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Milwaukee Center for Independence, Inc. v. Milwaukee Health Care, LLC

United States District Court, E.D. Wisconsin

June 11, 2018

MILWAUKEE CENTER FOR INDEPENDENCE, INC., Plaintiff,
v.
MILWAUKEE HEALTH CARE, LLC and WILLIAM NICHOLSON, Defendants.

          DECISION AND ORDER

          LYNN ADELMAN DISTRICT JUDGE.

         On December 8, 2017, I decided the parties' cross-motions for summary judgment on liability. Before me now is the plaintiff's motion for summary judgment on damages.

         I. BACKGROUND

         The facts of this case are described in detail in my order on liability. Here, I will restate the facts that are relevant to my discussion of the plaintiff's damages motion.

         Between June 2014 and February 2016, plaintiff Milwaukee Center for Independence (“MCFI”) operated the Nexday Brain Injury Rehab Center (the “BIRC”) in Milwaukee, Wisconsin. The BIRC was a rehabilitation facility for individuals recovering from brain injuries or neurological diseases. Its services included physical and occupational therapy, speech language pathology, and vocational rehabilitation.

         Under Wisconsin law, a facility such as the BIRC had to be operated within a licensed nursing home. Between June 2014 and February 2016, the BIRC was operated as an 18-bed unit within a 185-bed nursing home known as Wellspring of Milwaukee. One of the defendants, Milwaukee Health Care, LLC, operated the Wellspring nursing home. In May 2014, MCFI and Milwaukee Health Care entered into a written contract that governed their relationship. The parties later entered into an amended contract. Under the contracts, Milwaukee Health Care agreed to provide, among other things, beds for the BIRC's patients and the medical facilities used to provide BIRC services, such as a physical-therapy gym. MCFI agreed to provide the rehabilitation specialists needed to operate the BIRC, such as physical therapists and speech language pathologists.

         The agreements contained detailed provisions governing billing and collection for the BIRC's services, and also governing how each of the parties would be paid their respective shares of the BIRC's collections. Under these provisions, Milwaukee Health Care was responsible for billing for the BIRC's services and collecting payments. All of the payments came from third-party payors, such as the State of Wisconsin. Payments to the BIRC were made in the name of Milwaukee Health Care and were initially deposited into Milwaukee Health Care's general bank account. However, the contracts required Milwaukee Health Care to maintain a separate checking account-the “BIRC Depository Account”-to be used “exclusively for the deposit and administration of all collections for services of the BIRC.” (BIRC Agreements § 8(c).) Milwaukee Health Care was to deposit all BIRC collections into the BIRC Depository Account on a daily basis.

         The contracts provided that MCFI would send monthly invoices to Milwaukee Health Care for the cost of its services. The contracts also provided that, on the 20th of every month, Milwaukee Health Care would pay to MCFI “the lesser of the full amount of the invoice or the balance in the BIRC Depository Account, less the amount to be paid to Wellspring.” (BIRC Agreements § 8(b).) The “amount to be paid to Wellspring” was defined as the “Wellspring Interim Daily Rate.”

         The contracts recognized that, in some months, the balance in the BIRC Depository Account would be lower than the amount of MCFI's invoice. In these months, Milwaukee Health Care was required to pay MCFI only what was left in the BIRC depository account after deduction of the Wellspring daily rate. However, the agreement contemplated that the unpaid portions of the MCFI invoices would eventually be paid from the BIRC Depository Account, either in subsequent months or during a year-end settlement process. (BIRC Agreements § 8(b).) The year-end settlement process related to a year-end payment made by the State of Wisconsin. (See Id. § 8(e).) The agreements specified how the year-end payments would be allocated between MCFI and MHC. (Id.) The agreements also specified that the year-end payments would be deposited into the BIRC Depository Account, and that the parties' shares of the payments would be paid out of that account. (Id.)

         The dispute in the present case arises because, some months after the parties established the BIRC as a unit within Wellspring, Milwaukee Health Care began using the BIRC collections to pay its own debts, in violation of its agreement with MCFI to deposit all BIRC collections into the BIRC Depository Account. It turned out that Milwaukee Health Care was in bad shape financially and needed to prioritize payments to other creditors in order to keep the nursing home running. Milwaukee Health Care used the BIRC collections to make its own lease payments, make payroll, and pay its vendors. By the end of 2015, Milwaukee Health Care virtually stopped making payments to MCFI and was using all of the BIRC collections for its own purposes.

         In December 2015, MCFI commenced the present suit in state court against Milwaukee Health Care and its two members, William Nicholson and William Koski, seeking payment of its share of the BIRC collections. (The defendants removed the case to this court under the diversity jurisdiction, 28 U.S.C. § 1332. The claims against Koski have since been dismissed.) On January 25, 2016, MCFI sent Milwaukee Health Care a letter informing it that if it did not immediately pay the amounts owed to MCFI, MCFI would cease providing services to the BIRC at the close of business on February 3, 2016. Milwaukee Health Care did not pay, and MCFI stopped providing services on February 3, 2016.

         During the last round of summary judgment, the defendants conceded that Milwaukee Health Care breached its contracts with MCFI by failing to pay MCFI its share of the BIRC collections. Moreover, I found that Nicholson was personally liable for conversion and civil theft based on his directing Milwaukee Health Care to use MCFI's share of the BIRC collections to satisfy Milwaukee Health Care's own debts. In the same order, I rejected MCFI's alternative legal theory for holding Nicholson personally liable for Milwaukee Health Care's breach of contract, namely, that Milwaukee Health Care's “corporate” veil should be pierced to reach Nicholson's personal assets.

         Also during the last round of summary judgment, I addressed Milwaukee Health Care's counterclaim against MCFI. I determined that MCFI breached the agreements by failing to give Milwaukee Health Care 30 days' notice of its intent to terminate the BIRC contract. I also identified a genuine factual dispute concerning Milwaukee Health Care's claim that MCFI caused damage to its computers and telephones when it left the BIRC.

         MCFI has now filed a motion for summary judgment to establish its damages and to preclude Milwaukee Health Care from recovering damages in connection with its counterclaim.

         II. DISCUSSION

         MCFI claims several categories of damages. I address each category in turn and then discuss Milwaukee Health Care's counterclaim damages.

         A. Unpaid ...


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