The opinion of the court was delivered by: Richard Mills, District Judge:
Plaintiff passes the first, fails the second.
But let us examine the facts, discuss the law, and then give the
reasons for our finding.
Plaintiff Management Services of Illinois, Inc. ("MSI"), is an Illinois
corporation. Since 1990, MSI has contracted with the Illinois Department
of Public Aid ("IDPA") to provide services to aid in the recovery of
certain funds expended by IDPA under Title XIX of the Social Security Act
from various insurance companies. In 1990, MSI subcontracted with
Defendant Health Management Systems, Inc. ("HMS"), a New York
corporation, to provide services in support of MSI's contract with IDPA.
Defendant Victor Kugajevsky is vice president of HMS.
As a subcontractor, HMS was to submit IDPA claims to various insurance
companies for reimbursement to IDPA. When the claims were allowed, checks
from the insurance company made payable to IDPA were sent to HMS. HMS was
then required to submit the checks to MSI. Once the checks were received
by MSI, MSI would deliver the checks to IDPA. Once IDPA received the
checks, it paid MSI for MSI's services under the contract. MSI would then
pay HMS for its services under the subcontract.
The complaint alleges that IDPA, MSI, and HMS acknowledged that timely
transmission of the reimbursement checks from HMS to MSI was essential to
effectuate the purpose of the contract. The failure to transmit the
checks in a timely manner resulted in the expiration of the checks which
then had to be reissued by the insurance carrier. Consequently, as a
result of the delay caused by the reissuance of the checks, IDPA's use of
the funds was postponed. Similarly, since MSI did not receive payment for
its services until IDPA received the reimbursement from the insurance
companies, the delay caused by the reissuance of the funds also delayed
payment to MSI. The complaint alleges that HMS and Kugajevsky were aware
of the problems resulting from the delayed submission of the checks to
MSI and that the submission of the checks in a timely manner was
necessary to fulfill its obligations under the subcontract between MSI
Due to HMS's continued failure to submit the checks to MSI in a timely
manner, MSI cancelled its subcontract with HMS in October of 1994.
Following the cancellation of the subcontract, HMS attempted to contract
directly with IDPA for the services performed by MSI under its contract
with IDPA. In May of 1995, HMS sent to the Director of IDPA, Robert W.
Wright, a letter which stated, in pertinent part:
While it appears our contract with MSI is terminated,
we have the ability to generate, processed and billed
or ready to bill claims currently in hand, revenues
for IDPA of approximately $2.6 to $3.7 million.
Equally of a concern is that we have in the pipeline
recoveries of approximately $2.6 to $3.7 million. MSI
has instructed us to return this to insurance
The complaint alleges that the above statements from HMS to Director
Wright were false and Defendants knew the statements were false.
After the cancellation of the subcontract, HMS was to continue
forwarding the reimbursement checks to MSI for all claims submitted to
the insurance companies prior to the cancellation of the subcontract. HMS
received a letter from IDPA urging HMS to send MSI the reimbursement
checks as quickly as possible. In response to that letter, in July of
1995, HMS sent ...