United States District Court, N.D. Alabama, Southern Division
DAVID PROCTOR UNITED STATES DISTRICT JUDGE.
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
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.
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).
JCS's Merger with CHC Companies
September 30, 2011, Defendant CHC Companies purchased all of
JCS's stock through a reverse subsidiary
merger. (Doc. # 647-1 at 8-9). Under this
agreement, Judicial Merger Sub, Inc. merged with JCS,
designated as the “Surviving
Corporation.” (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).
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).
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.” (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).
JCS's Operations Following the 2011 Merger
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).
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. (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).
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).
Companies' Merger with CCS
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
contrast, David Perry, CCS's chief legal officer, has
explained that CCS Group Holdings, LLC and Jessamine
Healthcare Holdings “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).
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).
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).
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).
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.”
Standard of Review for ...