United States District Court, S.D. Illinois
May 12, 2005.
PALMARIS IMAGING, L.L.C., Plaintiff,
BELLEVILLE IMAGING, INC., and EFFINGHAM OPEN MRI, L.L.C., Defendants.
The opinion of the court was delivered by: WILLIAM STIEHL, Senior District Judge
MEMORANDUM & ORDER
This matter is before the Court on cross motions for summary
judgment. Defendants filed their joint motion for summary
judgment (Doc. 37) to which plaintiff filed a response (Doc. 44),
and a cross motion for summary judgment on defendant's
counterclaims (Doc. 39).
This case arises out of an alleged breach of contract for
services between plaintiff and defendant involving x-ray imaging.
Plaintiff Palmaris Imaging, L.L.C. ("Palmaris"), a Missouri
corporation, has a network of licensed radiology department
physicians who provide teleradiology services. "Teleradiology" is
the transfer of films or images, produced by x-ray or similar
studies, typically through telephone lines to a radiologist who
then reads and interprets the films or images and then provides a
report to the imaging company. The complaint alleges that in
March of 2002, Palmaris entered into a one-year, renewable
contract*fn1 with Belleville Imaging, Inc. ("Belleville
Imaging"), a private x-ray and imaging laboratory located in
Illinois, in which Palmaris was to provide tereradiology and
other medical services to Belleville Imaging. (Doc. 1, Pl.'s Ex. 1, ¶ 2; Doc. 1, Pl.'s Ex. 3, ¶ 2.)
At approximately the same time, Palmaris entered into a nearly
identical contract with Effingham Open MRI. (Effingham MRI). This
defendant's company is based in Illinois, and is also a private
imaging lab offering services that are comparable to those
offered by Belleville Imaging. Belleville Imaging and Effingham
MRI are linked by virtue of the fact that David Horace is an
officer, director, and shareholder of each, and he represented
each defendant in the negotiations with Palmaris, and signed the
service agreement contracts on behalf of each company. Palmaris
provided services to the defendants until approximately October
14, 2002, when both Belleville Imaging and Effingham MRI notified
Palmaris that they had contracted with physicians independent of
Palmaris for their radiology services needs, and would no longer
be using Palmaris.
Palmaris filed the initial complaint against Belleville Imaging
and Effingham MRI, alleging that the two defendants breached
their Service Agreement contracts. Counts I, II, and III of the
complaint seek recovery against Belleville for breach of
contract, an action on account, and quantum meruit. Counts IV, V,
and VI seek recovery against Effingham MRI on the same claims.
Belleville Imaging's answer asserts a counterclaim against
Palmaris for breach of contract, seeking recovery (Doc. 6).
Effingham MRI has filed a similar counterclaim in its answer
The parties have stipulated that their disputes shall be
governed by Missouri law.
A. Common Contract Provisions
As part of the March 2002 contracts (entitled "Teleradiology
Service Agreements"), Palmaris agreed to have its "duly licensed"
physicians read and interpret images sent from Belleville Imaging
and Effingham MRI and then provide reports. (Doc. 1, Pl.'s Ex. 1,
¶ 3; Doc. 1, Pl.'s Ex. 3, ¶ 3.) There are several provisions of the
contracts, identical in all relevant respects, that are important
to these cross motions for summary judgment.
Paragraph 2(a) of each contract provides:
If either party breaches any material term or
condition of this Agreement, the other party may give
the breaching party thirty (30) days written notice
of termination of this agreement, setting forth the
breach in such notice. If such breach is not cured
within such thirty (30) day notice period, the
termination shall become effective at the conclusion
of the thirty (30) day notice period. If such breach
is cured within the thirty (30) day notice period,
this Agreement shall remain in effect.
(Doc. 1, Pl.'s Ex. 1, ¶ 2(a); Doc. 1, Pl.'s Ex. 3, ¶ 2(a).)
