Commerce Funding v. Comprehensive Habilitation Services

Full title: COMMERCE FUNDING CORPORATION, Plaintiff, v. COMPREHENSIVE HABILITATION…

Court: United States District Court, S.D. New York

Date published: Feb 24, 2005

No. 01 Civ. 3796 (PKL) (S.D.N.Y. Feb. 24, 2005)

Opinion

No. 01 Civ. 3796 (PKL).

February 24, 2005

HARRIS BEACH LLP, John W. Clarke, Esq., Dean M. Monti, Esq., New York, New York.

ARENT FOX KINTNER PLOTKIN KAHN, PLLC, Jeffrey R. Ruggiero, Esq., New York, New York, Attorneys for Defendant/Cross-Claimant Comprehensive Habilitation Services, Inc.

GARFUNKEL, WILD TRAVIS, PC, Roy W. Breitenbach, Esq., Great Neck, New York, Attorneys for Defendant/Cross-Claim Defendant Saint Francis Hospital.

OPINION AND ORDER

PETER LEISURE, District Judge

This action, originally brought by plaintiff, Commerce Funding Corporation, regarding an alleged breach of a factoring agreement, has been trimmed down by settlements and arbitration, such that only the cross-claims asserted by defendant Comprehensive Habilitation Services ("CHS") against defendants St. Francis Hospital ("St. Francis" or "the Hospital") and Staten Island University Hospital ("Staten Island") remain unresolved. From September 13, 2004 through September 15, 2004, this Court conducted a bench trial as to CHS's breach of contract claim against St. Francis.¹ Having considered the parties' post-trial submissions and the evidence presented at trial, the Court sets forth herein its findings of fact and conclusions of law, pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.

1 CHS's breach of contract claim against Staten Island will be tried before a jury on a yet to be determined date.

Findings of Fact ²

2 The Court bases its findings of fact on: the testimony at the three-day bench trial ("Tr."); the 45 exhibits admitted into evidence during the bench trial ("CHS's Ex." and "Def.'s Ex."); and, to the extent appropriate, this Court's in limine Memorandum and Opinion, issued on September 2, 2004, Commerce Funding Corp. v. Comprehensive Habilitation Servs., No. 01 Civ. 3796, 2004 U.S. Dist. LEXIS 17791 (S.D.N.Y. Sept. 2, 2004) (Leisure, J.).

I. Introduction

The present dispute stems from a services agreement between the parties, entered into on May 25, 1995 (the "Contract"). In this agreement, CHS was to provide medical and administrative services at St. Francis' part-time clinics in and around the Poughkeepsie, New York area. CHS was to be compensated for this service at the rate of $45 or $50 per billable patient contact, depending on the type of care.³ Following payment difficulties and an ongoing investigation by the New York State Attorney General's Medicare Fraud Control Unit ("MFCU" or "Attorney General") into the parties' relationship and operation of Article 28 clinics, the parties entered into a Memorandum of Understanding ("MOU") which terminated the Contract. CHS was to provide interim services until St. Francis could replace CHS's services with other providers or sell off its part-time clinics to another medical services company. CHS was to be compensated for these interim services at the normal rate. St. Francis was allowed to hold two invoices back as a security in case the MFCU investigation required St. Francis to make immediate payments. In the spring of 2000, CHS and St. Francis exchanged correspondence regarding St. Francis' failure to satisfy its payment obligation to CHS. In the fall of 2000, St. Francis informed CHS that it was formally suspending payment because the Attorney General had recently issued subpoenas to St. Francis' staff and members of its Board of Trustees, requiring they testify before a grand jury. Thereafter, on June 20, 2001, CHS instituted this cross-claim to recoup some $212,555 it claims is due and owing, plus prejudgment interest. St. Francis entered into a settlement agreement with the Attorney General on February 1, 2002, requiring St. Francis to pay $1,000,000 over 676 weeks and donate $500,000 in charitable services over seven years. This Court issued an in limine ruling on September 2, 2004, preliminarily finding that all communications and documents prior to the MOU were irrelevant to the instant matter because the MOU terminated the Contract.

3 There is also a dispute as to whether CHS was properly granted a $5 rate increase during the parties' relationship. The dispute is discussed in further detail below. See infra, Part III.B.

II. The Parties

During all relevant times, CHS was a Delaware corporation with its principle place of business located in New York, New York. (CHS's Ex. 1, ¶ 1.) CHS provided consultation and administrative services to health providers, providing services such as occupational therapy, physical therapy, and social work in part-time clinics⁴ for the mentally retarded and developmentally disabled ("MR/DD Services"). (Tr. 18-19.) CHS was headed by Dr. Peter A. Magaro, who founded the company in 1993. (Id.)

4 "Part-time clinics" offer outpatient health care for a set number of hours per week and are governed by Article 28 of the New York State Public Health Law. (Tr. 20, 182; Defendant/cross-claimant cross-claimant CHS's Proposed Findings of Fact and Conclusions of Law ("CHS's Proposals"), at 1, ¶ 3; Defendant St. Francis' Proposed Findings of Fact and Conclusions of Law ("Def.'s Proposals"), ¶ 3.)

During all relevant times, defendant St. Francis was a not-for-profit hospital in Poughkeepsie, New York, that provided a full range of health care services. (Def.'s Proposals, ¶¶ 1-3.) St. Francis has three different areas of operation. The primary division is a 300-bed acute-care hospital in Poughkeepsie focused on orthopedics, trauma, rehabilitation, behavioral medicine, and other general medical services. (Tr. 320.) The second division is in Beacon, New York, where St. Francis operates a 100-bed facility specializing in substance abuse and detoxification. (Id.) Finally, St. Francis operates many outpatient services throughout the Hudson Valley region of New York State. (Id.) As part of its outpatient services, St. Francis owned and operated part-time clinics located offsite, providing services to patients in Dutchess County and the surrounding areas for a fixed number of hours per week. (Tr. 182-83.) Prior to 1994, St. Francis only provided speech therapy and audiology services in these clinics. (Tr. 183-84.)

At some point prior to May 25, 1995, the parties determined it would be advantageous to enter into a relationship, with CHS providing St. Francis' part-time clinics with speech therapy, audiology, physical therapy, occupational therapy, social work, psychology, and nutrition services. (Tr. 185-86.) To further that end, the parties entered into the Contract outlined in the ensuing section.

III. The Contract

On May 25, 1995, the parties entered into a six-year services contract wherein CHS agreed to provide MR/DD services to St. Francis' part-time clinics. (CHS's Ex. 1, ¶ 2.) Specifically, CHS was to assist St. Francis in "defining, developing, providing and marketing MR/DD Services throughout the Hospital's service area." (Id. ¶ 3.) CHS exclusively was to provide administrative services to St. Francis' clinics and not to service any other clinics operating in Dutchess County of New York state. (Id. ¶ 4.) The services were only to be provided "upon obtaining all Federal, State and local approvals." (Id. ¶ 5.) CHS was to "ensure compliance with all applicable laws, rules and regulations pertaining to the operation of the Clinics." (Id. ¶ 6.) CHS was to care for and maintain all records but the records remained the exclusive property of St. Francis. (Id. ¶ 8.) St. Francis was responsible for obtaining "all permits, certifications and approvals" for the clinics and was "responsible for compliance of such Clinics with all applicable Federal, State and local laws, rules and regulations." (Id. ¶ 9(a).) CHS was to be compensated at a rate of $45 per billable patient contact, with payments to be made "within 45 days of the date of the invoicing for the first two monthly billing cycles and thereafter within 90 days of the date of such invoicing." (Id. ¶ 10.) Finally, the Contract states it is the entire understanding between the parties, may only be modified by writing, and is to be interpreted pursuant to the laws of New York. (Id. ¶ 15.)

A. Addendum

On September 14, 1995, the parties entered into an addendum to the Contract wherein CHS was to be compensated $50 per billable patient contact for services to adult group homes. (CHS's Ex. 1A.) This rate change was effective August 1, 1995 and was to be renegotiated three months hence. (Id.) However, the rate was never renegotiated and both parties agree it was still in effect throughout CHS's provision of services to St. Francis. (CHS's Proposals, at 2, ¶ 8; Defendant St. Francis' Objections to CHS's Proposals ("Def.'s Objections"), at 2, ¶ 8.)

B. Additional Rate Increase

Sometime while the Contract was in effect, CHS requested and received a $5 rate increase, from $45 to $50 per billable patient contact, for all other services that CHS provided to St. Francis in the part-time clinics.⁵ (Tr. 236; see Tr. 71.) Dr. Attanasio granted the rate increase on behalf of St. Francis. (Tr. 236.) Dr. Attanasio was St. Francis' Director of Communications Disorders at this time, directly reporting to St. Francis' Chief Financial Officer ("CFO"), Marian Muise, until he was replaced by Laurie Cohn. (Tr. 183-84, 258, 283.) During his tenure as Director of Communications Disorders, Dr. Attanasio supervised CHS's administration of the part-time clinics. (Tr. 183-84, 243, 258.) Dr. Attanasio was also employed by CHS at this time, though the record does not reveal in what capacity. (Tr. 237; CHS's Brief in Opposition to Defendant's Proposals ("CHS's Objections"), at 6.)

5 The record is unclear as to when this rate increase was granted. At trial, counsel for St. Francis, Roy W. Breitenbach, Esq., intimated that the rate increase was granted by Dr. Fred Attanasio in 1998, but his question moments later asserted that St. Francis attempted to terminate its relationship with CHS due to this rate increase dispute in 1997. (Tr. 71-72.)

C. Performance of the Contract

After the commencement of the Contract, CHS provided services to St. Francis and issued invoices to St. Francis for payment. Due to cash flow problems, St. Francis did not consistently make timely payments on the invoices. (Tr. 188-89.) St. Francis had also complained to CHS regarding quality assurance in the part-time clinics. (Tr. 80.) Ultimately, St. Francis stopped payment, failing to satisfy invoices Nos. 136-148, which memorialized CHS's provision of services from July 20, 1998 to January 17, 1999. (CHS's Proposals, at 2, ¶ 13.) In total, St. Francis owed CHS $908,805 as of February 14, 1999. (CHS's Ex. 2, at Ex. B.)

