Baker v. Otter Creek Assoc ( 2024 )

7ermont Superior Court
Filed 11/19/24
Chittenden tUnit
VERMONT SUPERIOR COURT CIVIL DIVISION
Chittenden Unit Case No. 24-CV-01406
175 Main Street
Burlington VT 05401
802-863-3467
www.vermontjudiciary.org
Katherine Baker et al v. Otter Creek Associates, Inc. et al
DECISION ON MOTION TO DISMISS
Plaintiffs Katherine Baker, Philip LaPlante, and Sarah Stout sue Defendants Otter Creek
Associates ("Otter Creek") and Matrix Health Systems, P.C. ("Matrix") for damages arising out of
their joining the Otter Creek/Matrix practice group in Brattleboro. They assert a litany of claims:
violation of the Vermont Consumer Protection Act, breach of contract, breach of the implied covenant
of good faith and fair dealing, fraud, constructive fraud, and negligent misrepresentation and
nondisclosure. Defendants move to dismiss twelve of the eighteen claims. The court grants the motion
in part and denies it in part.
FACTS ALLEGED
The purpose of a motion to dismiss "is to test the law of the claim, not the facts which support
it." Powers v. Office of Child Support, 173 Vt. 390, 395 (2002). Thus, on a motion to dismiss, the court
assumes the truth of the facts alleged, making all reasonable inferences in the plaintiff's favor.
Montague v. Hundred Acre Homestead, LLC, 2019 VT 16, 1 10, 209 Vt. 514. For purposes of this
motion, then, the following factual narrative is the platform for the court's legal analysis.
Ms. Baker, Dr. LaPlante, and Ms. Stout are mental health clinicians who specialize in the
provision of psychiatric and mental health services to child and adult patients. Otter Creek and Matrix
are Vermont corporations that "held themselves out as joint operators of [a] medical group practice."
While Ms. Baker, Dr. LaPlante, and Ms. Stout each signed separate agreements with Otter Creek, they
allege that Otter Creek and Matrix worked together and that the individuals each plaintiff met with
when deciding whether to join the practice group were affiliated with both Otter Creek and Matrix.
They allege further that they "joined Defendants' group practice at Defendants' Brattleboro, Vermont
location to receive the office space and administrative services necessary to run their practices."
Plaintiffs assert that both Defendants were responsible for failing to credential them properly to enable
them to be paid for services they provided, both Defendants engaged in erroneous and incomplete
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billing practices, both Defendants engaged in improper collection practices, and both Defendants failed
to fulfill their obligations regarding scheduling, maintaining a safe and secure office, and other
administrative functions. They also allege that both Defendants “engaged in deceptive acts or practices
in commerce in their marketing and promotion of their services, including the provision of office space
and administrative services.” Finally, they allege that Defendants made misrepresentations and
material omissions in inducing each Plaintiff to sign their agreements.
ANALYSIS
On these basic facts, the Complaint sets forth 18 claims—six substantially identical claims on
behalf of each the three Plaintiffs: violation of the Vermont Consumer Protection Act, breach of
contract, breach of the implied covenant of good faith and fair dealing, fraud, constructive fraud, and
negligent misrepresentation and nondisclosure. Defendants move to dismiss all but the breach of
contract and negligent misrepresentation and nondisclosure claims. They also move to dismiss all
claims against Matrix. The court begins its analysis with the propriety of naming Matrix, and then
turns to each of the substantive claims, in the order they appear in the Complaint.
Matrix as Party
Plaintiffs assert that Otter Creek alone is liable for breach of contract and breach of the implied
covenant of good faith and fair dealing and that both Otter Creek and Matrix are liable for the other
causes of action. Defendants contend that the claims against Matrix are based on negotiations that
occurred before Plaintiffs signed their affiliation agreements and contracted with Otter Creek for the
provision of administrative services and office space and that Plaintiffs allege no facts indicating that
Matrix was involved in any negotiations or the formation of the affiliation agreements. The short
answer to this argument is that it is an attack not on the sufficiency of the allegations of the Complaint,
but instead on the proof of those allegations.
