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Ray v. Judicial Corrections Services Inc.

United States District Court, N.D. Alabama, Southern Division

May 9, 2018

GINA KAY RAY, et al., Plaintiffs,



         This case is before the court on Defendant CHC Companies, Inc.'s (“CHC Companies”) Motion for Summary Judgment (Doc. # 636), Defendant Correct Care Solutions, LLC's (“CCS”) Motion for Summary Judgment (Doc. # 639), and Defendants CHC Companies' and CCS's Motion to Strike Plaintiffs' Supplemental Exhibits and Supplemental Briefing (Doc. # 648). The parties have fully briefed the motions (see Docs. # 637, 640, 642-43, 645-46, 648-49, 651, 653-54, 661-62), and they are ripe for decision.

         In an earlier order, the court addressed whether Defendant Judicial Correction Services, Inc. (“JCS”) was entitled to summary judgment on Plaintiffs' claims against it. (Docs. # 626 & 627). The court concluded that JCS was entitled to summary judgement on some, but not all, of those claims. Now, the court turns from questions of primary liability to whether Defendants CHC Companies and CCS, both of whom purchased ownership interest in JCS during the pendency of the probation services contract between JCS and the City of Childersburg, are liable for any of the § 1983 claims asserted by Plaintiffs against JCS. For the reasons explained below, the court concludes that they are not.

         I. Factual Background

         The facts set out in this opinion are gleaned from the parties' submissions and the court's own examination of the evidentiary record. All reasonable doubts about the facts have been resolved in favor of the nonmoving party. See Info. Sys. & Networks Corp. v. City of Atlanta, 281 F.3d 1220, 1224 (11th Cir. 2002). These are the “facts” for summary judgment purposes only. They may not be the actual facts that could be established through live testimony at trial. See Cox v. Adm'r U.S. Steel & Carnegie Pension Fund, 17 F.3d 1386, 1400 (11th Cir. 1994).

         A. JCS's Merger with CHC Companies

         On September 30, 2011, Defendant CHC Companies purchased all of JCS's stock through a reverse subsidiary merger.[1] (Doc. # 647-1 at 8-9). Under this agreement, Judicial Merger Sub, Inc. merged with JCS, designated as the “Surviving Corporation.”[2] (Id.). JCS held “all the assets, rights, privileges, powers and franchises of” itself and the Judicial Merger Sub, along with all of their “liabilities, restrictions, disabilities, and duties.” (Id. at 9). JCS's equity holders received payouts for their interests in JCS. (See Id. at 11, 14). In the merger agreement, JCS agreed to help fund the “Indemnification Escrow Fund.” (Id. at 12). JCS disclosed all pending litigation matters against JCS, its officers, its directors, and its affiliates at the time of the merger. (See Id. at 26-27; Doc. # 647-3 at 55). Of course, this action was not listed in the litigation schedule because this action had not commenced when the merger occurred. (See Doc. # 647-3 at 55). The merger agreement contained an indemnification agreement. (Doc. # 647-2 at 13-18).

         The merger agreement required JCS's executives to resign from JCS. (See Doc. # 647-1 at 16). Also, it required those executives to enter into an employment agreement and a non-compete agreement with CHC Companies. (See Docs. # 647-2 at 10; 647-3 at 7). Following the merger, JCS's executives reported to CHC Companies, rather than a board of directors. (Doc. # 641-4 at 80). Jarrett Gorlin, one of JCS's prior owners, served as JCS's president and reported to CHC Companies' chief executive officer (“CEO”), Doug Goetz. (Doc. # 641-4 at 34-35, 270). Goetz and other CHC executives helped review Gorlin's letter to JCS employees about the sale. (See Doc. # 428-3 at 21-22) (email from Goetz to other executives asking for suggestions for the letter). Dennis Moon, JCS's chief operating officer (“COO”) at the time of the merger, continued to work for JCS after the merger for a period of time. (Doc. # 641-4 at 99).

         Don Houston, the COO for CHC Companies at the time of the merger, testified that the entity changed its name from Correctional Healthcare Companies to CHC Companies “for tax purposes and other things.”[3] (Id. at 24-26). He asserted that when the transaction occurred CHC Companies and JCS intended to provide a “one-stop shop for the provision of probation and healthcare services to the criminal justice system.” (Id. at 79-80).

         B. JCS's Operations Following the 2011 Merger

         In October 2011, JCS identified Goetz as its CEO, Charlie Farrahar as its chief financial officer (“CFO”), and Larry Wolk as its secretary. (Doc. # 647-6). At the time, Goetz also served as CHC Companies' CEO. (See Doc. # 641-4 at 34-35). Goetz acted as JCS's CEO in 2012 and 2013 as well. (Id. at 269-70). In 2014, Dirk Allison became CEO of JCS. (Id. at 268). At that time, Allison also served as CEO and president of CHC Companies. (Id. at 163-64, 265).

