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Elder Care Providers of Indiana, Inc. v. Home Instead, Inc.

United States District Court, S.D. Indiana, Indianapolis Division

March 24, 2017

ELDER CARE PROVIDERS OF INDIANA, INC., Plaintiff,
v.
HOME INSTEAD, INC., Defendant HOME INSTEAD, INC., Counter Claimants,
v.
ANTHONY SMITH, GEORGETTE SMITH, PURPOSE HOME HEALTH, INC. f/k/a Home Again Senior Care, Inc., ELDER CARE PROVIDERS OF INDIANA, INC., Counter Defendants.

          ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT

          SARAH EVANS BARKER, JUDGE

         This matter is before us on cross motions for summary judgment filed by Elder Care Providers of Indiana, Inc., Purpose Home Health, Inc., Anthony Smith, and Georgette Smith [Dkt. No. 190] and Home Instead, Inc. [Dkt. No. 192].

         Facts [1]

         This case centers on claims for breach of a franchise agreement. Defendant Home Instead, Inc. ("Home Instead") operates a business that provides non-medical care to senior citizens through a network of more than 1, 000 independently-owned franchises. Home Instead's mission statement reflects its business focus, as follows: "To be the world's trusted non-medical source of companionship and home care for seniors." [Deposition of Tanya Morrison, Director and General Counsel for Home Instead ("Morrison Dep.") at 15.] Typical Home Instead clients are senior citizens who wish to live independently in their own homes, but who are in need of home care services to enable them to do so. According to Home Instead, "[t]he term 'home care' describes two very different types of care. One, home health care provided by licensed medical professionals, for which you need a prescription and two[] non-medical home care[], such as personal care, homemaker or companionship services provided by professional caregivers." [Deposition of John Hogan, Chief Development Officer for Home Instead ("Hogan Dep.") at 34 (quoting Dkt. No. 87-23 (Home Instead website)).]

         Elder Care

         Plaintiff Elder Care Providers of Indiana, Inc. ("Elder Care"), wholly owned by Anthony and Georgette Smith (the "Smiths"), was previously one of Home Instead's franchisees. On October 16, 2006, Elder Care entered into a franchise agreement with Home Instead pursuant to which Elder Care agreed to operate the Home Instead business within an exclusive geographical area on the east side of Indianapolis, Indiana for a period of ten years ("Franchise Agreement") and was granted a limited license to use Home Instead's trademarks. The Smiths personally guaranteed the Franchise Agreement. [Dkt. No. 1-1 (Franchise Agreement).] After opening their franchise in November 2006, the Smiths were successful in developing their business, becoming well respected by the other Indianapolis-area franchisees, and recognized by Home Instead for their success and growth. [Deposition of Jeff Sewell, another Home Instead franchise owner ("Sewell Dep.") at 20; Deposition of Michael Bunnell, another Home Instead franchise owner ("Bunnell Dep.") at 61; Hogan Dep. at 60-62; Dkt. No. 207 at 27 (At the time of termination of the Franchise Agreement, Elder Care's revenue was in the top 25-50% of all Home Instead franchisees) (citing Barney Decl.).]

         Elder Care and other Home Instead franchisees in Indiana are each licensed as a "Personal Services Agency" ("PSA") rather than as a "Home Health Agency" ("HHA"). To obtain a PSA license, a franchisee must complete an application, demonstrate that it does background checks and tuberculosis tests on employees, explain its ownership and insurance structure, and make a $250 annual payment. [Ind. Code § 16-27-4; Deposition of Chris Irons, Home Instead franchisee ("Irons Dep.") at 21-22; Deposition of Joseph Wrin, owner of Care Choices ("Wrin Dep.") at 15).] A licensed PSA does not require medical staff, and oversight by the Indiana State Department of Health is more limited as compared to an HHA. [Irons Dep. at 22; Wrin Dep. at 15; see Ind. Code § 16-27-4-6(e).]