In the Complaint, Plaintiffs allege that Otter Creek and Matrix “held themselves out as joint
operators of the medical group practice.” Complaint ¶ 8. Plaintiffs base this statement on Defendants’
employees’ email signatures, which included both “Otter Creek Associates” and “Matrix Health
Systems”; the domain name for the employees’ email addresses, which was “ocamhs.com”;
Defendants’ organizational chart, which included both entities at the top; checks Defendants gave to
Plaintiffs were drawn on an account identified as “Matrix Health Systems, P.C.”; the business
associate agreement that each plaintiff signed identified the “business associate” as “Matrix Health
Systems, PC/Otter Creek Associates”; and credit card payments by patients were processed using a
“Matrix Health Systems Merchant Account.” Id. Even though Plaintiffs’ affiliation agreements were
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with Otter Creek, Plaintiffs assert that Otter Creek and Matrix worked together and that the individuals
each plaintiff met with when deciding whether to join the practice group were affiliated with both Otter
Creek and Matrix. Plaintiffs assert that both Defendants were responsible for failing to credential them
properly to enable them to be paid for services they provided, id. ¶¶ 50–65, both Defendants engaged
in erroneous and incomplete billing practices, id. ¶¶ 66–81, both Defendants engaged in improper
collection practices, id. ¶¶ 82–86, and both Defendants failed to fulfill their obligations regarding
scheduling, maintaining a safe and secure office, and other administrative functions, id. ¶¶ 87–93.
Apparent authority is based on “ ‘conduct of the principal, communicated or manifested to [a]
third party, which reasonably leads the third party to rely on the agent’s authority.’ ” Lakeside Equip.
Corp. v. Town of Chester, 2004 VT 84, ¶ 7, 177 Vt. 619 (mem.) (quoting Lakeside Equip. Corp. v.
Town of Chester, 173 Vt. 317, 325 (2002)) (further quotation and citation omitted).
“Apparent authority may arise when the actions of the principal, reasonably interpreted,
cause a third person to believe in good faith that the principal consents to the acts of the
agent. Apparent authority also may arise when the principal knowingly permits the
agent to act in a certain manner as if he were authorized. The action or manifestation of
authority giving rise to the reliance must be that of the principal, and the reliance by the
third person on the action or manifestation of authority must be reasonable.”
New England Educ. Training Serv., Inc. v. Silver St. P’ship, 148 Vt. 99, 105 (1987) (quoting Miller v.
Mueller, 343 A.2d 922, 926 (Md. Ct. Spec. App. 1975)); see Restatement (Second) of Agency § 27
cmt. a (finding apparent authority requires that principal intends third party to believe agent is
authorized to act for it or that its conduct is likely to create such belief).
Plaintiffs contend that Defendants were acting as a single unit and that they reasonably believed
Otter Creek had authority to act on Matrix’s behalf. Cf. In re Chinese-Manufactured Drywall Prods.
Liab. Litig., 753 F.3d 521, 534 (5th Cir. 2014) (agency relationship established where principal and
agent held themselves out as same entity to customers and where agent used principal’s email address,
phone number, business card, and websites). “It is usually a question for the trier of fact whether a
reasonable person in the position of a third party would believe that an agent had the authority or the
right to do a particular act.” Restatement (Third) of Agency § 2.03 cmt. d. “It is a separate but related
question of fact whether such a belief is traceable to a manifestation of the principal.” Id.
Plaintiffs have sufficiently alleged Matrix’s involvement in the various activities that are the
subject of the Complaint, either directly or through Otter Creek as its agent. While the motion to
dismiss amply suggests reasons to believe that Plaintiffs may not be able to prove many of these
allegations, that is not the function of a motion to dismiss. For present purposes, it suffices to say that
Plaintiffs’ allegations against Matrix are sufficient. Rule 56, not Rule 12(b)(6), is the proper vehicle for
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testing the evidence underlying those allegations. The claims against Matrix stand, to the extent they
survive the substantive challenges addressed below.
