Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—N.D. Ill.: Claims against former client and successor staffing services company dismissed, (Jun 30, 2016)

By Michael Menzhuber, J.D., LL.M.

A health care staffing company’s claim that a former client, and the staffing company that succeeded it after the former client terminated its contract, violated the Illinois Uniform Deceptive Trade Practices Act (UDTPA) was dismissed by the federal district court in Chicago. The court also dismissed the Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) claim against the staffing company, the tortious interference claims against the former client and the staffing company, and the breach of contract claim against the former client (ATC Healthcare Services, Inc. v. RCM Technologies, Inc., June 28, 2016, Chang, E.).

ATC Healthcare Services, Inc. (ATC), a health care staffing company, had a contract with Chicago Public Schools (CPS) to provided nurses, trained by ATC, to work with their disabled and special-needs students. The final renewal period for the contract (extension agreement) extended the contract to June 30, 2016. The nurses ATC provided were at-will employees of ATC. The nurses’ employment agreements were usually only for the school year and had to be renewed annually. The employment agreement also contained a non-compete provision which prohibited them from soliciting or accepting work from the client for one year.

The staffing services contract between ATC and CPS did not guarantee ATC any actual service assignments and gave CPS the right to terminate the contract at any time, so long as it gave notice. In June 2015, CPS informed ATC that it would not be renewing ATC’s contract after the 2015-16 school. Later that month, CPS approved a bid by RCM Technologies, Inc. (RCM) to provide nursing staffing services. Then, a little more than two weeks before the school year, CPS notified ATC that it was terminating their contract for the 2015-16 school year.

After being awarded the bid by CPS, RCM began soliciting ATC nurses for employment and, as the school year approached, began trying to schedule them into their previous assignments. According to ATC, the nurses were confused over being contacted by RCM. When the school year started, nurses were unavailable for scores of special-needs students and ATC, even though its contract with CPS had been canceled, was inundated with calls from principals and case managers who were upset that nurses had not shown up for the first day of school.

ATC subsequently filed a suit which alleged that: (1) both CPS and RCM violated UDTPA; (2) RCM violated the Consumer Fraud Act; (3) CPS tortiously interfered with ATC’s prospective economic advantage; (4) RCM tortiously interfered with ATC’s employment agreement with its nurses; and (5) CPS breached its extension agreement with ATC. RCM and ATC both responded by filing a motion to dismiss.

The court determined that ATC did not state a claim under UDTPA because, after noting that a defendant must make some form of communication to the public regarding the plaintiff’s services that is "false, misleading or deceptive", it found that none of the alleged communications by RCM (that were supposedly facilitated by CPS) disparaged ATC’s services. The court also determined that ATC failed to sufficiently allege the existence of a "likelihood of confusion" because: (1) ATC only alleged confusion with respect to who would ultimately provide nursing care to CPS, the means by which the services would be provided, and the ability of ATC employees to violate the terms of their existing employment agreements; and (2) did not allege that RCM’s actions created confusion among ATC’s nurses, students, parents, or CPS employees about which company was which.

With respect to the Consumer Fraud Act, the court noted that, while the Act is primarily concerned with protecting consumers, non-consumer businesses are able to sue other businesses under the Act if the challenged conduct "involves trade practices addressed to the market generally or otherwise implicates consumer protection concerns". The court determined that ATC’s allegations to this effect were insufficient because they did not allege that RCM’s deceptive acts were: (1) ever directed toward the students or the general marketplace; or (2) designed to deceive CPS or CPS’s students.

The court dismissed ATC’s claim for tortious interference with economic advantage because ATC failed to allege that it was damaged by RCM’s solicitations of ATC nurses. The court also noted that, regardless of ATC’s failure to allege damages, it would have probably dismissed the claim due to competitor’s privilege.

The court also dismissed ATC’s claim for tortious inference with contract because the employment contracts with ATC nurses were terminable at-will and, under Illinois law, inducing a third-party to cancel an at-will contract does not result in breach of contract. The court also determined that the non-compete clauses in the employment contract were not valid and, therefore could not be breached, because, even assuming that RCM was an affiliate of CPS for purposes of the non-compete clauses, the non-compete clauses lacked a legitimate protectable business interest.

Finally, the court dismissed ATC’s claim that CPS breached the implied covenant of good faith and fair dealing by helping RCM "take over" ATC’s nurses. Despite ATC’s argument to the contrary, the court found the CPS had a contractual right to terminate ATC’s contract at will and to use as many or as few ATC nurses as it wished. Also, nothing in the contract stated that nurses’ information was confidential and that CPS could not provide this information to a third-party such as RCM.

The case is No. 15 C 08020.

Attorneys: Brian W. Coffman (Querrey & Harrow, Ltd.) and Lance D. Northcutt (Northcutt Firm PC) for ATC Healthcare Services, Inc. Cynthia Barnes Harris, Board of Education City of Chicago, for The Board of Education of the City of Chicago. Daniel Keenan Ryan (Hinshaw & Culbertson LLP) for RCM Technologies, Inc.

Companies: ATC Healthcare Services, Inc.; Board of Education of the City of Chicago; RCM Technologies, Inc.

Cases: StateUnfairTradePractices IllinoisNews