         In contrast, an HHA is regulated by Title 405 of the Indiana Administrative Code, when reimbursed by Medicaid, and oversight by the State is much more rigorous. [Declaration of Vivien Diemer, R.N., owner of First Horizon Consulting, Inc. ("Diemer Decl.") ¶ 6; Wrin Dep. at 15.] Among other things, HHAs provide skilled nursing and home health aide services authorized by a physician's prescription or order from other medical professionals, and supervised by a registered nurse. [See 410 IAC 17-12-2; Diemer Decl., | 8; Deposition of Georgette Smith ("G. Smith Dep.") at 34-35.] An HHA license is necessary to perform skilled nursing services in the home, such as wound care (dressing, cleaning, and debriding wounds), drawing blood, injecting prescribed medications, providing medical baths, and providing periodic nursing assessments and diagnoses. [410 IAC 17-10-l(m); Diemer Decl., | 7; Deposition of Anthony Smith ("A. Smith Dep.") at 21-22.]

         The Smith Parties contend that all services provided to the patient under a doctor's plan of care, including meal preparation and light housekeeping, are considered medical because they are administered according to the physician's orders and at the direction of a registered nurse. [Diemer Decl., ¶ 8; A. Smith Dep. at 21-24, 27-28; Declaration of Anthony Smith ("A. Smith Decl.") TJ3.] Home Instead contends, however, that some services prescribed by a physician can be considered non-medical and performed within the licensure of a PSA which would not violate its Franchise Agreements.

         Home Again/Purpose

         As a PSA, Elder Care provided non-medical home care to seniors. As opposed to an HHA, Elder Care was not allowed (both by its Franchise Agreement and Indiana licensure restrictions) to provide any medical care. Elder Care was required to refer its clients in need of medical care to HHAs to have their medical needs met, resulting in a disruption of the continuity of medical and non-medical care. [See G. Smith Dep. at 33.] In November 2011, Mr. and Mrs. Smith formed Home Again Senior Care, Inc., now known as Purpose Home Health, Inc. ("Home Again" or "Purpose"), a separately-licensed HHA corporation through which medical home health care is available to clients referred to it by both Elder Care and other area Home Instead franchises.[2] Purpose provides medical-based services; it is not licensed as a PSA. [Dimer Decl. ¶¶ 5, 7, 9; A. Smith Decl. ¶¶ 5, 6.]

         Purpose and Elder Care regularly made referrals to one another. [See A. Smith Dep. at 73; Elder Care Dep. at 37-38.] In addition, Elder Care caregivers sometimes worked as Purpose home health aides, providing the greatest possible continuity of care. [A. Smith Dep. at 75.] Likewise, a number of administrative employees provided services for both Elder Care and Purpose. [Elder Care Dep. at 5-6, 33-35, 68, 78-79.] Other Home Instead franchisees in central Indiana have also developed a referral relationship with Purpose because, as stated above, Home Instead franchisees cannot provide HHA medical services. [Morrison Dep. at 91-93; 11/3/15 Deposition of Tanya Morrison ("11/3/15 Morrison Dep.") at 78-79; see also Deposition of Andrea Holt, a former Elder Care employee ("Holt Dep.") at 46-47, 49, 77, 78-79.]

         Home Instead's Investigation of the Smiths, Elder Care, and Home Again

         Not until March 2013 did Home Instead first learn of Home Again's operations, [3]which gave rise to two concerns: (1) the possible confusion caused by the use of the name "Home Again";[4] and (2) the possibility that Home Again would provide services in direct competition with Home Instead.