IV. Memorandum of Understanding

A. New York State Attorney General's Medicaid Fraud Control Unit Investigation

Sometime around 1996, the MFCU began a statewide investigation into the billing practices and whether it was necessary that the state continue to fund part-time clinics operating pursuant to Article 28 of the New York State Public Health Law. (Tr. 54-55.) CHS was not directly investigated by the MFCU, nor was it charged with any civil or criminal misconduct. (Tr. 55.) CHS maintained to St. Francis that the MFCU investigation would not find fault in CHS's operation of the part-time clinics. (Tr. 134.) However, CHS did assist St. Francis while St. Francis was being investigated. CHS compiled the part-time clinics' records and provided them to the MFCU. (Tr. 201.) CHS also attended two joint meetings with St. Francis and the MFCU. (Tr. 141, 197-200.) The discussion focused on the length of therapy sessions and the medical necessity of clinic services. (Tr. 141-43, 198-200, 293.) At some point during the investigation, the parties entered into a joint defense agreement but St. Francis terminated the agreement. (Tr. 95, 201-02.) The last communication between the parties regarding the MFCU investigation was by letter from Donald F. Murphy, Chief Executive Officer ("CEO") of St. Francis, to Magaro, on September 22, 2000. (See Def.'s Ex. UU; Tr. 57-58, 338.)

The Attorney General and St. Francis entered into a settlement agreement on February 1, 2002 stating that:

(a) the Clinics were neither authorized under, nor operated in accordance with, applicable New York State laws, rules and regulations; (b) [St. Francis] submitted improper claims for payment to Medicaid during the Service Period relating to the Clinics; and (c) [CHS's] relationship with [St. Francis] violated applicable New York State laws, rules and regulations. (Def.'s Ex. WW, 2d Agreement, at 1.) St. Francis expressly denied the allegations of the Attorney General's Office, asserting that St. Francis' "Clinics, the claims for payment it submitted to Medicaid during the Service Period relating to the Clinics, and its relationship with CHS were, in all respects, proper under applicable New York State laws, rules and regulations." (Id. at 2.) However, "in order to avoid the uncertainties, burdens and expenses of litigation," St. Francis agreed to pay a $1,000,000 settlement. (Id. at 2-3; accord Tr. 337-38.) Under the terms of the settlement, the State Department of Health would withhold $1,479.29 per week for 676 weeks from future Medicaid checks payable to St. Francis. (Id. at 3.) In addition to the $1,000,000, St. Francis was also to provide $500,000 in charitable services, to be provided in installments of at least $71,428.58 net per year until the $500,000 goal was reached. (Id., 1st Agreement, at 2.) As stated above, at this time St. Francis and CHS had ceased communications regarding the MFCU investigation; therefore, St. Francis did not consult or apprise CHS of St. Francis' settlement with the MFCU. (Tr. 57-58, 338.)

B. Memorandum of Understanding

On February 19, 1999, after the Attorney General's Office had commenced its investigation into the parties' performance under the Contract, but before St. Francis reached a settlement with the Attorney General's Office, CHS and St. Francis agreed to a Memorandum of Understanding. (CHS's Ex. 2.) In the MOU, the parties agreed to, inter alia, the following terms:

(1) The Contract is terminated, and the parties shall have no further obligations under the Contract, except as expressly outlined herein.

(2) Payment and Holdback. . . . the Hospital shall pay certain invoices received by it from CHS for services rendered in connection with the Contract on the following schedule: $510,115 on or before February 26, 1999. Invoices 149 and 150 will be withheld as a holdback, and all other outstanding invoices will be paid in accordance with the Hospital's 90-day cycle.

. . . .

(4) Continuity of Services. CHS agrees . . . that CHS will continue to provide and coordinate continuity of therapy services until (i) sufficient CHS therapists agree to become employed by the Hospital or (ii) the Hospital shall engage replacement services by other therapists no later than March 30, 1999. During this transition period CHS shall bill the Hospital in the ordinary course of business at the current rates.

. . . .

(7) Disputes arising during performance of Contract. CHS and Magaro acknowledge that this MOU does not diminish, impair or release either party from any claim that may be raised by that party concerning its conduct, as such conduct relates directly or indirectly to the performance of the Contract, Hospital and the services rendered.

. . . .

(10) Holdback of Monies — Attorney General — Department of Health Investigation. CHS, and the Hospital acknowledge that there is an ongoing inquiry concerning the parties' performance under the Contract, and related issues, and that Magaro CHS and Hospital will arrange to meet with Attorney General personnel as soon as possible, and, thereafter, will cooperate in good faith to reach agreement. To the extent that a long term payment plan is offered, the parties hereto shall cooperate in good faith to quantify the liability and reach a suitable repayment agreement. In the event there is an immediate repayment required [by the Attorney General's Office], any outstanding invoices would be used as part of such a repayment plan.

(CHS's Ex. 2, at ¶¶ 1, 2, 4, 7, 10.)

Attached as Exhibit B to the MOU is a full accounting of monies St. Francis owed CHS at the time of signing the MOU. It covered invoice Nos. 136-48, totaling $908,805, and estimated invoice Nos. 149 and 150, totaling $120,000. (Id. at Ex. B.) Invoice Nos. 136-48 were to be paid by a lump sum of $510,115 on or before February 26, 1999, followed by payments in accordance with the parties' 90-day payment cycle. (Id. at ¶ 2.) Payment on invoice Nos. 149 and 150 was to be held back by St. Francis as security in case St. Francis was required to make immediate repayment to the Attorney General due to the MFCU investigation. (Id. at ¶¶ 2, 10.)

1. Performance of the MOU

After the parties signed the MOU, CHS continued to provide services and submit invoices to St. Francis, Nos. 151-55. (Tr. 39, 93.) St. Francis received the services provided by CHS (Tr. 39-41), but failed to make timely payments (Tr. 260-63). St. Francis ultimately paid invoice Nos. 136-148 in full, though payment of No. 146 in particular was untimely — the first payment being almost one year late (Def.'s Ex. OO). Invoice Nos. 149 and 150 were partially paid, but the invoiced transitional services were not paid at all. (Tr. 34-38, 41.) The invoices and payments for invoice Nos. 149-55 are summarized as follows:

• No. 149 — issued February 9, 1999 for services rendered from January 18 through 31, 1999 in the amount of $68,700. St. Francis made payment by two checks: (1) $32,000 on September 7, 1999; (2) $32,365 on November 11, 1999.

• No. 150 — Issued February 24, 1999 for services rendered from February 1 through 14, 1999 in the amount of $61,700. St. Francis made one payment of $23,000 on June 9, 2000.

• No. 151 — Issued March 8, 1999 for services rendered from February 15 through 28, 1999 in the amount of $72,400. St. Francis made no payment.

• No. 152 — Issued March 22, 1999 for services rendered from March 1 through 14, 1999 in the amount of $69,150. St. Francis made no payment.

• No. 153 — Issued April 6, 1999 for services rendered from March 15 through 28, 1999 in the amount of $18,600. St. Francis made no payment.

• No. 154 — Issued April 19, 1999 for services rendered from March 29 through April 11, 1999 in the amount of $12,200. St. Francis made no payment.

• No. 155 — Issued May 3, 1999 for services rendered from April 12 through 25, 1999 in the amount of $1,000. St. Francis made no payment.

(Def.'s Proposals, ¶¶ 33-39; CHS's Exs. 3A-3F.) At some point in 1999, St. Francis took the position that it was allowed to hold back all of the invoices as a security against the MFCU investigation. (See Tr. 100-01, 166, 230.) However, St. Francis did make three payments in 2000: (1) $20,000 on February 10, 2000 on invoice No. 146 (CHS's Ex. 6); (2) $18,621.10 on April 13, 2000 on invoice No. 146 (Id.); and, 3) $23,000 on June 9, 2000 on invoice No. 150 (CHS's Ex. 3B).

2. Correspondence Between the Parties While Performing Under the MOU

Due to lack of payment, the parties communicated via several letters while performing pursuant to the MOU. On June 24, 1999, Magaro wrote to Muise, regarding the unpaid invoices. (Def.'s Ex. II.) In this letter, Magaro stated that the spirit of the MOU allowed St. Francis to hold back two full invoices but that all other unpaid invoices should be paid. (Id.) In that vein, Magaro proposed that St. Francis hold back invoice numbers 151 and 152 but pay the balance on invoice Nos. 146, 149, 150, 153, 154, and 155 as due. (Id.) St. Francis did not accept this proposal. (Tr. 229.)

On January 5, 2000, Magaro again wrote to Muise regarding the unpaid invoices. (CHS's Ex. 4.) Apparently, Muise and St. Francis agreed to pay all invoices under the Contract but St. Francis was still withholding payment on all other invoices, Nos. 149-55. (Id.) Magaro proposed "that you [St. Francis] pay us the total amount over a year starting January, 2000." (Id.) Recognizing that this arrangement would not allow St. Francis to hold back any invoices pending the outcome of the Attorney General's investigation, Magaro justified his proposal, stating, "considering how long we have not been paid and the lack of interest of the AG in our records, I do not believe a further hold on our payments is equitable." (Id.) Instead, Magaro proposed that St. Francis pay $23,044.26 per month for one year, plus 10% interest. (Id.)

In Muise's return letter on February 11, 2000, she corrected Magaro's estimation of the total due to $251,626.⁶ (CHS's Ex. 5.) Muise also stated that she agreed,

6 Magaro had estimated $276,531.10 based on the disputed $50 rate increase discussed above. See supra, Part III.B.

to making the $23,000 per month payments with check points quarterly as to the status of the Attorney General audit. This will leave the Hospital the opportunity to use this accounts payable as a form of payment for any obligations that might be found against Saint Francis CHS from such audit.