Paragraph 3(a) provides: "Palmaris will provide a preliminary
or final faxed report within two (2) hours of receipt of the
image. Palmaris will provide a transcribed final report within 24
hours. The 24 hours applies Monday-Friday not weekends. For
example, an image is received Friday, the report will be
delivered Monday." (Doc. 1, Pl.'s Ex. 1, ¶ 3(a); Doc. 1, Pl.'s
Ex. 3, ¶ 3(a).) Paragraph 3(b) provides: "Palmaris represents and
warrants that each physician shall: hold a medical license for
the state in which client is located; hold, or be eligible to
hold, a board certification in radiology from the American Board
of Radiology; and have good-standing participation in Medicare
and Medicaid programs." (Doc. 1, Pl.'s Ex. 1, ¶ 3(b); Doc. 1,
Pl.'s Ex. 3, ¶ 3(b).)
Paragraph 6(h) provides: "Client agrees that all
teleradiological services provided to Client shall be provided
exclusively by Palmaris." (Doc. 1, Pl.'s Ex. 1, ¶ 6(h); Doc. 1,
Pl.'s Ex. 3, ¶ 6(h).) Paragraph 9 provides:
During the term of this Agreement and for a period of
12 months following the effective date of termination
of this Agreement for any cause, Client [meaning
Belleville and Effingham, respectively] agrees: (a)
not to solicit the employment of or employ or
otherwise contract with, directly or indirectly, any physician who
provided services to Client under this Agreement or
any predecessor agreement between Client and Palmaris
for the purpose of obtaining radiology physician
services; and (b) not to encourage or in any way
induce or influence any physician who provided
services to Client under this Agreement to terminate
his or her relationship with Palmaris.
Upon termination of this agreement Palmaris will
provide Client with a complete list of physicians
effected [sic] by this clause. In the event Client
does solicit or enter into an employment, independent
contractor or other agreement with such physician (or
with any group or entity which utilizes the services
of such physician for radiology physician services)
or attempts to encourage or in any way induce or
influence such physician to terminate his or her
relationship with Palmaris, Palmaris shall be
entitled, at its sole option, to either injunctive
relief or liquidated damages in the amount of
$100,000 per physician.
(Doc. 1, Pl.'s Ex. 1, ¶ 9; Doc. 1, Pl.'s Ex. 3, ¶ 9.)
Finally, paragraph 15 provides: "This Agreement constitutes the
entire Agreement between the parties and may be amended only by a
writing signed by both Palmaris and Client." (Doc. 1, Pl.'s Ex.
1, ¶ 15; Doc. 1, Pl.'s Ex. 3, ¶ 15.)
B. Allegations of Breach of Contract Provisions
1. Defendants' claims.
Both defendants claim that Palmaris breached paragraphs 3(a)
and 3(b) of their respective agreements, asserting that Palmaris
delivered reports late, which subjected Belleville Imaging and
Effingham MRI to frustration and some lost business. Belleville
Imaging asserts it attempted to ameliorate Palmaris' delays in
part by installing its own, more efficient dictation system and
by taking on a portion of the transcription work that Palmaris
had agreed to provide.
Belleville Imaging and Effingham MRI also assert that the two
radiologists used by Palmaris to read and interpret images and
provide reports Gregory Cyzek, M.D. and Daniel Abodeely, M.D.
were licensed in Illinois but were not properly registered with
the Illinois fiscal intermediary for Medicare, and, as a result, claims submitted by
Belleville Imaging and Effingham MRI for Medicare reimbursement
were rejected, and they became liable for penalties for filing
2. Plaintiff's claims.
In response, Palmaris claims that Belleville Imaging and
Effingham MRI breached paragraphs 6(h) and 9 of the Service
Agreement, by virtue of the fact that the defendants no longer
obtained exclusive teleradiological services from Palmaris.
