NOLA Health Solutions failed to prove injury in complex fraud case

By Charmaine Little | Feb 4, 2019

U.S. District Court Sarah S. Vance  

Because a health company didn’t properly state its fraud case and lacks standing, the U.S. District Court in the Eastern District of Louisiana dismissed its case against a hospital system.

U.S. District Judge Sarah S. Vance ruled on the case on Jan. 4.

NOLA Health Solutions sued PH Holdings LLC; New Orleans Regional Physician Hospital Organization, dba People’s Health; and Capital City Medical Group LLC. People’s Health was noted as the most-connected defendant and is a health care provider that provides members with a variety of prepaid health plans paid for by Medicare.

The lawsuit sparked after People’s Health allegedly partnered with non-party construction contractors to help People’s Health build more medical offices. The contractors it partnered with would manage and supervise construction of an anticipated Westwego medical center pro bono. The contractors were to then be provided with the right to operate two medical centers via provider agreements with People’s Health, helping People’s Health (who was said to be unable to pay for its expansions) save $2.3 million. 

The two contractors later formed NOLA Health Solutions LLC, “in apparent anticipation of formalizing the agreement to operate the medical centers,” according to court documents. The issues went deeper as NOLA Health Solutions said People’s Health presented term sheets that were different than what they initially agreed upon. Ultimately, it was the defendants who terminated the term sheet after more ups and downs in the potential partnership. After that, NOLA Health Solutions was informed in a press release that People’s Health had gone into a provider agreement with another medical facility. That’s when NOLA Health Solutions filed the lawsuit for alleged fraud in the inducement, fraud, unjust enrichment, detrimental reliance, breach of fiduciary duty, and breach of the term sheet’s good faith and exclusive negotiations provisions.

“The court finds that plaintiff does not have standing to recover for two of its alleged injuries because those injuries were suffered by [the construction contractors] before plaintiff was formed,” the court determined.

The plaintiff also failed to sufficiently claim the current court has proper diversity jurisdiction over the lawsuit. Because of that, the court decided it wouldn’t evaluate or determine the issue of merit in the defendants’ motion to dismiss. 

“But the court notes that it is questionable whether plaintiff may recover the value of the promised takeover of the medical centers under any of its tort claims,” according to the ruling.

Regarding the first two injuries that the plaintiff listed (whom the contractors worked for and gave consulting services to the defendants for free, and that they suffered out-of-pocket costs that went above the amount they were reimbursed), the court made it clear that it wasn’t NOLA Health Solutions that actually experienced the injuries. Instead, it was the actual contractors who suffered the injuries an entire year before NOLA Health Solutions was actually created. The plaintiff also didn’t have a true case as it failed to allege any expenses it incurred after it was developed in July 2016.

Because the plaintiff failed to show the court had jurisdiction, or that the plaintiff itself had standing, the court dismissed it without prejudice. The plaintiff has 21 days to change the complaint.

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