(Id.) St. Francis claims the three payments it made in 2000 constituted performance on this allegedly modified contract. In seeming contradiction to this position, Muise stated at trial that she believed that ¶ 10 of the MOU allowed St. Francis to institute quarterly check points. (Tr. 272.) Magaro claims he never accepted St. Francis' proposal for quarterly check points, instead stating that the correspondence constituted a "constant revising of proposals and never getting an agreement on a proposal." (Tr. 58-59, 103.)

After the payments ceased, CHS's Director of Finance, Greg Walton, wrote to St. Francis' new CFO, Connie Defrees, on August 26, 2000 regarding the delinquent invoice payments. (Def.'s Ex. SS.) In this letter, Walton expressed frustration at the lack of payment, stating, "[t]he balance owed at 2/11/00, acknowledged by your letter dated the same date, was $251,578.12 [ sic]. In your letter, you promised $23,000 per month. You have made three payments since February ($20,000, $18,621, and $23,000), which leaves a balance of $189,957. Thus, you are $76,378 behind on your commitment." (Id.)

On August 30, 2000, Magaro wrote to St. Francis' CEO, Donald Murphy, to request payment. (Def.'s Ex. TT.) In that letter, Magaro stated, "[CHS] agreed to grant you a payment plan and reduced the final amount to $251,276 [ sic], which was to be paid at $23,000 a month until the total was paid," and referenced Muise's February 11, 2000 letter to Magaro. (Id.; see CHS's Ex. 5.) Magaro closed the letter by asking for a total of $373,000 allegedly due on the invoices to be paid by September 30, 2000 because St. Francis failed to "follow the contract payment schedule." (Def.'s Ex. TT.)

The last communication between the parties, excepting the instant litigation, was Murphy's response to Magaro on September 22, 2000. (Def.'s Ex. UU.) In that letter, Murphy informed Magaro that, as stated in Muise's February 11, 2000 letter, "the agreed upon payment schedule was subject to check points as to the status of the Attorney General investigations leaving the Hospital the opportunity to use the accounts payable as a form of payment for any obligations that might be found against Saint Francis from such investigation." (Id.) Murphy then stated that many of his hospital's staff and Board of Trustees members were recently subpoenaed to testify before a grand jury regarding the MFCU's investigation. (Id.) He closed the letter, advising Magaro that, "[a]s this is literally occurring this month, we must suspend payments to CHS and will revisit this upon the conclusion of this activity." (Id.) There is no evidence that the payments were revisited, nor that St. Francis advised CHS of the "conclusion of this activity."

Conclusions of Law

This case originally involved several claims and cross-claims arising out of factoring fee agreements between the original plaintiff, Commerce Funding Corp. ("CFC"), and the original defendants, CHS, Better Medical Services, and the obligors of CHS, six hospitals (Sisters of Charity Health Care System Corp., Barnert Hospital, Saint Vincent's Hospital and Medical Center, Staten Island University Hospital, Saint Francis Hospital, Sisters of Charity Hospital). All of the action has been resolved through settlement and arbitration but for two cross-claims, a breach of contract claim brought by defendant/cross-claimant CHS against defendant St. Francis, and a breach of contract claim brought by CHS against defendant Staten Island Hospital. CHS's action against Staten Island will be determined by a jury trial, yet to be scheduled. CHS's claims against St. Francis were heard by this Court during a bench trial beginning September 13, 2004 and ending September 15, 2004. These findings of fact and conclusions of law are issued following this bench trial, pursuant to Federal Rule of Civil Procedure 52(a). Defendant/cross-claimant has the burden of proving its claims by a preponderance of the evidence.

This Court has subject matter jurisdiction to hear CHS's cross-claim against St. Francis, though the parties are non-diverse. The Court had diversity jurisdiction over the original action by CFC against, inter alia, defendants CHS and St. Francis, pursuant to 28 U.S.C. § 1332(a), diversity of citizenship. See Maryland Casualty Co. v. W.R. Grace Co., 23 F.3d 617, 622 (2d Cir. 1994) ("The relevant focus for determining diversity is the parties' citizenship when the suit is commenced.") (citing Anderson v. Watt, 138 U.S. 694, 702-03 (1891)). The Court now has supplemental jurisdiction pursuant to 28 U.S.C. § 1367(a). See Rosenman Colin v. Rubin, 752 F. Supp. 178, 180 (S.D.N.Y. 1990) (Cederbaum, J.) ("[A]ncilary jurisdiction allows a district court once it has acquired jurisdiction over a case or controversy to decide matters incident to the main claim which otherwise could not be asserted independently.") (citing Federman v. Empire Fire Marine Ins. Co., 597 F.2d 798, 810 (2d Cir. 1979)); see also Parris v. St. Johnsburry Trucking Co., 395 F.2d 543, 544 (2d Cir. 1968).

1. CHS's Breach of Contract Claim

This contract dispute is governed pursuant to New York state law. (See CHS's Ex. 2, ¶ 11.) Non-performance of a contractual duty constitutes a breach of contract. Restatement (Second) of Contracts § 235 (1981). The elements a complainant must show by a preponderance of the evidence pursuant to a breach of contract claim in New York are: (1) the existence of a contract; (2) the litigant's performance; (3) breach by the defendant; and, (4) damages. First Investors Corp. v. Liberty Mut. Ins. Co., 152 F.3d 162, 168 (2d Cir. 1998); Harsco Corp. v. Segui, 91 F.3d 337, 348 (2d Cir. 1996).

A. The Parties' Positions

Though the parties' theory of the case necessarily adjusted to conform to the facts unveiled over the long course of this litigation, below is the Court's understanding of the parties' positions based on the bench trial and the parties' post-trial submissions.

St. Francis concedes that a contract existed (the MOU) governing the parties relationship, at least until February 11, 2000. (Def.'s Proposals, ¶ 58.) At that point, however, St. Francis contends that that "the parties agreed, through CHS's implied consent to the February 11, 2000 counterproposal [(CHS's Ex. 5)], to modify the payment terms of the MOU" in accordance with the terms of that February 11, 2000 letter. (Def.'s Proposals, ¶¶ 61-62.) St. Francis also asserts that it properly suspended payment on September 22, 2000, because the MFCU investigation had then culminated in grand jury subpoenas for St. Francis' staff and members of its Board of Trustees. (Id. ¶ 63.) St. Francis asserts that, under the terms of the modified MOU, payment was subject to quarterly check points regarding the MFCU investigation to determine if the payments due to CHS should be applied to liability St. Francis might incur from the MFCU investigation. (See id.; CHS's Ex. 5.) Because an assessment of liability appeared likely, St. Francis avers that it properly suspended payment in anticipation of applying its outstanding debt to CHS to any future payment required by the Attorney General. (Def.'s Proposals, ¶¶ 63-64.)

CHS, on the other hand, contends that it never agreed to the proposed modification of the MOU, as evidenced by three points. First, CHS asserts that there was no meeting of the minds regarding the quarterly check points. (CHS's Post-Trial Brief ("CHS's Post-Trial Br."), at 20-21.) Second, CHS claims the negotiation of the April 13, 2000 check for $18,621 could not constitute acceptance because it did not "in every respect, meet and correspond with the offer" that CHS accept St. Francis' monthly checks for $23,000. (Id. at 21-23.) In that vein, CHS contends its negotiation of the $18,621 check was actually a counter-offer which was never accepted by St. Francis. (Id. at 23.) As for the $23,000 check issued on June 9, 2000, CHS claims the negotiation of that check also could not be an acceptance because, by that time, the offer had lapsed for failure to accept within a reasonable time. (Id. at 23-24.) Therefore, CHS contends the MOU controlled the parties relationship from its creation and through to the present litigation.

Pursuant to this theory, CHS claims that St. Francis breached the MOU by failing to pay for services rendered. (Id. at 18.) CHS claims that St. Francis had no basis for withholding payment under the MOU because St. Francis failed to "cooperate in good faith" to quantify liability between the parties as to the MFCU investigation, as required under paragraph ten of the MOU. (Id.; CHS's Ex. 2, ¶ 10.) Further, CHS asserts that St. Francis was not eligible to hold back invoice Nos. 149 and 150 because St. Francis's settlement agreement with the MFCU was a long-term repayment plan, not requiring immediate repayment. (CHS's Post-Trial Br. at 18; see CHS's Ex. 2, ¶ 10.)

In the alternative, CHS argues that, even if the MOU was modified, St. Francis breached the modified contract by not making the monthly $23,000 payments or sending CHS quarterly reports regarding the MFCU investigation. (Id. at 25.) This breach, CHS asserts, relieved it of all obligations under the contract as allegedly modified, for instance its obligation to allow St. Francis to withhold payments as subject to quarterly check points, and to reduce of the total due from $276,531 to $251,626. (CHS's Objections, at 3.) Also, CHS claims the modified MOU is void for fraudulent inducement because St. Francis never intended to make the $23,000 payments as promised, and CHS reasonably relied on that false promise to its detriment. (CHS's Post-Trial Br. at 26.)

Therefore, the parties agree that a contract existed between CHS and St. Francis (the MOU, either as original or as modified), and that CHS performed services for St. Francis as part of that agreement, but disagree as to whether a preponderance of the evidence shows that St. Francis breached the MOU, and damages resulted.

The unresolved issues before the Court in this matter are, (1) whether the MOU was modified; (2) whether St. Francis materially breached the MOU as written or modified; and finally, (3) to what extent, if any, was CHS damaged. These issues are addressed in turn, below.

II. Alleged Modification of the MOU

A. Applicable Law

Under New York law, a contract cannot be deemed modified unless the evidence shows proof that "each element requisite to the formulation of a contract, including mutual assent to its terms," combined to form the modification. Deutsche Asset Mgmt. v. Callaghan, No. 01 Civ. 4426, 2004 U.S. Dist. LEXIS 5945, *46-47 (S.D.N.Y. Apr. 7, 2004) (Motley, J.). In Deutsche, Judge Motley clearly espoused the rule of law in this Circuit:

In order to show that a contract has been modified, a party must establish the modification "in the same way as any other contract. No one will be held to have surrendered or modified any of his contract rights unless he is shown to have assented thereto in a manner that satisfies the requirements of a valid contract."