In addition, Palmaris asserts that the physicians with whom the
defendants contracted outside the Palmaris agreements included
two partners of Dr. Cyzek and Dr. Abodeely*fn2 (the doctors
who were under contract with Palmaris originally to provide
services to Belleville and Effingham). Palmaris alleges that
Belleville Imaging is indebted to it for services rendered as of
September 30, 2002, plus late fees and statutory interest. It
alleges that Effingham MRI is indebted to it for services
rendered as of December 31, 2002, plus late fees and statutory
Summary judgment is appropriate when "if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party
is entitled to a judgment as a matter of law." Fed.R.Civ.P.
56(c). The moving party has the initial burden of demonstrating
that no evidence exists to support the non-moving party's
contentions. Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986). If the moving party meets this burden, then the
non-moving party must set forth specific facts showing that there
is a genuine issue of material fact requiring a jury trial. Id. at 324. In reviewing a motion for summary judgment,
the Court must view the record and draw all inferences in the
light most favorable to the non-moving party. Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). However, "this
standard provides that the mere existence of some alleged factual
dispute between the parties will not defeat an otherwise properly
supported motion for summary judgment; the requirement is that
there be no genuine issue of material fact." Id. at 247-48
(emphasis in original); Bank Leumi Le-Israel, B.M. v. Lee,
928 F.2d 232, 236 (7th Cir. 1991) (noting that court is required
to draw "only those inferences that are reasonable").
1. Missouri Law on Breach of Contract
Missouri follows the "first to breach rule," which holds that a
party to a contract may not claim its benefit when that party was
the first to violate it. R.J.S. Sec. v. Command Sec. Servs.,
101 S.W.3d 1, 36 (Mo.Ct.App. 2003). Palmaris' failure to
provide preliminary or final reports within two hours of its
receipt of images and final reports within 24 hours arguably
constitutes a breach of its promise in paragraph 3(a) of the
agreement, and therefore, it appears that Palmaris was the first
The fact that Palmaris may have been the first to breach does
not end the analysis, because only if the breach is material,
will the breach excuse the other party's performance. Id. at
36-37. If the breach is not material, then the aggrieved party
may sue for partial breach but may not cancel the agreement.
Id. at 37. Courts analyze five factors in determining whether a
breach is material. Id. at 38-39.
(a) the extent to which the injured party will be
deprived of the benefit which he reasonably expected;
(b) the extent to which the injured party can be
adequately compensated for the part of that benefit
of which he will be deprived;
(c) the extent to which the party failing to perform
or to offer to perform will suffer forfeiture;
(d) the likelihood that the party failing to perform
or to offer to perform will cure his failure, taking
account of all the circumstances including any
(e) the extent to which the behavior of the party
failing to perform or to offer to perform comports
with standards of good faith and fair dealing.
Id. (quoting Restatement (2d) Contracts § 241 (1979)).
2. Determination of Allegations of Breach of Contract
Palmaris' breach of paragraph 3(a) meets the requirements for
materiality. The delays amounted to a material breach in that
they were sustained and significant*fn3 in that Palmaris
used the quick turn-around times as a selling point for its
services. The fact that Belleville Imaging and Effingham MRI were
attracted to Palmaris' quick turn-around times as a means to
position their own businesses more competitively. The record
reveals that David Horace's complaints about these delays to
Palmaris personnel were not addressed. Letters from Palmaris'
attorney, Harry Wellsford, dated November 22, 2002, and January
10, 2003, make no mention of any effort to remedy the clients'
complaints. Moreover, in May 2002, Belleville Imaging went so far
as to install, at its own expense, a dictation system and
separate telephone line in its office in an effort to alleviate
the slowness of Palmaris' service by eliminating a step in the
transcription process. In its defense, Palmaris' contends that
the promised turn-around times applied only to certain types of
images. But this contention must fail because paragraph 3 of the
contract makes no distinction in terms of its application
regarding either the types of images or how the images are
ordered. Palmaris also may have breached paragraph 3(b) regarding its
representations and warranties with respect to its physicians.