Vermont Consumer Protection Act
In their consumer protection claims, Plaintiffs allege that both Defendants “engaged in
deceptive acts or practices in commerce in their marketing and promotion of their services, including
the provision of office space and administrative services[.]” Complaint ¶¶ 102, 112, 122. For purposes
of the Act, a trade or practice is deceptive if it involves (1) a representation, practice, or omission by a
defendant that is likely to mislead consumers, (2) a plaintiff’s interpretation of the defendant’s
representation, practice, or omission that is reasonable in the circumstances, and (3) materiality of the
defendant’s representation, practice, or omission on the plaintiff’s conduct in the transaction. Ianelli v.
U.S. Bank, 2010 VT 34, ¶ 10, 187 Vt. 644 (mem.) (citing Jordan v. Nissan N. Am., Inc., 2004 VT 27, ¶
5, 176 Vt. 465).
A party violates the VCPA if it engages in unfair or deceptive acts or practices “in commerce.”
9 V.S.A. § 2453(a); see Foti Fuels, Inc. v. Kurrle Corp., 2013 VT 111, ¶¶ 17–21, 195 Vt. 524. While
the Act does not define “in commerce,” case law makes clear that the transaction at issue must “occur
in the consumer marketplace,” and it must be “ ‘in the context of an ongoing business in which the
defendant holds himself out to the public.’ ” Id., 2013 VT 111, ¶ 21 (quoting Zeeman v. Black, 273
S.E.2d 910, 915 (Ga. Ct. App. 1980)). Further, the conduct “must have a potential harmful effect on
the consuming public, and thus constitute a breach of a duty owed to consumers in general.” Id. (citing
Zeeman, 273 S.E.2d at 915). The following factors are relevant in determining whether a given party’s
transaction occurred in the consumer marketplace: “(1) whether the offer [or representation] was held
out to the public at large; (2) whether the transaction involved products, goods, or services purchased
or sold for general consumption; and (3) whether the transaction was customized such that it was not
one that typically occurs in the consumer marketplace.” Hoehl Family Found. v. Roberts, No. 5:19-cv-
229, 2020 WL 10790035, at *16 (D. Vt. Oct. 15, 2020) (citing Foti Fuels, 2013 VT 111, ¶ 25).
Otter Creek and Matrix contend that the transactions with Plaintiffs were not “in commerce”
because the office space and services they offered were not marketed to the public at large. In
response, Plaintiffs argue that Otter Creek marketed itself to all mental health clinicians who practiced
or wanted to practice in Vermont. The Complaint alleges that Otter Creek marketed its services
through a website, which stated that Otter Creek had “over 30 years of experience in providing billing
and administrative services to licensed mental health clinicians throughout Vermont.” Complaint ¶ 12.
According to its website, Otter Creek had thirteen offices located around the State, managed medical
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billing for over 80 providers, and its services were “ideally suited for social workers, counselors,
psychiatrists, therapists, medical professionals and more.” Id. ¶ 14. Otter Creek’s website, a page of
which is attached as Exhibit 1 to the complaint, advertises “Billing Services for Clinicians” and
includes a phone number to call for “Medical and Mental Health Billing Services in Vermont.” Exh. 1
to Complaint. The website represents that Otter Creek’s billing professionals:
 Offer expertise in billing procedures to all insurance carriers in Vermont
 Submit billing claims daily
 Provide monthly patient statements
 Can assist with credentialing
 Follow up on claims that are unpaid, paid incorrectly, or need appeals
 Can customize the bill to your business
 Know what diagnosis codes work and where to submit each claim
 Give personalized attention to your clinical practice
 Compile monthly and annual reports for our account
Id.
These allegations are more than sufficient to support the characterization of Otter Creek as
operating in the consumer marketplace. It matters not that Otter Creek offered its services only to
“social workers, counselors, psychiatrists, therapists, medical professionals and more”; “just because
the services offered are directed to a subset of the general public does not mean that the services are
not for ‘general consumption.’ Not everyone desires to or can afford to own real estate, yet the VCPA
applies to companies engaged in the sale of real estate.” Hoehl Family Foundation, 2020 WL
10790035, at *18.
Defendants make three additional attacks on the VCPA claims. First, they assert that Ms. Baker
and Ms. Stout’s prior relationship with them—both worked at the Brattleboro office as part of their
nursing school programs before entering into their affiliation agreements—defeats the characterization
of their claims as occurring in the consumer marketplace. This argument, however, overlooks the fact
that the VCPA claims arise not out of the prior relationship, but instead out of the representations that
Defendants made more broadly to the general class of “social workers, counselors, psychiatrists,
therapists, medical professionals and more.”