Id. (quoting Louis Dreyfus Negoce S.A. v. Blystad Shipping Trading Inc., 252 F.3d 218, 228 (2d Cir. 2001) (emphasis in original), and citing 6 Arthur Linton Corbin, Corbin on Contracts § 1293 (1962)); see Dallas Aerospace, Inc. v. CIS Air Corp., 352 F.3d 775, 783 (2d Cir. 2003) (quoting Beacon Terminal Corp v. Chemprene, Inc., 429 N.Y.S.2d 715, 718 (App. Div. 1980)). Thus, modification can only be found where there was: (1) an offer; (2) an acceptance of the offer; (3) mutual assent to the terms of the contract; and, (4) consideration.Restatement (Second) of Contracts §§ 17, 24, 50, 71 (1981);see Deutsche, 2004 U.S. Dist. LEXIS 5945, at *47; Oscar Prod., Inc. v. Zacharius, 893 F. Supp. 250, 255 (S.D.N.Y. 1995) (Leisure, J.). Whether a new, modified contract was formed turns on the intent of the parties. Deutsche, 2004 U.S. Dist. LEXIS 5945, at *47 (citing Precision Testing Labs., Ltd. v. Kenyon Corp. of Am., 644 F. Supp. 1327, 1343 (S.D.N.Y. 1986) ("[T]he intent of the parties is of central importance.")). To determine the intent of the parties, the court should look to "'objective manifestations of intent of the parties as gathered by their expressed words and deeds given the attendant circumstances, situation of the parties, and the objectives they were striving to attain.'" Id. at *47-48 (quoting Brown Bros. Elec. Contractors, Inc. v. Beam Constr. Corp., 41 N.Y.2d 397, 399 (1977)).

If the parties intended to be bound, contracts can be formed through a series of writings; it is not necessary that a final integration be created to impose contractual obligations on the parties. Id. at *48 ("A written contract can be formed from more than one writing, including letters or memoranda signed by only one party or unsigned by either party.") (citing Consarc Corp. v. Marine Midland Bank, N.A., 996 F.2d 568, 572-73 (2d Cir. 1993)); see Crabtree v. Elizabeth Arden Sales Corp., 305 N.Y. 48, 53-55 (1953). The writings need not be contemporaneous.Commander Oil Corp. v. Advance Food Serv. Equip., 991 F.2d 49, 52-53 (2d Cir. 1993). The writings should be interpreted together if "'the parties assented to all the promises as a whole, so that there would have been no bargain whatever if any promise or set of promises had been stricken.'" Id. at 53 (quoting 6 Williston on Contracts § 863, at 275 (3d ed. 1970)). Further, "'[w]here several instruments constitute part of the same transaction, they must be interpreted together.'" Id. (quotingBWA Corp. v. Alltrans Express U.S.A., Inc., 493 N.Y.S.2d 1, 3 (App.Div. 1985)). Absence of affirmative rejection by either party supports a court's determination that a series of writings constituted a contract. Deutsche, 2004 U.S. Dist. LEXIS 5945, at *48 ("The failure of the writings to contain a disavowal is one of the common law principles courts rely on in deciding whether several writings together form a contract between the parties.") (quoting Consarc, 996 F.2d at 573 (finding a contract where "the combined writings contain no expression by either party of any intent not to be bound by them" (emphasis added))). Also, the terms provided in a series of written correspondence need not be reduced to a single contract in order for obligation to attach, even if the parties intended to reduce the correspondence to a single writing at some point in the future. Id. at *49-50.

The parties' conduct also illuminates the court's path when inquiring into the parties' intent to modify the existing contract. Id. at *50 ("[T]he parties' conduct plays a central role in contract formation and, by extension, contract modification."). If the parties recognized the contract as modified and acted in accordance, it is more likely that the parties intended to so modify the contract. Id.; see also Apex Oil Co. v. Vanguard Oil Serv. Co. Inc., 760 F.2d 417, 422 (2d Cir. 1985) ("[T]he existence of a contract may be established through conduct of the parties recognizing the contract.") (citing P.J. Carlin Constr. Co. v. Whiffen Elec. Co., 411 N.Y.S.2d 27 (1978)). This is because a contract can be either expressly or impliedly modified.Deutsch, 2004 U.S. Dist. LEXIS 5945, at *50 (citing S. Fed. Sav. Loan Ass'n of Georgia v. 21-26 E. 105th St. Assocs., 145 B.R. 375, 386 (S.D.N.Y. 1991)); Marine Transp. Lines, Inc. v. Int'l Org. of Master, Mates Pilots, 878 F.2d 41, 45 (2d Cir. 1989) ("[A]n agreement to modify a contract may be proven circumstantially by the conduct of the parties.")).

Thus, an offer to modify can be impliedly accepted by conduct.See Consarc, 996 F.2d at 573. However, even when asserting that a contract was impliedly modified, the proponent of the modification must show that acceptance "'compl[ied] with the terms of the offer and [was] clear, unambiguous, and unequivocal.'" Deutsche, 2004 U.S. Dist. LEXIS 5945, at *51 (citing King v. King, 617 N.Y.S.2d 593 (1994)). A communication that purports to accept an offer cannot be subject to additional or different terms. Such a communication is no acceptance at all, but is an absolute rejection of the offer and a proposed counter-offer. See Krumme v. WestPoint Stevens Inc., 143 F.3d 71, 83 (2d Cir. 1998); Greystone P'ships Group, Inc. v. Koninklijke Luchtvaart Maatschappij N.V., 815 F. Supp. 745, 753 (S.D.N.Y. 1993). Further, acceptance of that which is "rightfully and indisputably" owed does not constitute an acceptance of an offer to modify a contract. See Greenberg v. Pine Hollow Standardbred Sale Mgmt. Corp., 463 N.Y.S.2d 108, 110 (App. Div. 1983). Acceptance must also be within a reasonable time of the offer or the offer will be deemed to have lapsed. See, e.g., Etablissement Asamar Ltd. v. Lone Eagle Shipping, 882 F. Supp. 1409, 1411-12 (S.D.N.Y. 1995).

While, "[u]nder New York law 'the initial interpretation of a contract is a matter of law for the court to decide,'" Fleet Capital Corp. v. Yamaha Motor Corp., U.S.A., No. 01 Civ. 1047, 2002 U.S. Dist. LEXIS 18115, *62-63 (S.D.N.Y. Sept. 25, 2002) (quoting Alexander Alexander Servs., Inc. v. These Certain Underwriters at Lloyd's, 136 F.3d 82, 86 (2d Cir. 1998)), the determination of the above is the sole province of the fact-finder. Deutsche, 2004 U.S. Dist. LEXIS 5945, at *53 ("[J]ust as the question whether the parties intended to form a contract is a question of fact, so is the question whether the parties' conduct expresses an intention to modify an existing agreement.") (citing Marine Transp. Lines, 878 F.2d at 45). Conveniently, here, the Court's role includes both applying the law and finding the facts. The Court now turns to the application of the law to the facts in this case.

B. The MOU Was Not Modified Through the Correspondence and Conduct of CHS and St. Francis Because There Was no Intent to be Bound and Consideration Was Lacking

The terms of the alleged modification are set out in a series of letters between CHS and St. Francis Hospital, detailed above in the Court's findings of fact. See supra, Part IV.B.2. The first letter proposing a modification of the MOU was dated January 5, 2000, sent by Magaro, then the President and CEO of CHS, to Muise, then the CFO and Vice President of Finance and Administrative Services at St. Francis. (CHS's Ex. 4.) In this letter, Magaro "propose[s]" that St. Francis pay the outstanding invoices, Nos. 149-150 partially owing and Nos. 151-55 completely owing, totaling $276,531.10. (Id.) Payment would be made in monthly installments of $23,044.26, for twelve months beginning in January, 2000. (Id.) Further, Magaro suggested a 10% interest finance charge on the unpaid balance. Magaro recognized that this proposal would not

allow a hold-back unless you [St. Francis] held the last payment, December 2000, for the conclusion of the AG [MFCU] audit. However, considering how long we [CHS] have not been paid and the lack of interest of the AG in our [CHS's] records, I do not believe a further hold on our [CHS's] payments is equitable.

(Id.)

The Court finds that Magaro's January 5, 2000 letter constituted an offer to modify the MOU. Magaro used clear, unambiguous language evidencing his and CHS's intent to be bound by the terms of this letter. The words "I am proposing" make this determination relatively simple. All the material terms of the proposed modification follow that proposal language, as described above. Further, it cannot be argued that this letter did not constitute an offer, the acceptance of which would create a contract, because it lacked consideration. (See CHS's Post-Trial Br. at 24-25.) Consideration need not be monetary but need only represent a "bargained-for exchange." 2-5 Corbin, Corbin on Contracts § 5.1. St. Francis had the right under the MOU to hold back certain invoice payments pending a disposition of the MFCU investigation. (CHS's Ex. 2, ¶¶ 4, 10.) If St. Francis were to accept Margaro's offer, that right would be lost. CHS, on the other hand, had a right to timely payment for services rendered to St. Francis on the Contract, as well as interim services rendered under the MOU. (CHS's Ex. 1, ¶ 10; CHS's Ex. 2, ¶¶ 2, 4.) If St. Francis were to accept Magaro's offer, CHS would lose that timely payment in favor of the monthly installment plan. Thus, Magaro's January 5, 2000 offer to modify the MOU was supported by consideration on both sides.

