United States District Court, M.D. Pennsylvania
BEHAVIORAL HEALTH INDUSTRY NEWS, INC., D/B/A/ OPEN MINDS, Plaintiff
MENTAL HEALTH SYSTEMS, INC., Defendant, and Counterclaim Plaintiff,
BEHAVIORAL HEALTH INDUSTRY NEWS, INC., D/B/A OPEN MINDS, MONICA E. OSS, and JOE NAUGHTON-TRAVERS, Counterclaim and Third-Party Defendants
Christopher C. Conner, United States District Court Chief
Open Minds commenced this breach of contract action against
defendant Mental Health Systems, Inc. (“MHS”)
under Pennsylvania law. MHS asserts counterclaims against
Open Minds as well as third-party defendants Monica Oss
(“Oss”) and Joe Naughton-Travers
(“Naughton-Travers”) (collectively, “the
Open Minds defendants”) under Pennsylvania and
California law. The Open Minds defendants move for partial
dismissal of MHS's counterclaims pursuant to Federal Rule
of Civil Procedure 12(b)(6) and to strike paragraph 3 of
MHS's counterclaims in part pursuant to Federal Rule of
Civil Procedure 12(f). The court will grant in part and deny
in part the Open Minds defendants' motion.
Factual Background & Procedural History
a nonprofit corporation located in San Diego, California,
that provides mental health, drug, and alcohol rehabilitation
services to California residents. (Doc. 42 ¶ 1). At all
times relevant herein, non-parties Kimberly Bond
(“Bond”), her husband David Conn
(“Conn”), and Michael Hawkey
(“Hawkey”) worked at MHS. (See id.
¶ 7). Bond was MHS's chief executive officer and
president, Conn was employed as senior vice president of
government relations, and Hawkey was the company's chief
financial officer. (Id.) Open Minds is a health care
consulting business headquartered in Gettysburg,
Pennsylvania, which is owned and run by Oss. (Id.
¶¶ 2-3). Naughton-Travers works at Open Minds as a
senior associate. (Id. ¶ 4).
retained Open Minds in December 2010 to “research,
evaluate and assist in selecting a software vendor to provide
electronic healthcare record (“EHR”)
services.” (Id. ¶ 8; see also
Doc. 42-1). Under the terms of their contract (the
“2010 Agreement”), Open Minds agreed, inter
alia, to provide “objective assistance” to
MHS throughout the vendor selection process. (Doc. 42-1 at 4;
see also Doc. 42 ¶ 44). Open Minds ultimately
identified two possible vendors, and MHS hired one of them.
(See Doc. 42 ¶¶ 9-10). MHS contends that
Open Minds had a “pre-existing [business]
relationship” with this vendor but failed to disclose
the relationship to MHS during the selection process.
(See id. ¶¶ 9, 35). MHS avers that it
would not have selected this vendor, whose services
“vastly exceed the needs of MHS's business model,
” but for the advice of Oss and Naughton-Travers.
(See Id. ¶¶ 10, 35, 44).
early 2012, Oss and Naughton-Travers recommended that MHS
form a for-profit subsidiary entitled Novata as a means to
acquire the Center for Autism Research Evaluation and
Services (“CARES”). (Id. ¶ 13). MHS
retained Open Minds to provide “research and consulting
services” regarding acquisition of CARES. (Id.
¶ 14; see also Doc. 42-2). MHS also contracted
with Open Minds to provide an employee from Open Minds to
serve as MHS's interim business development director to
assist with the acquisition. (Doc. 42 ¶ 14; see
also Doc 42-3). MHS officially acquired CARES in
November 2013. (Doc. 42 ¶¶ 15-16). MHS alleges the
acquisition put MHS in “serious financial
jeopardy” and that Oss and Naughton-Travers realized
this sometime before the spring of 2015. (See id.
¶¶ 18, 36). MHS contends that Oss and
Naughton-Travers only discussed the true financial state of
CARES with Bond and Conn, and presented “inaccurate
financial statements” about CARES to the MHS board.
(See id. ¶¶ 18-19, 36, 38).