Second, Defendants attack Ms. Baker’s VCPA claim because the documents attached as
exhibits to the complaint show that Otter Creek and Matrix did not form a plan to close the Brattleboro
office until after Ms. Baker’s affiliation agreement was executed. Those documents reflect that Ms.
Baker signed her affiliation agreement on December 7, 2020, and a memo addressed to “OCA/MHS
Clinicians” disclosing Otter Creek and Matrix’s decision to close the Brattleboro office was dated just
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ten days later. See Exhs. 1 and 8 to Complaint. The memo does not indicate, however, when
Defendants decided to close the practice. That the decision was announced on December 17 does not
foreclose the possibility that it had been made before December 7. Indeed, it is reasonable to assume
that a decision as weighty as to close a practice was not made overnight. Thus, giving Ms. Baker the
benefit of all reasonable inferences, her VCPA claim survives.
Otter Creek and Matrix also argue that Ms. Baker has waived her VCPA claim because she
entered into a contract renewal after learning of Defendants’ plans to close down the office. Ms. Baker
alleges she first learned of the plans to sell the office building in January 2021. Complaint ¶ 96. She
entered into a contract renewal the following year, in March 2022, effective from April 1 through
December 31, 2022. See Exh. 3 to Complaint. Despite the memo in December 2020 addressing
Defendants’ plans to close the office “in the early part of 2021,” the office was still operating in March
2022, over a year later. Again giving Ms. Baker the benefit of all reasonable inferences, it is reasonable
for her to have believed at that time—at least in the absence of unequivocal evidence to the contrary—
that Defendants had abandoned their earlier plans to close the office. The waiver argument thus fails.
Breach of the Implied Covenant of Good Faith and Fair Dealing
The covenant of good faith and fair dealing is implied in every contract and “ ‘serves to ensure
that parties to a contract act with faithfulness to an agreed common purpose and consistency with the
justified expectations of the other party.’ ” Baldauf v. Vt. State Treasurer, 2021 VT 29, ¶ 27, 215 Vt.
18 (quoting Sutton v. Vt. Reg’l Ctr., 2019 VT 71A, ¶ 62, 212 Vt. 612); accord Carmichael v.
Adirondack Bottled Gas Corp. of Vt., 161 Vt. 200, 208 (1993) (quoting Restatement (Second) of
Contracts § 205 comment a). “An underlying principle implied in every contract is that each party
promises not to do anything to undermine or destroy the other’s rights to receive the benefits of the
agreement.” Carmichael, 161 Vt. at 208 (citing Shaw v. E.I. DuPont de Nemours & Co., 126 Vt. 206,
209 (1966)). It is well-accepted, however, that “ ‘[w]here a party alleges both breach of contract and
breach of the implied covenant of good faith and fair dealing, dual causes of action are permitted only
where the different actions are premised on different conduct[.]’ ” Beldock v. VWSD, LLC, 2023 VT
35, ¶ 53 (quoting Tanzer, 2018 VT 124, ¶ 33).
This principle mandates dismissal of the implied covenant claims here. In their breach of
contract counts, Plaintiffs allege that Otter Creek failed to provide the administrative services it agreed
to provide pursuant to the terms of the affiliation agreements and the course of conduct that the parties
had established. Their implied covenant claims rest on the same foundation. Plaintiffs allege no other
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conduct separate from Otter Creek’s breach of obligations under the agreements themselves.
Accordingly, Counts Seven–Nine fail to state a claim on which relief can be granted.
Fraud Claims
“The essential elements of a fraud claim are (1) intentional misrepresentation of a material fact;
(2) that was known to be false when made; (3) that was not open to the defrauded party’s knowledge;
(4) that the defrauded party acts in reliance on that fact; and (5) is thereby harmed.” Estate of Alden v.