However, St. Francis did not accept Magaro and CHS's offer to modify the contract. Instead, St. Francis proposed a counter-offer including a material term which was explicitly objected to in Magaro's previous letter. On February 11, 2000, Muise responded by letter to Magaro's offer to modify the MOU. (CHS's Ex. 5.) First, Muise stated that, according to St. Francis' records, the amount due on the outstanding invoices only totaled $251,626, not, as Magaro had asserted, $276,531.10. (Id.) Following that, Muise stated St. Francis would begin making the $23,000 per month payments, but only if those payments would be subject to "check points quarterly as to the status of the Attorney General audit. This will leave the Hospital the opportunity to use this accounts payable as a form of payment for any obligations that might be found against Saint Francis CHS from such audit." (Id.) This February 11, 2000 letter is necessarily a counter-offer instead of an acceptance, as a matter of law. The altered total due along with the addition of quarterly check points preclude the possibility of a "clear, unambiguous, and unequivocal" acceptance of Magaro's offer. See Deutsche, 2004 U.S. Dist. LEXIS 5945, at *51. It is a counter-offer, however, instead of an outright rejection as Muise's letter contains clear language evidencing an intent to be bound. Muise's statement that St. Francis would begin payment supports this conclusion.

However, St. Francis' actions regarding this alleged proposal belie its language of an intent to be bound to a modified contract. First, Muise stated under cross-examination that she believed the "check points quarterly" condition on St. Francis' payment to CHS was allowed under paragraph ten of the MOU. (Tr. 272.) This clearly indicates that she did not intend to modify the MOU with her February 11, 2000 letter, but rather only intended to assert St. Francis' rights, as she interpreted them, under the already existing MOU. Second, St. Francis issued a check the day before this letter, on February 10, 2000, for $20,000 which could be construed as a good faith partial payment evidencing an intent to be bound to the $23,000 monthly payment plan. (See Def.'s Ex. OO.) However, St. Francis did not continue payment in the proposed monthly manner; the next check was not issued until April 13, 2000, for $18,621 (Def.'s Ex. QQ), less than the proposed $23,000. St. Francis did finally issue a check conforming to its own proposed terms on June 9, 2000, for $23,000 (Def.'s Ex. RR), CHS's negotiation of which St. Francis claims was an implied acceptance of their offer.

The Court need not deal with the timeliness or efficacy of CHS's implied acceptance (See CHS's Proposals, at 19, ¶ 9; CHS's Post-Trial Br. at 22-23) as the Court finds that consideration was lacking from St. Francis' offer at its inception. St. Francis failed to even allege consideration in its post-trial papers or at trial, as it cannot. Under the MOU, St. Francis was allowed to hold back certain invoices, Nos. 149 and 150, totaling $126,570. (CHS's Ex. 2, ¶¶ 2, 10; CHS's Exs. 3A, 3B.) This hold back was not absolute, however, and was subject to the provisions of paragraph ten of the MOU, as discussed below. See infra, Part III.B.3. Quarterly check points, on the other hand, would allow St. Francis the absolute right to withhold any unpaid monies for use "as a form of payment for any obligations that might be found against Saint Francis" pursuant to the MFCU investigation. (Def.'s Ex. PP (emphasis added).) Potentially, therefore, if St. Francis had made the monthly payments and determined in the next quarter (May, 2000) that the MFCU might find St. Francis liable, it could withhold $182,626 of the money it owed CHS. The Court can find no bargain for CHS if it had accepted this offer, instead seeing only a boon of almost $60,000 to St. Francis. Therefore, the Court need not determine whether CHS impliedly accepted St. Francis' counter-offer, modifying the contract, because consideration was clearly absent from the exchange.

St. Francis' argument that two letters from CHS to St. Francis in the summer of 2000 (Def.'s Exs. SS, TT) evidence that CHS intended to be bound to the terms of St. Francis' offer when CHS negotiated these checks is inapposite because consideration was lacking. Moreover, though CHS communicated in terms of agreement, it is plausible the "agreement" portion of the communication referred only to its agreement to accept payment already due from St. Francis. The letters do not evidence an intent to agree to quarterly check points. And though, as stated above, Magaro's initial offer was supported by consideration, that offer was rejected and replaced by a counter-offer that was not supported by consideration.

Therefore, from February 19, 1999 through to the present, the parties were bound under the terms of the MOU. The Court now turns to the question of whether St. Francis breached the MOU.

III. CHS's Claim that St. Francis Breached the MOU

A. In Limine Ruling Stands

St. Francis alluded at trial and in its post-trial submissions that there was some relevance to its assertion that CHS breached the original Contract. (See Def.'s Proposals, at ¶ 12; Tr. 191.) However, the Court stands by its in limine ruling that communications regarding the meaning of the MOU or the intent of the parties entering into the MOU are irrelevant because the MOU is an unambiguous, entire integration of the parties intentions in ending the Contract. See Commerce Funding, 2004 U.S. Dist. LEXIS 17791, at *1.

The Court cannot consider extrinsic evidence of the intent of the parties in entering the MOU unless the MOU is ambiguous or not a full integration. See Kinek v. Paramount Communications, Inc., 22 F.3d 503, 509 (2d Cir. 1994); Roberts v. Consol. Rail Corp., 893 F.2d 21, 24 (2d Cir. 1989) ("Absent an ambiguity in a written contract, courts will not look to the underlying intent of the parties in executing the contract."). The question of ambiguity is a question of law to be decided by the Court. See Collins v. Harrison-Bode, 303 F.3d 429, 433 (2d Cir. 2002);Readco, Inc. v. Marine Midland Bank, 81 F.3d 295, 299 (2d Cir. 1996). The Court here finds that the MOU is unambiguous regarding the intent of the parties when entering into the agreement. The MOU clearly states that the "Contract is terminated, and the parties shall have no further obligations under the Contract, except as expressly outlined herein." (CHS's Ex. 2, at ¶ 1.) The MOU does state that the parties are not relieved from any liability for their actions under the Contract (Id. ¶ 7); however, the instant claim arises from the parties' conduct pursuant to the MOU, not the Contract.⁷

7 The Court also notes that, though the Court finds the MOU unambiguous, arguendo any ambiguity is to be resolved against the drafter of the document. See Sure-Trip, Inc. v. Westinghouse Eng'g Instrumentation Servs. Div., 47 F.3d 526, 534 (2d Cir. 1995); Waterman S.S. Corp. v. United States, 595 F.2d 91, 96 (2d Cir. 1979) (recognizing that, while it is true that ambiguous contract provisions should be construed against the drafter, such construction is unnecessary where the contract is unambiguous). Here, St. Francis' lawyers drafted the MOU. (Tr. 29, 258.)

Further, the MOU is an entire integration. "An agreement is integrated where the parties thereto adopt a writing or writings as the final and complete expression of the agreement. An integration is the writing or writings so adopted." Restatement (Second) of Contracts § 228 (1981). The Court sees, and the parties allege, no reason to find the MOU was not a complete integration expressing the parties' intentions. Therefore, the parties' behavior under the original Contract and intentions when entering into the MOU are irrelevant to the instant case as the MOU is an unambiguous, entire integration.

B. Performance Under the MOU

Breach of contract occurs when a party fails to perform its contractual duty. Restatement (Second) of Contracts § 235(2) (1981). Material breach of a contract occurs when a party's non-performance goes to the root of the agreement and is so substantial that it defeats the purpose of the contract. Felix Franks Assocs., Ltd. v. Austin Drugs, Inc., 111 F.3d 284 (2d Cir. 1997), corrected op. reported at, No. 96 Civ. 7604, 1997 U.S. App. LEXIS 19795, *14 (2d Cir. Apr. 10, 1997). Failure to satisfy payment obligations under a contract is "generally deemed a material breach of contract." Wechsler v. Hunt Health Systems, Ltd., 330 F. Supp. 2d 383, 417 (S.D.N.Y. 2004) (Leisure, J.) (quoting ARP Films, Inc. v. Marvel Entm't Group, Inc., 952 F.2d 643, 649 (2d Cir. 1991)); Jafari v. Wally Findlay Galleries, 741 F. Supp. 64, 67 (S.D.N.Y. 1990).

1. Performance Under Paragraph Two of the MOU

Paragraph two of the MOU required St. Francis to make a lump payment of $510,115, followed by payment of the remaining outstanding invoices "in accordance with the Hospital's 90-day cycle." (CHS's Ex. 2, ¶ 2.) The dates and amounts of the invoices due were attached as Exhibit B to the MOU. (Id. at Ex. B.) The MOU also allowed St. Francis to withhold payment on invoice Nos. 149 and 150 as a "holdback." (Id. ¶ 2) St. Francis did make the $510,115 payment on or before February 26, 1999 in accordance with the terms of paragraph two. (Tr. 226.) However, St. Francis did not comply with the 90-day cycle at least with regard to invoice No. 146. Invoice 146 was issued on December 20, 1998 for $38,621. (See Def.'s Exs. OO, QQ.) Thus, payment on 146 was due on or before March 20, 1999. St. Francis first made payment on this invoice on February 10, 2000, almost a year late. (Def.'s Ex. OO.) The invoice was not fully paid until April 13, 2000. (Def.'s Ex. QQ.) The Court finds that this failure to timely pay was a breach of the express terms of the MOU as it constitutes non-performance of a contractual duty. Restatement (Second) of Contracts § 235 (1981). However, this was not a material breach because it did not go to the root of the contract and frustrate its purpose. See Felix Franks, 1997 U.S. App. LEXIS 19795, at *14. While the MOU was intended to wrap up the parties' relationship and satisfy St. Francis' outstanding debt, the Court does not find that St. Francis' failure to make timely payment on invoice No. 146 necessarily thwarted that purpose.

Paragraph two also allowed St. Francis to hold back invoice Nos. 149 and 150. (CHS's Ex. 2, ¶ 2.) The parties agree that the purpose of the holdback was that, "[i]n the event there [was] an immediate repayment required [pursuant to the MFCU investigation], any outstanding invoices would be used as part of such a repayment plan." (CHS's Ex. 2, ¶ 10; CHS's Proposals, at 5, ¶ 16; Def.'s Proposals ¶¶ 23, 26.) However, St. Francis made payment on both of these invoices despite the express language of paragraph two of the MOU. On September 7, 1999, St. Francis issued a check for $32,000 to pay on invoice No. 149. (CHS's Ex. 3A.) On November 11, 1999, St. Francis issued a check for $32,365 to pay on invoice No. 149. (Id.) Finally on June 9, 2000, St. Francis issued a check for $23,000 to pay on invoice No. 150. (CHS's Ex. 3B.) These payments constituted a waiver of St. Francis' right to withhold the amounts paid on invoice Nos. 149 and 150.

