 (D.D.C. 2011) (internal quotation marks omitted).


         Sodexo's sole cause of action in its First Amended Complaint is for breach of contract. NFP acknowledges that Sodexo entered into a contractual relationship with CMC, which was memorialized in April of 2008 as the Southeast Management Agreement, and further, that Plaintiff completed its performance of work under that Agreement in December of 2009. NFP asserts, however, that it is not responsible for CMC's debt because while the Southeast Management Agreement does permit assignment by one party with the written consent of the other party, no such assignment and consent occurred. Sodexo does not contradict NFP's assertion that there was no written assignment but instead propounds two alternative theories for recovery against NFP: 1) that NFP is a mere continuation of CMC; and/or 2) NFP expressly or impliedly assumed CMC's debts. Sodexo relies primarily on the allegations set forth in its First Amended Complaint, Ex. E (Rappaport Affidavit), and Ex. F (6/29/2010 Memorandum from Natwar Gandhi, Chief Financial Officer (“CFO”) to The Honorable Vincent C. Gray, Chairman, Council of the District of Columbia, discussing the draft Not-for-Profit Hospital Corporation Establishment Amendment Act of 2010).

         A. NFP's Reliance on the Plain ...

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