Dee, 2011 VT 64, ¶ 32, 190 Vt. 401 (citing Lewis v. Cohen, 157 Vt. 564, 568 (1991)). Importantly, for
purposes of this case, “liability for fraud may be premised ‘on the failure to disclose material facts as
well as on affirmative misrepresentations.’ ” In re Strouse, 2011 VT 77, ¶ 15, 190 Vt. 170 (quoting
Sugarline Assocs. v. Alpen Assocs., 155 Vt. 437, 444 (1990)). Plaintiffs base their fraud claims on
Defendants’ intentional misrepresentations regarding the administrative and other services they
promised to provide as well as on Defendants’ failure to disclose their plans to sell the Brattleboro
office building and close the practice. Plaintiffs assert that this intention was a material fact—that they
would not have agreed to affiliate with Defendants, or in the case of Ms. Baker to renew her contract,
had they known of Defendants’ plans. They assert further that Defendants knew that if this plan were
disclosed, Plaintiffs would not have executed their affiliation agreements and joined the practice.
Defendants argue that these claims are deficient because (1) Plaintiffs failed to allege facts indicating
an intent to defraud, (2) they had no duty to disclose any plans they may have had about selling the
building and closing the Brattleboro practice, and (3) Ms. Baker fails to plead damages.
Defendants’ first argument rests on the uncontroversial assertion that fraud must be pleaded
with specificity. V.R.C.P. 9(b). They take issue with Plaintiffs’ allegation that Defendants “knew” that
disclosure of their intent to close the Brattleboro office would keep Plaintiffs from affiliating with the
office; they contend that Plaintiffs fail to plead that Defendants acted with malice in withholding this
information from them. In the context of this case, however, “malice” is not a necessary element.
Instead, Plaintiffs must plead and prove only knowledge and intent; “malice” is then implicit. See
Follo v. Florindo, 2009 VT 11, ¶ 46, 185 Vt. 390; see also Proctor Trust Co. v. Upper Valley Press,
Inc., 137 Vt. 346, 354 (1979) (“ ‘Actual fraud’ is deceitful misrepresentation or concealment with evil
intent[.]”) (citation omitted). Rule 9(b) specifically states that “[m]alice, intent, knowledge, and other
condition of mind . . . may be averred generally.” Thus, while Defendants may question Plaintiffs’
ability to prove their allegations of knowledge, those allegations are sufficient to state a claim.
Defendants next suggest that they had no duty to disclose their intentions because they were not
in a confidential or fiduciary relationship with Plaintiffs. The duty to disclose, however, is not limited
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to confidential or fiduciary relationships. It also applies to situations where one party has “ ‘superior
knowledge or means of knowledge.’ ” Lay v. Pettengill, 2011 VT 127, ¶ 14, 191 Vt. 141 (quoting
White v. Pepin, 151 Vt. 413, 416 (1989)); accord Silva v. Stevens, 156 Vt. 94, 103 (1991); see also
Cheever v. Albro, 138 Vt. 566, 571 (1980) (“ ‘The test of liability for failure to disclose facts material
to the transaction is some duty, legal or equitable, arising from the relations of the parties, such as that
of trust or confidence, or superior knowledge or means of knowledge.’ ”) (quoting Newell Bros. v.
Hanson, 97 Vt. 297, 304 (1924)). Plaintiffs allege that none of them knew of Defendants’ plans to
close the practice or sell the building when they first agreed to join the practice and signed their
affiliation agreements, and that Ms. Baker reasonably assumed in March 2022, when she signed her
contract renewal, that Defendants had decided not to sell the office building after all.
This is not a situation “ ‘where facts are equally within the means of knowledge of both parties,
[such that] neither party is required to speak, in the absence of inquiry respecting such matters.’ ” Lay,
2011 VT 127, ¶ 14 (quoting White, 151 Vt. at 416 (further citations omitted)). It is more like the
situation in Silva, where sellers of a house withheld information about its true condition to induce the
buyers to purchase the house. 156 Vt. at 98–100. In response to the buyers’ claim for fraudulent
nondisclosure, the sellers denied they had any duty to disclose the withheld information because the
parties were engaged in an “arm’s length transaction.” Id. at 103. The Court disagreed, stating: “A duty
‘aris[es] from the relations of the parties, such as that of trust or confidence, or superior knowledge or
means of knowledge.’” Id. (quoting Cushman v. Kirby, 148 Vt. 571, 575 (1987)). The Court concluded
that such a duty arises “ ‘[w]here material facts are accessible to the [defendant] only, and he
knows them not to be within the reach of the diligent attention, observation and judgment of the
[plaintiff].’ ” Id. (quoting Cushman, 148 Vt. at 576 (further citation omitted)); accord Vinci v. V.F.