A party waives its bargained-for advantage under a contract when it voluntarily and intentionally abandons "'a known right which, but for the waiver, would have been enforceable.'"Readco, 81 F.3d at 303 (quoting Nassau Trust Co. v. Montrose Concrete Prods. Corp., 56 N.Y.2d 175, 184 (1982)). It is clear to the Court that St. Francis' right to hold back the full amount of invoice Nos. 149 and 150 would have been enforceable under the MOU had St. Francis not made payment on those invoices. This does not necessarily mean that St. Francis would be allowed to apply Nos. 149 and 150 toward its eventual repayment to the MFCU, pursuant to paragraph ten of the MOU. Whether that application would be proper is a separate inquiry addressed, infra, Part III.B.3. It is also apparent that St. Francis' payments on these invoices constituted conduct evidencing "'an intent not to claim the purported advantage'" under the MOU. Readco, 81 F.3d at 303 (quoting Hadden v. Consol. Edison Co., 382 N.E.2d 1136, 1138 (N.Y. 1978)). There is no evidence that these payments were the result of "negligence, oversight, or thoughtlessness" on St. Francis' part. See id. (quoting Agati v. Agati, 461 N.Y.S.2d 95, 96 (1983)). Rather, St. Francis affirmatively made payments on these invoices despite its express right to withhold payment under paragraph two of the MOU. See, e.g., Lamborn v. Dittmer, 873 F.2d 522, 529 (2d Cir. 1989) (quoting Washburn v. Union Nat'l Bank Trust Co., 502 N.E.2d 739, 742 (Ill.App.Ct. 1986) ("To establish an implied waiver, there must be a clear, unequivocal and decisive act of a party showing such purpose [to waive].")). Therefore, St. Francis waived its advantage to the extent it paid on invoice Nos. 149 and 150. It lost the right to withhold $87,365, the sum of its payments.

2. Performance Under Paragraph Four of the MOU

Paragraph four of the MOU provided for continuity of services while the parties wrapped up their relationship pursuant to the terms of the MOU. (Def.'s Ex. 2, ¶ 4.) CHS was to continue to provide services to the part-time clinics and "bill the Hospital in the ordinary course of business at the current rates." (Id.) The parties do not contest that CHS provided services and that St. Francis accepted those services. (CHS's Proposals at 5, ¶¶ 1-3; Def.'s Objections at 4, ¶¶ 1-3.) These interim services were memorialized in invoice Nos. 151-55. (CHS's Proposals at 5, ¶ 1; Def.'s Objections at 4, ¶ 1.) However, St. Francis disputes that the invoices were due pursuant to a 90-day billing cycle.⁸

8 St. Francis also contends it complied with the payment terms under the modified MOU. (Def.'s Objections at 8.) However, the Court will not address this assertion because it has already determined that the parties did not modify the MOU. See supra, Part II.B.

The Court finds that St. Francis breached paragraph four of the MOU by failing to pay CHS's interim invoice Nos. 151-55 according to the 90-day billing cycle. Though paragraph four does not directly state that the interim services are to be paid in accordance to the 90-day cycle, it does state that CHS shall "bill the Hospital in the ordinary course of business." (CHS's Ex. 2, ¶ 4.) The ordinary course of business is identified in paragraph two of the MOU as "the Hospital's 90-day cycle." (Id. ¶ 2.) Plaintiff would like to interject an ambiguity where there is none. "Under New York law 'the initial interpretation of a contract is a matter of law for the court to decide.' . . . 'Included in this initial interpretation is the threshold question of whether the terms of the contract are ambiguous."Fleet Capital, 2002 U.S. Dist. LEXIS 18115, at *62-63 (quoting Alexander Alexander, 136 F.3d at 86). The Court finds the MOU unambiguous as to the 90-day payment cycle despite testimony that St. Francis was making payments on "an intermittent 90 day, 130, 60 day, very random, delayed, late cycle" in 1998 and 1999. (Tr. 93.) As stated in the Court's conclusions of law above, supra, Part II.A., the parties intentions prior to entering into the MOU are irrelevant to the instant litigation. Further, the Court finds the MOU unambiguous because an examination of the "entire integrated agreement" reveals "a definite meaning" and the Court finds "no reasonable basis exists for a difference of opinion about that meaning."Fleet Capital, 2002 U.S. Dist. LEXIS 18115, at *63-64 (internal citations and quotations omitted). That St. Francis was improperly failing to adhere to its own 90-day cycle at the time of entering into the MOU does not require the Court to find anything other than that, under the plain meaning of the MOU, St. Francis was to pay invoices pursuant to a 90-day payment cycle.See Sure-Trip, 47 F.3d at 533 (When interpreting the contract, "[n]ot only should the entire contract be considered, but its parts must be reconciled. . . .").

St. Francis, to date, has not made any payments on interim invoice Nos. 151-55. The most recent of these invoices, No. 155, was due no later than August 1, 1999. St. Francis is therefore well past due and has been so almost from the inception of the MOU on February 19, 1999. The Court finds that, absent justification, St. Francis materially breached the MOU by failing to timely pay invoice Nos. 151-55 according to the 90-day cycle.See Wechsler, 330 F. Supp. 2d at 417; V.S. Int'l, 862 F. Supp. at 1197 ("A party's failure to make required payments as required by an Agreement has been held to be a material breach as a matter of law."); Jafari, 741 F. Supp. at 67. Because the February 1, 2002 settlement agreement with the MFCU (Def.'s Ex. WW) is the only plausible justification for St. Francis' failure to pay these invoices (See CHS's Ex. 2, ¶ 10), the Court addresses that issue in turn, below.

3. Performance Under Paragraph Ten of the MOU

Under paragraph ten of the MOU, the parties were to "arrange to meet with Attorney General personnel as soon as possible, and . . . cooperate in good faith to reach agreement." (CHS's Ex. 2, ¶ 10.) If the MFCU found St. Francis liable and offered a "long term payment plan," the parties were to "cooperate in good faith to quantify the liability and reach a suitable repayment agreement." (Id.) If the MFCU required "immediate repayment . . . any outstanding invoices would be used as part of such a repayment plan." (Id.)

The Court finds that CHS performed under paragraph ten, to the extent possible. After signing the MOU, on February 24, 1999, CHS and St. Francis attended a meeting in Pearl River, New York, with the Attorney General's office wherein the length of therapy sessions and the necessity of the part-time clinics were discussed. (See Tr. 197-99, 290-94; CHS's Ex. 2, at cover letter.) CHS also attended a second joint meeting in Albany, New York. (Tr. 200-01, 296.) Beyond that, CHS attended at least five meetings with St. Francis regarding the MFCU investigation where the Attorney General's office was not present. (Tr. 194, 297.) Also, CHS "assisted" with St. Francis' document production to the Attorney General's office. (Tr. 201.) Though St. Francis claims it was difficult to get CHS to complete the document production (Tr. 202-03), the Court finds that the above participation demonstrates without doubt that CHS attempted in good faith to comply with the terms of paragraph ten of the MOU. CHS's participation was rendered futile, however, by an increasingly uncooperative St. Francis.

The last correspondence between the parties regarding the MFCU investigation was from St. Francis to CHS on September 22, 2000, wherein St. Francis informed CHS that St. Francis was suspending all payments due to the subpoenas issued by the Attorney General. (Def.'s Ex. UU.) First, the Court notes that this letter constituted an unjustified repudiation of the MOU and, therefore, a total and material breach. See 9-53 Corbin, Corbin on Contracts § 954 (stating that partial breach and repudiation of an installment-based contract constitutes "'total' breach, justifying immediate action for the remedies appropriate thereto"). St. Francis was not justified in suspending payment under any provision of the MOU. Paragraph 10 only allowed St. Francis to potentially apply outstanding payments against an immediate repayment if required by the Attorney General's office, and paragraph two only allowed a hold back of invoice Nos. 149 and 150. Thus, under no provision of the MOU could St. Francis hold back all the invoice payments.

St. Francis was obligated to "cooperate in good faith to reach agreement." (CHS's Ex. 2, ¶ 10.) Instead, however, St. Francis unilaterally suspended contact with CHS and never reopened that communication. (See Def.'s Ex. UU.) St. Francis was also obligated, "to the extent that a long term payment plan" was entered into, to "cooperate in good faith to quantify the liability and reach a suitable repayment agreement" with CHS. (CHS's Ex. 2, ¶ 10.) Instead, CHS was completely excluded from St. Francis' settlement discussions with the Attorney General's office because St. Francis' CEO and President from May 2001 to present, Robert L. Savage, "concluded that CHS was not a good partner, had not lived up to its terms of agreements, [and] was the cause for St. Francis to be in front of the Attorney General." (Tr. 361.) Savage conceded, as was unavoidable, that St. Francis' settlement agreement with the Attorney General's office was a long-term repayment plan.⁹ (Tr. 358-61; see also CHS's Ex. 11.) Despite the clear language of paragraph 10, however, St. Francis decided to withhold all payments due to CHS without consulting it. This breach of St. Francis' duty in itself is material as the parties' potential liability pursuant to the MFCU investigation was a primary reason for the creation of the MOU. St. Francis' failure to cooperate struck at the heart of the agreement and defeated its purpose.See Felix Franks, 1997 U.S. App. LEXIS 19795, at *14. Savage's explanation for St. Francis' failure to perform is unconvincing at best. Far worse partners have been allowed to reap the benefit of their contractual bargain. See, e.g., Camp Kennybrook, Inc. v. Kuller, 632 N.Y.S.2d 874 (App.Div. 1995) (holding parents of a boy claiming he was abused at summer camp responsible for balance due to the camp pursuant to the contract). Further, St. Francis has not articulated any scenario wherein CHS breached the MOU. Nor is financial disadvantage a meritorious explanation. That St. Francis would have been better off financially by repudiating the MOU does not excuse its material breach. Bank of Am. Nat'l Trust Sav. Ass'n v. Envases Venezolanos, S.A., 740 F. Supp. 260, 266 (S.D.N.Y. 1990) (Leisure, J.) ("'The applicable rules do not permit a party to abrogate a contract, unilaterally, merely upon a showing that it would be financially disadvantageous to perform it; were the rules otherwise, they would place in jeopardy all commercial contracts.'") (quoting 407 E. 61st Garage, Inc. v. Savoy Fifth Ave. Corp., 244 N.E.2d 37, 42 (1968)), aff'd without opinion sub nom. First Nat'l Bank of Maryland v. Envases Venezolanos, 923 F.2d 843 (2d Cir. 1990); Beaumont Birch Co. v. Najjar Indus., Inc., 477 F. Supp. 970, 972 n. 1 (S.D.N.Y. 1979); A.W. Fiur Co., Inc. v. Ataka Co., Ltd., 422 N.Y.S.2d 419, 423 (App. Div. 1979).