         The Franchise Agreement prohibits Elder Care and the Smiths from competing with Home Instead and making unauthorized use of any Home Instead licensed mark. With regard to prohibited competition, the Franchise Agreement provides as follows:

In consideration for this specialized training, Trade Secrets, --Confidential information-and rights, Franchisee' covenants that during the term of this Agreement and for a period of two (2) years following the expiration of termination of this Agreement, that neither Franchisee nor any of its officers, directors, managers or employees shall, either directly or indirectly, for themselves or through, on behalf of, or in conjunction with any other person, partnership, corporation or limited liability company:
(1) divert, or attempt to divert, any business or customer of the Franchised Business to any competitor, by direct or indirect inducement or otherwise, or to perform, directly or indirectly, any other act injurious or prejudicial to the goodwill associated with the Licensed Marks and the System;
(2) own, maintain, operate, engage in, or have any financial or beneficial interest (including any interests in any corporations, partnerships, trusts, limited liability companies, incorporated associations or joint ventures) advise, assist, or make loans to, any non-medical companionship and domestic care service business that is of a character and concept similar to
the HOME INSTEAD SENIOR CARE Business As used in this Agreement, the term "similar" means a business which looks like, copies, imitates or operates in a manner similar to a HOME INSTEAD SENIOR CARE Business, including, but not limited to, any non medical service business, find which business is, or is intended to be, located at the location of the HOME INSTEAD SENIOR CARE Business. The term non-medical companionship and domestic care service business" for purposes of this paragraph shall mean companionship and domestic care services which include, but are not limited to, companionship, light housekeeping, meal preparation, errands, incidental transportation, assistance in laundry and other activities for the benefit of the customer, *p ™1lj> f ■ reminders to take medication (both prescription and over-the-counter assistance in grooming, bathing, personal hygiene, assistance with problems such as incontinence and other personal care services as defined by Franchisor throughout the term o f this Agreement.

[Franchise Agreement at ¶ 17(C)(2) (marks in original exhibit tendered to the court).]

         The Franchise Agreement's limitations on the use of Home Instead's licensed marks is as follows:

B. LIMITATIONS, ON FRANCHISE FAS USE OF LICENSED MARKS
Franchisee agrees to use the Licensed Marks- as the sole identification of the Franchised Business, provided that Franchisee identifies himself/herself as the independent owner in the manner prescribed by Franchisor. Franchisee must not use any Licensed Mark as part of any corporate or trade name or with any prefix., suffix or other modifying words, terms, designs or symbols, or in any modified form, nor may Franchisee use any Licensed Mark in the sale of any unauthorized product or service or in any other manner not expressly authorized in writing by Franchisor. Franchisee agrees to display die Licensed Marks prominently and in the manner prescribed by Franchisor on signs and forms. Further, Franchisee agrees to give notices of trademark and service mark registrations and copyrights Franchisor specifies and to obtain fictitious or assumed name registrations as may be required under applicable law.

[Id. at 1 6(B).]

         After learning of Home Again's operations, Home Instead undertook what became a 20-month investigation into Home Again. The parties do not dispute the facts of the timeline, explicated in great detail in their summary judgment briefing. The cause for the length of time consumed by the investigation is disputed, [5] however, that dispute is immaterial to a resolution of the parties' motions for summary judgment. The Smiths and Home Instead reportedly communicated many times during the investigatory process during which Home Instead requested, and the Smiths supplied, information and documentation related to Elder Care and Home Again/Purpose. Home Instead repeatedly informed the Smiths that the Home Again name would need to be changed. [Dkt. No. 191 at 20-26.]

         On January 16, 2014, Susan Richardson (Home Instead Business Performance Manager) emailed Jisella Dolan (Home Instead's Chief Advocacy Officer), Jennifer Rozgay (Home Instead's Franchise Standards Director), and Ms. Morrison (Home Instead's General Counsel), asking: “Do we have an update for this situation? Anthony [Smith] is really wanting closure and honestly I don't blame him.” [Dkt. No. 196-50 (Dep. Ex. 265 at HI-007283).] Ms. Rozgay responded: “We have not put any constraints on him at the [sic] point with regards to his Home Again business so he can continue to run his business as he has. As soon as we have a final position on his Home Again business we will provide an update to Anthony and your team.” [Id. at HI-007282.]

         On January 31, 2014, Ms. Morrison wrote to Courtney Campbell, counsel for the Smith Parties, to communicate Home Instead's “concerns with the overlap in services” between Elder Care and Home Again/Purpose and that “even if we can work out the concerns with the services, at the very least the ‘Home Again' name is going to need to be changed.” [Dkt. No. 23-1 (Dep. Ex. 77 at HI-008283).] She further wrote that “[w]e appreciate any additional information or insight that you or your clients may have to help us resolve our concerns.” [Id.]