Drs. Cyzek and Abodeely, two of the physicians who Palmaris used
to interpret and report on images for its clients, met the first
two requirements of 3(b), but there is some question as to
whether the doctors had "goodstanding participation in Medicare
and Medicaid programs." (See Doc. 1, Pl.'s Ex. 1, ¶ 3(b); Doc. 1,
Pl.'s Ex. 3, ¶ 3(b).)
Clearly, the parties construe the meaning of this quoted
language differently. Amy Kegler, Palmaris' former vice
president, stated in her deposition that the provision required
only that Palmaris' physicians not be under any sanctions due to
past program violations and that they be qualified for program
enrollment. On the other hand, Belleville Imaging and Effingham
MRI contend that they were unable to be reimbursed by Medicare
for work performed by Drs. Cyzek and Abodeely because the doctors
were not properly licensed with the Illinois Medicare Fiscal
Intermediary. This, they say, demonstrates Palmaris' violation of
the good-standing requirement.
This issue is a question of fact, and therefore, one for a
jury. The parties are encouraged to present evidence as to
whether the doctors were enrolled as Medicare eligible providers
during the term of the agreement; whether they were licensed with
other states' Medicare fiscal intermediaries; and any other
evidence that would establish the good-standing requirement.
Given, at least, Palmaris' breach of the report-turnaround
provision in paragraph 3(a), paragraph 2(a) provided a written
notice provision once Belleville Imaging and Effingham MRI
elected to terminate their respective agreements. (See Doc. 1,
Pl.'s Ex. 1, ¶ 3(a); Doc. 1, Pl.'s Ex. 3, ¶ 3(a).) Palmaris would
have had 30 days to either cure the breach, or the clients' termination would become effective. It
does not appear from the record that Belleville Imaging and
Effingham MRI exercised their rights under paragraph 2(a).
Rather, the record reveals that the defendants arranged for the
services of Drs. Hunter and O'Brien to substitute for those
previously provided by Drs. Cyzek and Abodeely through Palmaris.
In doing so, they violated paragraph 6(h), in which they agreed
to use only Palmaris for teleradiological services. Palmaris'
business model is based on the exclusiveness of its network of
licensed radiology department physicians who provide
teleradiology services and this would, therefore, constitute a
In addition, Belleville Imaging and Effingham MRI may have
violated paragraph 9 because Drs. Hunter, O'Brien, Cyzek, and
Abodeely all belong to the same partnership. If the defendants
entered into an agreement with that partnership as a group or
entity, or if they otherwise tried to use Cyzek, Abodeely, or the
partnership's radiology physician services directly rather than
using Palmaris, then they violated paragraph 9.
Therefore, the Court finds, at a minimum, that Palmaris
breached paragraph 3(a) of the agreement, and that Belleville
Imaging and Effingham MRI, in turn, each violated paragraph 6(h).
The Court further finds that these breaches are material, and the
respective parties are entitled to summary judgment on these
claims. Accordingly, judgment is GRANTED in favor of defendants
Belleville Imaging, Inc. and Effingham Open MRI, L.L.C. and
against plaintiff Palmaris Imaging, L.L.C. on defendants' joint
motion for summary judgment as to the issue that plaintiff
breached paragraph 3(a) of the contract. Judgment is GRANTED in
favor of plaintiff Palmaris Imaging, L.L.C. and against
defendants Belleville Imaging, Inc. and Effingham Open MRI,
L.L.C. with respect to the issue that defendants each breached
paragraph 6(h) of their respective contracts.
In addition, there are additional provisions of the contract
which may have been breached by the parties, but the record is
insufficient on these claims to warrant summary judgment. The
parties are, therefore, entitled to a trial to determine these
remaining issues and the extent of damages, if any for the
IT IS SO ORDERED.