9 This admission is quite a windfall for CHS as the language of paragraph 10 would allow St. Francis to apply "any outstanding invoices" toward an immediate repayment plan. (CHS's Ex. 2, ¶ 10.) Though CHS adamantly contends that paragraph ten only referenced the holdback invoice Nos. 149 and 150, the Court reads the language more broadly, giving it its plain meaning. See Alexander Alexander, 136 F.3d at 86 ("If the court finds that the contract is not ambiguous it should assign the plain and ordinary meaning to each term and interpret the contract without the aid of extrinsic evidence."). However the point is moot as the repayment was long-term, thus not authorizing St. Francis to apply any outstanding invoices to the payment.

CHS was not required to continue to hound St. Francis in an attempt to secure a good faith agreement regarding their respective liabilities pursuant to the MFCU investigation. See Sunshine Steak, Salad Seafood, Inc. v. W.I.M. Realty, Inc., 522 N.Y.S.2d 292, 293 (App.Div. 1987) ("[W]here it becomes clear that one party will not live up to a contract, the aggrieved party is relieved from the performance of futile acts. . . .") First, CHS was completely unaware of St. Francis' agreement with the Attorney General's office. Second, St. Francis's material breach relieved CHS from all obligation of continued performance under the contract. Alesayi Beverage Corp. v. Canada Dry Corp., 947 F. Supp. 658, 667 (citing Jafaria, 741 F. Supp. at 68);Restatement (Second) of Contracts § 242 cmt. a (1981) ("[A] party's uncured material failure to perform or to offer to perform not only has the effect of suspending the other party's duties (§ 225(1)), but, when it is too late for the performance or the offer to perform to occur, the failure also has the effect of discharging those duties (§ 225(2)."); id. § 238 ("[I]t is a condition of each party's duties to render such performance that the other party either render or, with manifested present ability to do so, offer performance of his part of the simultaneous exchange.")

C. Conclusion

The Court finds, therefore, that St. Francis materially breached the MOU by failing to make timely payments pursuant to its terms. St. Francis also materially breached by failing to "cooperate in good faith to reach agreement" (CHS's Ex. 2, ¶ 10) with CHS regarding the MFCU investigation. St. Francis was not justified in withholding any payments to CHS because of these two material breaches. Further, St. Francis was not justified in applying "any outstanding invoices" due to CHS to St. Francis' settlement with the Attorney General because the settlement did not constitute an "immediate repayment" but, rather was a long-term repayment plan. Whether CHS was damaged by St. Francis' material breaches is discussed below.

IV. Damages

A. Actual Damages

Damages for material breach of contract generally should place the aggrieved party in the same economic position it would have enjoyed had the breaching party fully performed. Wechsler, 330 F. Supp. 2d at 424-25 (citing Siegel v. Laric Entm't Corp., 763 N.Y.S. 2d 607, 608-09 (App.Div. 2003); Rogen v. Scheer, No. 86 Civ. 2058, 1991 U.S. Dist. LEXIS 2715, *7 (S.D.N.Y. Feb. 22, 1991) ("In an action for breach of contract the 'injured party is entitled to the benefit of his bargain as written and is entitled to damages for the loss caused by failure to perform the stipulated bargain' and the recovery 'may include the profits which he would have derived from performance of the contract.'" (citations omitted)); Carmania Corp., N.V. v. Hambrecht Terrell Intern., 705 F. Supp. 936, 938 (S.D.N.Y. 1989) ("The law of contracts is meant to facilitate voluntary economic exchange. Plaintiffs who sue successfully for breach of contract are entitled to damages providing them with the benefit of the bargains they and the defendants chose to strike — i.e., to be placed in the positions they would have enjoyed had the parties' expectations panned out."); Menzel v. List, 298 N.Y.S.2d 979, 983 (1969) (citing 11 Williston on Contracts § 1395, at 484 (3d ed.)); Restatement (Second) of Contracts § 347 cmt. a (1981) ("Contract damages are ordinarily based on the injured party's expectation interest and are intended to give him the benefit of his bargain by awarding him a sum of money that will, to the extent possible, put him in as good a position as he would have been in had the contract been performed.")). "Damages for breach of contract are limited to expectation damages — the amount necessary to put plaintiff in as good a position as if defendant had fulfilled the contract." Saxton Communication Group, Ltd. v. Valassis Inserts, Inc., No. 93 Civ. 0388, 1995 U.S. Dist. LEXIS 17037, *5 (S.D.N.Y. Nov. 15, 1995) (citing Bausch Lomb, Inc. v. Bressler, 977 F.2d 720, 728 (2d Cir. 1992)); V.S. Int'l, 862 F. Supp. at 1197. The aggrieved party "must prove any claimed damages were caused by defendant's breach to a reasonable degree of certainty." Xpedior Creditor Trust v. Credit Suisse First Boston (USA) Inc., 341 F. Supp. 2d 258, 271 (S.D.N.Y. 2004). Further, the aggrieved party need not prove the exact amount of damage. Am. Fed. Group, Ltd. v. Rothenberg, 136 F.3d 897, 907-08 (2d Cir. 1998) ("[O]ne must prove with certainty that the loss was caused by a breach of contract . . . and must prove with reasonable certainty, though not mathematical precision, the amount of the loss.") (citing Ashland Mgmt. Inc. v. Janien, 82 N.Y.2d 395, 403 (1993)); Saxton, 1995 U.S. Dist. LEXIS 17037, at *5. Further, the complainant must demonstrate that the particular damages were "fairly within contemplation of the parties to the contract at the time it was made." Trademark Research Corp. v. Maxwell Online, Inc., 995 F.2d 326, 332 (2d Cir. 1993) (citations omitted).

Here, the Court finds that CHS was damaged by St. Francis' breach of the MOU. CHS expected certain monetary remuneration for interim services rendered pursuant to paragraph four of the MOU, memorialized by invoice Nos. 151-55. Because St. Francis did not enter into an "immediate repayment" plan with the Attorney General, CHS was also entitled to payment for services rendered under the original Contract, invoice Nos. 149 and 150. This remuneration was certainly in the contemplation of the parties when entering into the MOU because the main purposes of the MOU was to resolve St. Francis' debts to CHS and that CHS would provide interim services for a smooth transition out of the parties' relationship. However, the exact amount of damages is disputed because the parties disagree as to whether CHS was properly granted a rate increase from $45 per billable patient contact to $50 by Dr. Attanasio. CHS claims it is owed $212,555 while St. Francis claims the MOU was modified and therefore it owes nothing. However, St. Francis also asserts it never authorized the rate increase. Absent the increase and pursuant to the Court's conclusions of law, supra, St. Francis would owe $190,004.90. The Court resolves this dispute below.

1. Rate Increase

CHS claims that Dr. Attanasio was an agent of St. Francis with the apparent authority to authorize the rate increase. To so prove, CHS must demonstrate that, "(1)[the] principal 'was responsible for the appearance of authority in the agent to conduct the transaction in question,'" Herbert Constr. Co. v. Cont'l Ins. Co., 931 F.2d 989, 993-94 (2d Cir. 1991) (quotingFord v. Unity Hosp., 299 N.E.2d 659, 664 (N.Y. 1973)), "and (2) the third party reasonably relied on the representations of the agent." Id. at 994 (citing Hallock v. State, 474 N.E.2d 1178, 1181 (N.Y. 1984)); see also Doxsee Sea Clam Co. v. Brown, 13 F.3d 550, 553-554 (2d Cir. 1994). This requires an analysis of the principal's actions, not the agent's. Herbert Constr., 931 F.2d at 993 ("'[T]he existence of 'apparent authority' depends upon a factual showing that the third party relied upon the misrepresentations of the agent because of some misleading conduct on the part of the principal — not the agent.'") (quotingFord, 299 N.E.2d at 664)); ITEL Containers Int'l Corp. v. Alanttrafik Express Servs., 909 F.2d 698, 702-03 (2d Cir. 1990) (differentiating between express and implied or apparent authority). CHS had no duty to inquire as to the scope of Dr. Attanasio's authority because the $5 rate increase was not an extraordinary transaction obviating reasonable reliance. See Herbert Constr., 931 F.2d at 995-96 (extrapolating from New York law that, if the third party did not inquire into the scope of the agent's authority and the transaction is extraordinary, the third party could not have reasonably relied on the agent's apparent authority).