         The Smiths contend that throughout Home Instead's investigation they were willing to change the name of their HHA (Home Again), although Home Instead rejoins that the Smiths' willingness was conditioned on Home Instead's stipulation that Home Again did not compete with Home Instead, a concession that Home Instead was unwilling to make. [Id.; see Email from Campbell to Morrison dated May 21, 2014).]

         Home Instead Termination of the Smiths' Franchise Agreement

         Home Instead ultimately concluded that the operation of Home Again constituted a breach of the Franchise Agreement's competitive restrictions as well as an infringement on Home Instead's trademark and, thus, terminated the agreement between it and Elder Care. On November 7, 2014, Home Instead sent the following Termination Notice to the Smiths:

The following material defaults in performance have occurred under the Franchise Agreement:
1. Guarantors, who are also Principals of Franchisee, own, maintain, and are operating a separate business called Home Again Senior Care Inc. in Indianapolis, Indiana, which provides Approved Services. By engaging in this unfair competition, Franchisee and Guarantors are in violation of the in-term non-competition and nondisclosure covenants contained in the Franchise Agreement, See Sections 7(B), 7(C), and 17(C) of the Franchise Agreement.
2. By diverting business or clients to Home Again Senior Care Inc., Franchisee and Guarantors are in violation of the in-term noncompetition and non-disclosure covenants contained in the Franchise Agreement. See Sections 7(B), 7(C), and 17(C) of the Franchise Agreement.
3. By using the name Home Again Senior Care Inc., which is confusingly similar to and constitutes a modification of one or more of Home In stead's Licensed Marks, Guarantors are in violation of Sections 6(A), 6(B), and 8(C) of the Franchise Agreement.
The defaults listed above constitute material breaches of the Franchise Agreement giving rise to termination pursuant to the provisions of Section 16 of the Franchise Agreement. Specifically, the default listed above in paragraph 3 constitutes a material breach of the Franchise Agreement and grounds to terminate the Franchise Agreement, effective upon notice to Franchisee, without granting Franchisee an opportunity to cure the defaults, pursuant to Section 16(B) of the Franchise Agreement, which states:
Franchisee is deemed to be in material default of this Franchise Agreement and [Home Instead] may, at its option, terminate this Agreement and all rights granted without granting Franchisee any opportunity to cure the default, effective immediately upon notice to Franchisee, upon the occurrence of any of the following events;
(7) If Franchisee makes any unauthorized use of the Licensed Marks [.]
Further, the material defaults set forth in paragraphs 1 and 2 above constitute good cause to terminate the Franchise Agreement by providing Franchisee with thirty (30) days written notice of the termination, with an opportunity to cure. However, because the defaults listed in paragraphs 1 and 2 are by their nature incurable and because Guarantors have engaged in the activity described in paragraph 3, the Franchise Agreement is subject to immediate termination effective upon notice to Franchisee.
The Franchise Agreement provides that notice is deemed given "three (3) business days after placed in the United States Mail by Registered or Certified mail, Return Receipt Requested, postage prepaid." Therefore, please note that the Franchise Agreement and all Franchisee's rights under the Franchise Agreement shall terminate, without further notice, effective three (3] days from the date of this Notice, for the material breaches of the Franchise Agreement described above.
Upon termination of the Franchise Agreement, all post-termination provisions of the Franchise Agreement that survive termination shall remain in full force and effect, Please feel free to contact me with any questions. Thank you for your time and attention to this matter.

[Dkt. No. 1-3 (“Notice of Termination”) (emphasis in original).] At the time the Termination Notice was sent to the Smiths, Home Instead's General Counsel notified the Smiths' attorney that Home Instead would delay enforcement of its termination if the Smith Parties agreed that (1) Home Again would pay royalties to Home Instead for revenues generated since 2011; (2) Home Again would be consolidated with Elder Care to become a Home Instead franchise; and (3) the Smiths would amend their franchise agreement to transform their business into a medical franchise, and then have 180 days to sell their businesses or face permanent wind-down. The Smiths did not agree to these terms and the franchise was thus terminated.

