In a recent filing by Amerix / CareOne over a dispute with the non-profit credit counseling group CESI Debt Solutions, some interesting statements were made. This stems from a round of suits by Amerix and CESI that you can read about here and here.
In a document filed with the court in North Carolina, Amerix revels just how dependent they are on the contractual relationship with CESI Debt Solutions.
“All involved have always understood that Amerix could not adjust to an immediate change quickly enough to avoid its demise, unless it either could perform run-off services or had a sufficient bank of early termination fees to carry it through a lengthy marketing, selling and transition period of its own.”
“Amerix has enjoyed unprecedented success, and has set CESI up for any success that it may enjoy in the coming years. Nevertheless, when cash flow is unexpectedly cut by well over 37% over the period of a day or two, even the healthiest business would flounder.”
Here, the irreparable harm to Amerix, if CESI is allowed to breach the Services Agreement, is clear: if CESI is allowed to breach the Services Agreement and truncate the run-off period, Amerix will suddenly lose 37% of its business and $31,500,000 in revenue in 2012, which will kill Amerix, unless it has time to search out replacements for CESI to fill the void, consistent with the architecture of the Service Agreement.
Amerix argues that one solution to their dispute with CESI is to do nothing and allow the relationship to continue. “Here, the preservation of the status quo effectively protects financially disadvantaged consumers so that they may continue to receive the appropriate credit counseling services and care. Even a minor disruption of those services jeopardizes the financial well-being of approximately 58,000 Clients. Amerix has been performing Services for these Clients for over thirteen years.”
At the heart of this matter appears to be a desire for CESI debt solutions to terminate their relationship with CareOne and take over the 58,000 or so credit counseling clients they received from CareOne and proceed forward on their own.
CESI is making an argument that the previous consent agreements that CareOne signed with a number of states allows they to terminate the agreement with Amerix / CareOne. And while that may be true, the larger issue here is the compensation due Amerix from terminating that relationship suddenly without paying ” a fair and reasonable” early termination fee.
Here, Amerix merely, and correctly, note that the Service Agreement contemplates that CESI has the option to pay Amerix an early termination fee, because CESI is terminating Amerix’s services before the run-off period ends. In fact, the early termination fee would amount to approximately the same amount of money as the fees that Amerix would generate, net of expenses, absent CESI’s breach.
This provision was specifically written into the Service Agreement so as to avoid the very circumstance that CESI has created — a demand for immediate cessation of all services — including run-off services and a related immediate cessation of the fee payment obligation.
Thus, the early termination fee was designed to give Amerix something on which it could “live” if and when CESI decided to move in a different direction. CESI bargained and negotiated this obligation, and CESI enjoyed the benefit of that bargain. Now, post-expiration, CESI seeks to rewrite the contract. All involved have always understood that Amerix could not adjust to an immediate change quickly enough to avoid its demise, unless it either could perform run-off services or had a sufficient bank of early termination fees to carry it through a lengthy marketing, selling and transition period of its own. Here, Amerix’s irreparable harm arises only if CESI both refuses to allow Amerix to continue performing services during the run-off period and refuses to pay Amerix its early termination fee. The early termination fee will not save Amerix if it is recovered at the end of lengthy litigation, months or years after Amerix’s demise.
Amerix states, “Amerix has plainly admitted that CESI had the right to decline to renew the Service Agreement and that Amerix may only continue servicing Existing Clients for a definite, temporary and ever-reducing transition period. During this “run-off” period, the number of CESI clients for whom Amerix provides service will reduce by a factor of around 1,600-2,500 per month.”
The stakes are exceedingly high in this dispute between Amerix and CESI. It is fairly likely that both organizations will not emerge in the same strong standing they possess today. And this dispute make intact lead to the downfall and closure of one or both of the groups.
Amerix is fight back hard to avoid an outcome which might kill them, “Thus, unless the Court is prepared to allow CESI to kill Amerix on the mere chance that CESI’s motion to dismiss has merit, a result for which CESI has failed to present any support, Amerix has easily demonstrated a substantial likelihood of success on the merits.”
“Amerix clearly states that without an injunction in place permitting it to continue
to exercise its contractual right to service clients during the run-off period and up to and
including a decision in this case, Amerix will die.”
You can read the full document here.
The CESI argument is they should be entitled to close the door, take the clients, and walk away. in fact they even say “CESI may also seek a temporary restraining order and/or preliminary injunction with respect to certain aspects of the relief requested through this motion.
Specifically, CESI seeks the following relief:
- Confirm that the Consent Decree is properly interpreted to mean that CESI may cancel any ongoing right Defendant Amerix Corporation (“Amerix”) may otherwise have under its Service Agreement with CESI to continue providing any services to existing credit counseling and/or debt management clients of CESI beyond the October 31, 2011 expiration of the term of the Service Agreement.
- Confirm that the Consent Decree is properly interpreted to mean that Amerix must provide immediately, and in no event later than five (5) business days from entry of an order of this Court, a detailed sampling of client data, including all database fields and columns, as to the 200 clients for whom only partial data was provided on October 21, 2011. Such a detailed data sampling is essential in order for CESI to construct a database platform for ultimate receipt and handling of all client data for the approximately 58,000 CESI clients for whom Amerix provided services as of the October 31 expiration of the Service Agreement, and for whom CESI will provide such services going forward. Confirm that the Consent Decree is properly interpreted to mean that Amerix must transition all client data and client services for such approximately 58,000 clients from Amerix to CESI within three (3) months of the notice of termination/non-renewal as to the Service Agreement tendered by CESI to Amerix on September 30, 2011 — or on or before December 31, 2011.
- Enforce the Consent Decree on an emergency and expedited basis, through a temporary restraining order and/or a preliminary injunction if necessary, to require Amerix to provide the data sample described in paragraph 2 above within the timeframe indicated therein.
- Enforce the Consent Decree on an emergency and expedited basis, through a temporary retraining order and/or a preliminary injunction if necessary, to require Amerix to conduct the transition described in paragraph 3 above in good faith and within the timeframe indicated therein.
- Modify the Consent Decree to the extent necessary to award the relief requested in paragraphs 2-5 above, should the Court conclude that such modification is necessary.
- Interpret the Consent Decree as precluding the two different measures of monetary damages demanded to date by Amerix (i) purported “actual damages” in the form of lost net revenue if Amerix can no longer provide services to CESI’s clients; or (ii) a purported Early Termination Fee in the form of liquidated damages as described in the Service Agreement between the parties..
As part of the CESI filing is the consent agreement referenced. This portion of the consent agreement Amerix signed, that CESI alludes to states:
Defendants shall not limit the rights of any CCA to cancel any Service Agreement it enters into with Defendants, except that this provision does not prohibit Defendants including as a condition precedent in its agreements that a CCA must give reasonable notice of its intent to cancel the agreement under which a Defendant is providing services to the CCA in order to permit an orderly transition to a new service provider. Under this paragraph, reasonable notice shall not exceed ninety (90) days. Nothing contained in this paragraph shall prevent the Defendants from seeking to recover actual damages against a CCA arising from the CCA’s cancellation of any Service Agreement, including any costs that Defendants incurred in reliance that the CCA would fulfill its Service Agreement with Defendants. This Consent Decree is not intended to and does not foreclose Defendants from negotiating with a CCA a formula for the calculation of actual damages as long as such agreement complies with this paragraph. – Source
While I am familiar with both parties in this dispute, I have no idea how this end. It seems that both entities have a lot to lose if the relationship is severed instantly or without termination compensation. This one is going to leave a mark.
Amerix / CareOne Dispute With CESI Debt Solutions May Prove Fatal by Steve Rhode
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