Despite CHS's insistence that Dr. Attanasio was "clothed" in apparent authority, see Hallock, 474 N.E.2d at 1181-82, the Court finds that St. Francis' conduct regarding Dr. Attanasio would not lead a reasonable third party to rely on his authority to grant a rate increase. CHS contends that, because Dr. Attanasio reported directly to Muise and was "entrusted with most of the responsibility of overseeing" CHS's administration of the clinics, it was reasonable for CHS to rely on Dr. Attanasio's authorization of the rate increase. (CHS's Objections, at 4.) However, Muise was the contact point for all things financial at St. Francis and she took the lead in the initial negotiation of CHS's fees. (Tr. 185, 236-37.) She was also the "primary administrative contact" for CHS. (Tr. 178.) CHS has presented no evidence of St. Francis' conduct or statements that would lead CHS to believe that Dr. Attanasio was authorized to make financial decisions for St. Francis. Dr. Attanasio was the Director of Communications Disorders who ensured that CHS properly administered its medical services. It does not follow that Dr. Attanasio would have a say in authorizing a rate increase. Nor is CHS's reliance onHallock persuasive. The court there found that an attorney had apparent authority to enter into a settlement stipulation on behalf of his client in open court. See Hallock, 474 N.E.2d at 1181-82. However, as the court in Gordon v. Esopus pointed out, the Hallock court's decision was premised on the "policy favoring such stipulations of settlement" and the Hallock court did not indicate that its holding should be broadly applied to different facts. Gordon v. Esopus, 486 N.Y.S.2d 420, 421 (App. Div. 1985).

Moreover, assuming arguendo that Dr. Attanasio had apparent authority, he was working for CHS at the time he authorized the rate increase, unbeknownst to St. Francis. (Tr. 237.) Unfortunately, the record does not reveal the nature of Dr. Attanasio's employment. CHS argues that St. Francis can only avoid the bargain if Dr. Attanasio was representing both St. Francis and CHS at the time of authorizing the increase. (CHS's Objections, at 6 (relying on Bernstein v. Centaur Inc. Co., 644 F. Supp. 1360, 1370-71 (S.D.N.Y. 1986) ("The doctrine of voidability on the ground of dual agency is limited to dual representation in the transaction sought to be voided.")).) CHS then makes the conclusory statement that Dr. Attanasio was only representing St. Francis when he authorized the rate increase. While CHS is correct that there is no evidence that Dr. Attanasio was acting as a dual agent, there similarly is no evidence that he was not. It is CHS's burden to prove that the rate increase was properly authorized. Because CHS does not meet this burden, the Court finds that the rate increase was not properly authorized.

CHS's final argument is that, even absent authority, St. Francis ratified the rate increase by paying the full amount of invoice No. 146 three years after it was aware of Dr. Attanasio's actions and employment by CHS. (CHS's Objections, at 5.) "Ratification is the express or implied adoption of acts" of an agent, by a principal for whom the agent assumed to be acting, though without authority. Prisco v. New York, 804 F. Supp. 518, 523 (S.D.N.Y. 1992) (citing Holm v. C.M.P. Sheet Metal, Inc., 455 N.Y.S.2d 429, 432 (App.Div. 1982)). Ratification only occurs "where the principal has full knowledge of all material facts and takes some action to affirm the agent's actions." Id. (citing same). If ratification occurs, the principal may be liable for acts of an agent, even where those acts were initially unauthorized. Id. New York courts also require that the principal obtain some benefit from the agent's transaction. See, e.g., New York State Med. Transporters Ass'n v. Perales, 77 N.Y.2d 126, 131 (1990).

Here, CHS is blatantly incorrect in stating that St. Francis expressly adopted Dr. Attanasio's transaction when it paid invoice No. 146 calculated pursuant to the $5 rate increase. While St. Francis knew of Dr. Attanasio's authorization and simultaneous employment by CHS when it made the two payments, on February 10, 2000 for $20,000 and on April 13, 2000 for $18,621.10 (See Def.'s Exs. OO, QQ), those payments comported with Muise's recalculation of the invoice sent from Magaro (See Def.'s Ex. PP, at attachment); a recalculation which subtracted the rate increase (Tr. 235-36). The fact that counsel calculated the total incorrectly at trial and Magaro did not correct him does nothing to change this Court's ability to engage in basic addition. (See Tr. 45-46 (surmising falsely that the total of checks for $20,000 and $18,621.10 equaled $38,756.10).) The record therefore belies CHS's assertion that these payments were made "ostensibly without deducting the disputed rate increase from the invoice." (CHS's Objections, at 5.) The Court finds no other indication that St. Francis ratified the rate increase.

In conclusion, the Court finds that CHS did not reasonably rely on Dr. Attanasio's authority to grant the $5 rate increase. Further, the Court finds that St. Francis did nothing to ratify the unauthorized behavior. Therefore, the Court finds that St. Francis' material breaches of the MOU actually damaged CHS in the amount of $190,004.90.

B. Prejudgment Interest

CHS requests prejudgment interest to be assessed on its damage award.

In diversity actions, prejudgment interest awards are deemed substantive issues to be governed by state law. Schwimmer v. Allstate Ins. Co., 176 F.3d 648, 650 (2d Cir. 1999) (citingMarfia v. T.C. Ziraat Bankasi, 147 F.3d 83, 90 (2d Cir. 1998) (finding that state law applies to prejudgment interest calculations on supplemental state law claims)). Pursuant to New York state law, "[i]nterest shall be recovered upon a sum awarded because of a breach of performance of a contract." N.Y. CPLR § 5001 (McKinney 1992). "In an action at law for breach of contract, 'prejudgment interest is recoverable as of right.'"Wechsler, 330 F. Supp. 2d at 434 (quoting Trademark Research, 995 F.2d at 342); accord U.S. Naval Inst. v. Charter Communication, Inc., 936 F.2d 692, 698 (2d Cir. 1991); cf. Sobiech v. Int'l Staple Mach. Co., Inc, 867 F.2d 778, 781 (2d Cir. 1989) (stating that "incidental damages," such as prejudgment interest, are purposed to "put the aggrieved party in as good a position as had the other party performed"). The prejudgment interest rate for breach of contract cases in New York is 9% per annum, accruing on a simple, rather than a compound, basis. See N.Y. CPLR § 5004 (McKinney 2004); see also Action S.A. v. Marc Rich Co., 951 F.2d 504, 508 (2d Cir. 1991) (finding that New York's statutory rate applies in all actions except those "of an equitable nature");Wechsler, 330 F. Supp. 2d at 435 (citing Marfia, 147 F.3d at 90 ("New York courts have held that in a breach of contract action of this sort prejudgment interest must be calculated on a simple interest basis at the statutory rate of nine percent." (citing Patane v. Romeo, 652 N.Y.S.2d 142, 144 (App.Div. 1997); Kaufman v. Le Curt Constr. Co., 601 N.Y.S.2d 186, 187, 188 (App.Div. 1993))). New York Civil Practice Law and Rule, section 5001(b) provides in pertinent part that prejudgment interest,

shall be computed from the earliest ascertainable date the cause of action existed, except that interest upon damages incurred thereafter shall be computed from the date incurred. Where such damages were incurred at various times, interest shall be computed upon each item from the date it was incurred or upon all of the damages from a single reasonable intermediate date.

N.Y. CPLR § 5001(b) (McKinney 2004). Further, "where damages are incurred at various times after the cause of action accrues, section 5001 grants courts wide discretion in determining a reasonable date from which to award pre-judgment interest."Conway v. Icahn Co., 16 F.3d 504, 512 (2d Cir. 1994) (citingCotazino v. Basil Dev. Corp, 562 N.Y.S.2d 988, 991 (App.Div. 1990) (calculating prejudgment interest from the date the action was commenced)); cf. Esquire Radio Elecs. Inc. v. Montgomory Ward Co., Inc., 804 F.2d 787, 796 (2d Cir. 1986) ("In the case of anticipatory repudiation on payments due over a period of time, [N.Y. CPLR § 5001(b)] has been construed to mean a reasonable intermediate date during the period in which payments due would have been made.") (emphasis added).

The Court here finds that the cause of action under the MOU first accrued on August 1, 1999, the day the last of the invoices, No. 155, was due. CHS contends that the cause of action accrued on May 10, 1999, the due date for invoice No. 149. (See CHS's Post-Trial Br. at Ex. B.) However, this argument fails on two counts: (1) St. Francis had a right to hold back invoice Nos. 149 and 150 prior to its material breach of the MOU (CHS's Ex. 2, ¶ 10) — at this time it could be argued that St. Francis was still attempting performance under the MOU; and, (2) invoice No. 149 was fully paid as the Court has found that CHS was not granted a $5 rate increase, supra, Part IV.A.1. It is for the former reason that the Court also does not find that the cause of action accrued on May 25, 1999, when CHS contends invoice No. 150 was due. June 6, 1999 is, therefore, the "earliest ascertainable date the cause of action existed." N.Y. CPLR § 5001. However, damages were incurred at various times since June 6, 1999.¹⁰ (See CHS's Post-Trial Br., Ex. B.) Therefore, because New York law allows the Court to choose a "single reasonable intermediate date," N.Y. CPLR § 5001(b), in situations such as the present, the Court finds that prejudgment interest should be calculated from August 1, 1999, the date the most recent invoice, No. 155, was due, going forward to today.

10 In fact, damages on invoice No. 150 may not have occurred until September 22, 2000 when St Francis' letter to CHS formally and unjustly suspended all payment and communication regarding the MFCU investigation. (See Def.'s Ex. UU.) Until that time, St. Francis could still be said to be "cooperating in good faith" pursuant to paragraph ten and, therefore, still able to hold back the unpaid portion of invoice No. 150 in case a settlement with the Attorney General's office required "immediate repayment." (See CHS's Ex. 2, ¶ 10.)

Thus, CHS is owed prejudgment interest in the amount of a 9% per year, simple rate, beginning as of August 1, 1999, continuing until the date of this judgment. St. Francis owes CHS prejudgment interest in the amount of $95,340.81.

Conclusion

As set forth in its findings of fact and conclusions of law above, the Court finds as follows:

(1) As to defendant/cross-claimant CHS's breach of contract claim, the Court finds for CHS. Defendant St. Francis hereby owes damages to CHS in the amount of $190,004.10

(2) As to defendant/cross-claimant CHS's request for prejudgment interest, the Court finds for CHS. Defendant St. Francis hereby owes prejudgment interest to CHS in the amount of $95,340.81

The Court hereby orders CHS to appear on March 3, 2005, at 9:30 a.m., with defendant Staten Island Hospital for a conference to fix a date for the jury trial in this action.

SO ORDERED.