         Elder Care continued to operate as a Home Instead franchise until January 31, 2015, which allowed time for Elder Care to wind down its business. According to Elder Care, it stopped operating as a Home Instead franchise and ceased using any of Home Instead's trademarks during the first week of February 2015.

         On May 26, 2015, counsel for the Smith Parties informed Home Instead that Elder Care had executed a Letter of Intent to undertake a complete transfer of Elder Care's clients to a neighboring Home Instead franchisee, Care Choices. The Transfer Agreement, executed on July 15, 2015, transferred Elder Care's patients to Care Choices for $500, 000 ($30, 000 down payment within 3 months and 36 monthly payments thereafter).[6] Home Instead raised various concerns about the legality of the Transfer Agreement in its briefing; however, Home Instead has to our knowledge never sought to unwind the Transfer Agreement. [See Dkt. No. 154 at 3 (“Home Instead, Inc. is not asking the Court to unwind the Transfer Agreement at this point in time.”).] After transferring its clients to Care Choices, Elder Care ceased all business operations.

         On January 2, 2015, the Smiths filed a request for trademark registration of “Purpose Home Health” with the United States Patent and Trademark Office. Home Again's tradename was changed to Purpose Home Health on April 1, 2015. As of August 26, 2015 Home Again Senior Care Inc.'s legal business entity name became Purpose Home Health, Inc. [Dkt. No. 157-1.]

         Alleging that Home Instead's termination constituted a breach of the Franchise Agreement and violated the Indiana Deceptive Franchise Practices Act, Elder Care filed the current lawsuit on November 8, 2014. On January 15, 2015, Home Instead filed a counterclaim against Elder Care, Mr. and Mrs. Smith, and Home Again (collectively referred to as the “Smith Parties”) for breach of contract, civil conspiracy, misappropriation of trade secrets, unfair competition, and trademark infringement. Home Instead requested a preliminary injunction on February 17, 2015 and an evidentiary hearing was held on September 10, 2015. We granted in part the Motion for Preliminary Injunction in an order issued on September 14, 2015, which was subsequently clarified on December 10, 2015. The parties then filed their Motions for Partial Summary Judgment on November 25, 2015.

         Standard of Review

         Summary judgment is appropriate when the record before the Court establishes 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); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Disputes concerning material facts are genuine where the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In deciding whether genuine issues of material fact exist, the Court construes all facts in a light most favorable to the non-moving party and draws all reasonable inferences in favor of the non-moving party. Id. at 255. When, as in this case, the parties have filed cross-motions for summary judgment, “‘we construe the evidence and all reasonable inferences in favor of the party against whom the motion under consideration is made.'” Cavin v. Home Loan Center, Inc., 531 F.3d 526, 528-29 (7th Cir. 2008) (quoting Premcor USA v. Am. Home Assurance Co., 400 F.3d 523, 526 (7th Cir. 2005)). However, neither the “mere existence of some alleged factual dispute between the parties, ” nor the existence of “some metaphysical doubt as to the material facts, ” will defeat a motion for summary judgment. Michas v. Health Cost Controls of Ill., Inc., 209 F.3d 687, 692 (7th Cir. 2000) (internal citations omitted).

         The moving party “bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.” Celotex, 477 U.S. at 323. The party seeking summary judgment on a claim on which the non-moving party bears the burden of proof at trial may discharge its burden by showing an absence of evidence to support the non-moving party's case. Id. at 325; Doe v. R.R. Donnelley & Sons, Co., 42 F.3d 439, 443 (7th Cir. 1994). Summary judgment is not a substitute for a trial on the merits, nor is it a vehicle for resolving factual disputes. Waldridge v. Am. Hoechst Corp., 24 F.3d 918, 920 (7th Cir. 1994). But, if it is clear that a plaintiff will be unable to satisfy the legal requirements necessary to establish his or her case, summary judgment is not only appropriate, but mandated. Celotex, 477 U.S. at 322; Ziliak v. AstraZeneca LP, 324 F.3d 518, 520 (7th Cir. 2003).