         In December 2011, Houston wrote to Goetz stating that he intended “to make sure JCS truly becomes part of CHC, especially from an operational and financial perspective.” (Doc. # 428-3 at 106). Houston explained during his deposition that CHC Companies tried to integrate some of JCS's functions into CHC Companies, but he described the attempt as “more of . . . an aspirational integration than an actual integration.” (Doc. # 641-4 at 35-36). Following the merger, JCS employees were transferred from JCS's payroll to CHC Companies' payroll.[4] (Id. at 36). Houston was responsible for ensuring JCS's financial performance, but he played “no part in the day-to-day operations.” (Id. at 58-59).

         In 2012, Goetz oversaw JCS's operations. (Id. at 90). In 2013, after Allison replaced Goetz as CEO of CHC Companies, Houston began overseeing its operations. (Id. at 90-91). At some point, Houston began signing certain contracts on behalf of JCS. (Id. at 92). And, in 2013, Houston selected a new COO for JCS. (Id. at 124). Colleen Ray, JCS's Alabama manager, testified that officers in Colorado had to approve marketing and political contribution decisions. (Doc. # 392-11 at 191-92).

         C.CHC Companies' Merger with CCS

         The parties strongly dispute the nature of the business relationship between CCS and CHC Companies. Plaintiffs characterize the transaction as a merger. (See Doc. # 642 at 21-22). In June 2014, JCS's CEO wrote, “On June 12, 2014, Correctional HealthCare Companies (CHC) announced that their owners have entered into a merger with Correct Care Solutions (CCS), which is currently the 2nd largest company in the industry, based out of Nashville, Tn.” (Doc. # 641-6 at 2). The CEO stated that “[f]or JCS, business will remain primarily unaffected.” (Id.). And, he asserted that “JCS [would] remain an industry leader in the southeast, by continuing to provide quality services to our courts.” (Id.).

         In contrast, David Perry, CCS's chief legal officer, has explained that CCS Group Holdings, LLC and Jessamine Healthcare Holdings[5] “were placed under common ownership.” (Doc. # 641-7 at 60-61). According to Perry, the owners of CCS Group Holdings and Jessamine exchanged their ownership interests in the respective companies “for ownership interest in the new entity on a proportional basis.” (Id. at 61). Houston recalled that employees of CHC Companies were paid by CCS following the merger, but “still referred to themselves as CHC employees.” (Doc. # 641-4 at 165). The Securities Exchange Agreement submitted by Defendant CCS reflects that CCS Group Holdings and Jessamine transferred their individual stock for stock shares in CCS-CHC Holdings, LLC. (Doc. # 641-8 at 8, 77).

         As of January 2015, CCS handled all of the in-house payroll, accounting, and legal services for CHC Companies and JCS. (Doc. # 641-4 at 49-50). CCS also handled most of the compliance and human resources issues. (Id. at 50, 53). In late 2015, when JCS closed its offices in the state of Alabama, Houston participated in that decision, along with Ray and Karen Lloyd. (Id. at 122-23, 171-72). By that time, Houston served as CCS's president of state and federal affairs. (Id. at 48). CCS's legal department handled the transactions necessary to cease JCS's operations in Alabama. (Id. at 123).

         II. Procedural Background

         During an October 2016 discovery conference, Plaintiffs' counsel notified the court of discovery disputes regarding redactions made to purchase agreements between JCS, CHC Companies, and CCS and exclusions of certain schedules from those agreements. (Doc. # 492 at 25-27). Plaintiffs' counsel also discussed redactions made to certain emails. (Id. at 36-37). The court ordered Plaintiffs and Defendant City of Childersburg to prepare a joint request for production of documents related to the purchase agreements. (Doc. # 490 at 1). It also ordered Plaintiffs, CHC Companies, and CCS to prepare a joint report about which redacted emails were still in dispute. (Id. at 2). Because the redacted and withheld documents at issue contained sensitive information, the court referred this discovery dispute to a Magistrate Judge. In November 2016, the Magistrate Judge ordered Defendants to produce the disputed documents for an in camera review. (Doc. # 509).

         In January 2017, Defendants CHC Companies and CCS filed their initial motions for summary judgment. (Docs. # 543, 549). In May 2017, the court set those motions, along with other motions, for oral argument on July 24, 2017. (Docs. # 609 & 610). On July 17, 2017, the Magistrate Judge concluded that Plaintiffs were entitled to an unredacted version of the merger agreement between JCS and CHC Companies and that Defendants needed to remove some redactions from emails pertaining to operations in Alabama. (See Doc. # 612). At oral argument, Plaintiffs' counsel disclosed to the court that they had received additional relevant documents following the Magistrate Judge's order. (Doc. # 620 at 101). The court concluded that the Rule 56 record should be supplemented before ruling on Defendants' summary judgment motions. (Id. at 107-08). Defendants' counsel did not oppose supplementing the record, although he believed that it would make no difference. (Id. at 108). Accordingly, the court administratively terminated the initial summary judgment motions. (Doc. # 616).

         In September 2017, the parties resolved the remaining discovery disputes. (See Doc. # 635). The court directed Defendants to re-submit their summary judgment motions. (Id.). And, the court granted the parties leave to “file supplemental briefs of up to fifteen (15) pages with their response and reply submissions.” (Id.).

         III. Standard of Review for ...

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