February 2016, Hawkey notified the MHS board and San Diego
County that he was concerned about the relationship between
Open Minds, Bond, and Conn, and that he suspected fraudulent
billing by Open Minds. (Id. ¶ 22). The county
performed an audit and concluded that Open Minds had billed
MHS in the amount of $1.4 million for $145, 000 in
expenditures. (Id. ¶ 23). The MHS board, in a
separate investigation, discovered that the Open Minds
defendants hired Conn in August 2014 as a paid consultant.
(Id. ¶¶ 24, 34; see also Doc.
42-4). Under the terms of his employment contract, Conn
received commission payments for securing new projects with
clients, like MHS. (See Doc. 42-4 at 3-4; Doc. 42
¶¶ 25, 34). The Open Minds defendants did not
disclose that Conn was a paid consultant and instead listed
him as an “uncompensated ‘advisory board
member'” on the company website. (Doc. 42 ¶
26). MHS avers that the investigations also revealed that the
Open Minds defendants submitted false invoices to MHS for
work that was never performed or requested and for travel and
meals unrelated to MHS work. (Id. ¶¶
30-31, 33, 43, 51).
Minds commenced this action in the Court of Common Pleas of
Adams County, Pennsylvania, asserting claims for breach of
contract and unjust enrichment. MHS timely removed the matter
to this court. Following Rule 12 motion practice, MHS asserts
four counterclaims against the Open Minds defendants. The
Open Minds defendants move to dismiss three of MHS's
counterclaims for failure to state a claim upon which relief
may be granted and to strike paragraph 3 of MHS's
counterclaims in part. The motion is fully briefed and ripe
12(b)(6) of the Federal Rules of Civil Procedure provides for
the dismissal of complaints that fail to state a claim upon
which relief may be granted. Fed.R.Civ.P. 12(b)(6). When
ruling on a motion to dismiss under Rule 12(b)(6), the court
must “accept all factual allegations as true, construe
the complaint in the light most favorable to the plaintiff,
and determine whether, under any reasonable reading of the
complaint, the plaintiff may be entitled to relief.”
Phillips v. Cty. of Allegheny, 515 F.3d 224, 233 (3d
Cir. 2008) (quoting Pinker v. Roche Holdings, Ltd.,
292 F.3d 361, 374 n.7 (3d Cir. 2002)). In addition to
reviewing the facts contained in the complaint, the court may
also consider “matters of public record, orders,
exhibits attached to the complaint and items appearing in the
record of the case.” Oshiver v. Levin, Fishbein,
Sedran & Berman, 38 F.3d 1380, 1384 n.2 (3d Cir.
1994); Pension Benefit Guar. Corp. v. White Consol.
Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993).
notice and pleading rules require the complaint to provide
“the defendant fair notice of what the . . . claim is
and the grounds upon which it rests.”
Phillips, 515 F.3d at 232 (alteration in original)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
555 (2007)). To test the sufficiency of the complaint, the
court conducts a three-step inquiry. See Santiago v.
Warminster Twp., 629 F.3d 121, 130-31 (3d Cir. 2010). In
the first step, “the court must ‘tak[e] note of
the elements a plaintiff must plead to state a
claim.'” Id. at 130 (alteration in
original) (quoting Ashcroft v. Iqbal, 556 U.S. 662,
675 (2009)). Next, the factual and legal elements of a claim
must be separated; well-pleaded facts are accepted as true,
while mere legal conclusions may be disregarded. Id.
at 131-32; see Fowler v. UPMC Shadyside, 578 F.3d
203, 210-11 (3d Cir. 2009). Once the court isolates the
well-pleaded factual allegations, it must determine whether
they are sufficient to show a “plausible claim for
relief.” Iqbal, 556 U.S. at 679 (citing
Twombly, 550 U.S. at 556); Twombly, 550
U.S. at 556. A claim is facially plausible when the plaintiff
pleads facts “that allow the court to draw the
reasonable inference that the defendant is liable for the
misconduct alleged.” Iqbal, 556 U.S. at 678.
asserts counterclaims against the Open Minds defendants for
common law fraud, breach of contract, and money had and
received. The Open Minds defendants contend that the gist of
the action doctrine bars the fraud claim, and that the
voluntary payment doctrine bars the breach of contract and
money had and received claims. The Open Minds defendants
further contend that paragraph 3 of MHS's counterclaims
should be stricken in part. We address these arguments