         Courts are often confronted with cross-motions for summary judgment, as is the case here, because Rules 56(a) and (b) of the Federal Rules of Civil Procedure allow both plaintiffs and defendants to move for such relief. “‘In such situations, courts must consider each party's motion individually to determine if that party has satisfied the summary judgment standard.'” Midwest Title Loans, Inc. v. Ripley, 616 F.Supp.2d 897, 902 (S.D. Ind. 2009) (quoting Kohl v. Ass'n. of Trial Lawyers of Am., 183 F.R.D. 475 (D.Md.1998)). “When evaluating each side's motion the court simply ‘construe[s] all inferences in favor of the party against whom the motion under consideration is made.'” Morgan v. Fennimore, Cause No. 1:09-cv-399-SEB-TAB, 2010 WL 5057418, at *1 (S.D. Ind. Dec. 3, 2010) (quoting Metro. Life Ins. Co. v. Johnson, 297 F.3d 558, 561-62 (7th Cir. 2002) (quoting Hendricks-Robinson v. Excel Corp., 154 F.3d 685, 692 (7th Cir.1998))).

         Analysis

         The parties' claims against each other stem largely from Home Instead's termination of the Franchise Agreement with Elder Care and the Smiths. According to the Notice of Termination, the Smith Parties materially breached the Franchise Agreement in three ways: (1) the Smiths engaged in unfair competition through their ownership and operation of Home Again, which violated the non-competition and non-disclosure covenants contained in §§ 7(B), 7(C), and 17(C) of the Franchise Agreement; (2) the Smith Parties diverted business/clients from Home Instead and Elder Care to Home Again, violating the same non-competition and non-disclosure covenants; and (3) the Smith Parties' use of the name “Home Again Senior Care Inc.”, which was confusingly similar to and constituted a modification of Home Instead's trademark, violated §§ 6(A), 6(B), and 8(C) of the Franchise Agreement.

         In response to the Termination Notice, the Smiths filed a four-count Complaint (subsequently twice amended; the operative complaint is now the Second Amended Complaint (“SAC”)). The Smiths seek a declaratory judgment as follows: that Home Instead did not provide proper notice of termination as required by the Franchise Agreement, that Elder Care is not in violation of the non-competition and non-disclosure covenants, and that Home Instead's termination of the Franchise agreement is of no legal effect. [SAC ¶ 53.] The Smith Parties also seek a declaration that their Transfer Agreement with Care Choices is valid and enforceable and the transfer of its clients from Elder Care to Care Choices does not constitute a misappropriation of trade secrets and does not otherwise violate the law. [Id. ¶ 87.] The Smith Parties allege that Home Instead's termination of the Franchise Agreement was a breach of contract [Count II] and that Home Instead violated the Indiana Deceptive Franchise Practices Act by terminating the Franchise Agreement in bad faith [Count III].

         Home Instead filed an eight-count counterclaim in response to the Smiths' Complaint, alleging that the Smiths/Elder Care breached the Franchise Agreement (for the reasons stated in the Notice of Termination, as well as post-termination violations) [Counts II, VII], that the Smiths/Elder Care breached the covenant of good faith and fair dealing [Count III], and that the Smith Parties engaged in a civil conspiracy [Count IV], misappropriated trade secrets [Count V], and engaged in unfair competition [Count VI].

         I. Claims Based on the Franchise Agreement

         A. Home Instead's Termination of the Franchise Agreement

         The parties disagree as to whether Home Instead properly terminated the Franchise Agreement, focusing on Home Instead's termination of the agreement without providing notice and an opportunity cure the alleged defaults. [SAC, Counts I and II; Counterclaims, Counts I (Elder Care) and I (Smiths).] Home Instead defends its termination of the agreement based on the Smiths' unfair competition and trademark infringement (through their ...


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