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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND ASCO HEALTHCARE, INC., * * Plaintiff, * * v. * * HEART OF TEXAS HEALTH CARE, * AND REHABILITATION, INC., et al., * * Defendants. * ************** MEMORANDUM This is a contract dispute between a Maryland pharmaceutical company and two successive owners of certain Texas health care and rehabilitation facilities. In the fall of 2002, plaintiff ASCO Healthcare, Inc. ("ASCO") contracted with subsidiaries of Heart of Texas Health Care and Rehabilitation, Inc. (collectively, "Heart of Texas") to provide pharmaceutical products and services to six health care facilities in Texas (the "Facilities") for a term of two years. On September 17, 2003, prior to the expiration of the contracts' term, Heart of Texas signed an agreement (the "Purchase Agreement") to sell the Facilities to Defendant Sam Jewell in an armslength transaction. Under the terms of the Purchase Agreement, Heart of Texas did not purport to assign ASCO's pharmaceutical contracts to Jewell. On or about January 4, 2004, Jewell notified ASCO that the Facilities would be operating under new ownership effective February 4, 2004, and that he was not interested in assuming the pharmaceutical contracts between Heart of Texas and ASCO. In response, ASCO sued Heart of Texas for terminating the contracts prior to the expiration of their two year terms and for unpaid invoices. ASCO also sued Jewell and the Texas corporations he created in connection with the sale (the "Legacy Defendants") for breach 1

Civ. No. L-04-1419

of contract. Heart of Texas failed to answer the Complaint. On January 19, 2005, the Court entered a default judgment against Heart of Texas in the amount of $1,674,162.00.1 In order to prevail, ASCO must establish that it has the right to enforce the contracts against Jewell and/or the Legacy Defendants. ASCO concedes that these defendants did not expressly assume the pharmaceutical contracts. ASCO also does not contend that Heart of Texas's liabilities automatically followed its assets by operation of law as a result of the sale of the Facilities. Instead, ASCO predicates liability on the fact that the Legacy Defendants contractually undertook to oversee aspects of the Facilities' management during an interim period between the execution of the Purchase Agreement and the closing. During this interim period, ASCO continued to provide pharmaceuticals to the Facilities under the contract. For this reason, ASCO contends that the Legacy defendants assumed responsibility for the contracts. Jewell and the Legacy Defendants respond that (1) nothing in the record supports the finding that they assumed the ASCO contracts with Heart of Texas, and (2) they have insufficient contacts with Maryland for this Court to exercise personal jurisdiction over them. On August 23, 2004, the Legacy Defendants filed a motion to dismiss for lack of personal jurisdiction. On December 22, 2004, the Court ruled that factual gaps in the record precluded a decision on the merits. The Court permitted ASCO to take jurisdiction-related discovery of the Legacy Defendants, and denied the Legacy Defendants' motion without prejudice to refiling at the conclusion of such discovery. After more than six months of discovery and two extensions of the briefing schedule, however, the parties failed to address the inadequacies in the record. As a result, on March 31, 2006, the Court denied the Legacy

1

This judgment is ostensibly uncollectible. 2

Defendants' renewed motion and ordered the parties to proceed to full discovery on the merits of the lawsuit.2 At the conclusion of full discovery, both parties moved for summary judgment. The complete record now before the Court demonstrates no grounds for finding that the Legacy Defendants actually or impliedly assumed the ASCO pharmaceutical contracts. Because these contracts constitute the only contact the defendants are alleged to have had with Maryland, this Court lacks personal jurisdiction over the defendants. Accordingly, the Court will grant the defendants' motion and dismiss the case. I. FACTUAL BACKGROUND A. The Parties

ASCO is a Maryland corporation with its principal place of business in Baltimore, Maryland. During all times relevant to this lawsuit, ASCO provided pharmaceutical products and services to health care facilities, such as nursing homes and hospitals, across the country. The Legacy Defendants consist of six Texas corporations established by Jewell in connection with his purchase of the Facilities.3 Jewell is the sole director and sole shareholder of each of the Legacy Defendants. Heart of Texas was created when a company known as the 3927 Foundation, established in connection with a bond offering to finance the operation of the Facilities, filed for chapter 11 in October 2001. As part of the reorganization's effort to repay the 3927 Foundation's obligations under the bond offering, Heart of Texas took ownership of the Facilities and assumed
2

In light of the difficulties associated with compartmentalizing discovery, the Court ordered the parties to proceed to discovery on the merits of the claims with the understanding that such discovery would not be wasted if the case were to be litigated in another forum. 3 The Legacy Defendants are: (i) Vidor Manor, Inc.; (ii) Poteet Manor, Inc.; (iii) Mason Convalescent Care Center, Inc.; (iv) Kilgore Manor, Inc.; (v) Fort Worth Manor, Inc.; and (vi) Devine Convalescent Care Center, Inc. 3

responsibility for their operation. Pursuant to a revised Bond Indenture Agreement, Heart of Texas was to deposit all revenues generated by the Facilities' operation in a "lock box" account. The funds would then be distributed pursuant to the reorganization plan and Bond Indenture Agreement. 4 Given the complexity of this process, Drushel Management Company ("Drushel") was retained to ensure that the Facilities' revenues were channeled to the appropriate creditors. Drushel did not participate in the Facilities' day-to-day management. Instead, its role was to receive periodic disbursements from the "lock box" account in order to pay the Facilities' operating expenses. It quickly became apparent, however, that the revenue stream generated by the Facilities would never be sufficient to satisfy all obligations under the reorganization plan.  B. The Pharmaceutical Contracts

In the fall of 2002, ASCO and Heart of Texas entered into pharmaceutical contracts for each of Heart of Texas's six health care facilities.5 These contracts made ASCO the sole and exclusive provider of pharmaceutical services and supplies to the Facilities for the contract's two-year term. According to the contracts, any sale of the facilities "would not constitute grounds for the termination or modification of this Agreement."

4

Heart of Texas's current status was not briefed by the parties. There is no suggestion that Heart of Texas sought bankruptcy protection in connection with the sale of the Facilities. There is also no evidence, however, that Heart of Texas is an ongoing business entity with assets available to satisfy a judgment against it. In light of the factual record, it is likely that Heart of Texas, which was established for the sole purpose of owning and operating the Facilities, ceased to exist after it sold the Facilities to the Legacy Defendants and distributed the proceeds of this sale pursuant to the reorganization plan and the Bond Indenture Agreement. 5 The six facilities were: (i) Heart of Texas Health Care and Rehabilitation

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