Corp., No. 2:17-cv-00091, 2018 WL 1027429, at *9 (D. Vt. Feb. 21, 2018). Plaintiffs’ allegations
sufficiently satisfy this test.
With respect to Ms. Baker, Defendants argue that she could not have suffered damages because
she opted to renew her contract in March 2022. Ms. Baker asserts that she relied on the automatic
renewal provision of her affiliation agreement and that if she had known Defendants had no intention
of allowing the agreement to renew automatically at the end of the term, she would not have initially
entered into the affiliation agreement with Otter Creek. Complaint ¶¶ 173–74. Ms. Baker asserts she
was harmed by Defendants’ representations and omissions and, as a result, lost income and patients
and incurred costs. Id. ¶ 175. Because she has asserted damages suffered as a result of Defendants’
misrepresentations and omissions, Ms. Baker has stated a claim for fraud.
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Constructive Fraud
Finally, Defendants seek dismissal of Plaintiffs’ constructive fraud claims (Counts Thirteen–
Fifteen). “Constructive fraud may occur where a wrongful act injures another but is done without bad
faith or a malevolent purpose on the part of the perpetrator.” Hardwick-Morrison Co. v. Albertsson,
158 Vt. 145, 150 (1992) (cited with approval by McDougall v. Lamson, No. 2021-149, 2021 WL
6052832, at *2 (Vt. Dec. 17, 2021) (unpub. mem.)). Where a misrepresentation does not rise to the
level of deceit or actual fraud, or where a party is “in a position of superior knowledge” and “gains an
unfair advantage” at another’s expense, a cause of action for constructive fraud may be appropriate.
Albertsson, 158 Vt. at 150 (citing Proctor Trust Co., 137 Vt. at 354; Griffin v. Griffin, 125 Vt. 425,
437–38 (1965)).
In their constructive fraud claims, Plaintiffs seek only monetary damages. Complaint ¶¶ 212,
224, & 236. Money damages, however, are generally not recoverable under a theory of constructive
fraud. Albertsson, 158 Vt. at 150 (“Constructive fraud is an equitable claim that typically has not
afforded relief in the form of monetary damages.”); see 10 American Law of Torts § 32:11 n.1
(“constructive fraud or inequitable conduct is remedial in equity”); 37 C.J.S. Fraud § 5
(“Constructive fraud is an equitable claim that typically does not afford a relief in the form of
monetary damages.”). Moreover, Plaintiffs have failed to allege that they and Defendants share the
kind of “confidential relationship” that many courts around the country have held is required to support
a constructive fraud claim. See, e.g., Thompson v. UBS Fin. Servs., Inc., 443 Md. 47, 69 (Md. 2015)
(“For constructive fraud’s purposes, a defendant owes an equitable duty to a plaintiff where the parties
are in a confidential relationship.”); Jensen v. IHC Hospitals, Inc., 944 P.2d 327, 339 (Utah 1997)
(“Constructive fraud requires two elements: (i) a confidential relationship between the parties; and (ii)
a failure to disclose material facts.”); Vogt v. Town & Country Realty of Lincoln, Inc., 194 Neb. 308,
231 N.W.2d 496 (1975) (“Constructive fraud involves a breach of a fiduciary duty . . . .”).
Accordingly, these counts fail to state a claim for which relief can be granted.
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ORDER
The court grants the motion to dismiss in part and denies it in part. Plaintiffs’ claims for breach
of the covenant of good faith and fair dealing (Counts Seven–Nine) and constructive fraud (Counts
Thirteen–Fifteen) are dismissed. The remaining claims survive. The parties shall confer and submit a
discovery stipulation within thirty days of this order.
Electronically signed pursuant to V.R.E.F. 9(d): 11/19/2024 12:53 PM
___________________________
Samuel Hoar, Jr.
Superior Court Judge
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